Sultan and Badshah were partners sharing P & L in ratio 3 : 2. Their capitals as on 1 April, 2022 was ₹250000 and ₹200000 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 = ₹250000
Opening capital of Badshah = ₹200000
Interest on capital = 10% p.a.

Interest on Sultan capital = 250000 x 10/100
                                     = 25000

Interest on Badshah capital = 200000 x 10/100
                                        = 20000

Total interest on capital = 25000 + 20000
                                  = 45000

But available profit = 36000, So interest on capital is given by appropriating profit
Interest on capital ratio = 25000 : 20000
                                   = 5:4

Sultan interest = 36000 x 5/9
                      = 20000

Badshah interest = 36000 x 4/9
                         = 16000