Sultan and Badshah were partners sharing P & L in ratio 3 : 2. Their capitals as on 1 April, 2022 was ₹2,50,000 and ₹2,00,000 respectively. Interest on capital was to be allowed @10% p.a. For the year ended March 31, 2023, the firm made profit of ₹36,000. Determine the amount of interest on capital to be credited to Sultan & Badshah respectively.

₹20,000 & ₹16,000 respectively

The correct answer is Option (2) - ₹20,000 & ₹16,000 respectively.

Opening capital of Sultan = ₹2,50,000
Opening capital of Badshah = ₹2,00,000
Interest on capital = 10% p.a.

Interest on Sultan capital = 2,50,000 x 10/100
                                     = 25,000

Interest on Badshah capital = 2,00,000 x 10/100
                                        = 20,000

Total interest on capital = 25,000 + 20,000
                                  = 45,000

But available profit = 36,000, So interest on capital is given by appropriating profit.
Interest on capital ratio = 25,000 : 20,000
                                   = 5:4

Sultan interest = 36,000 x 5/9
                      = 20,000

Badshah interest = 36,000 x 4/9
                         = 16,000