Read the following passage and answer the following question.
Shivay and Nitya are partners sharing profits and losses in the ratio of 7: 3. Their Capital Accounts as on 1st April, 2021 stood at Shivay- 5,00,000, Nitya- 4,00,000. Both partners are allowed interest on capital @ 5% p.a. Drawings of Shivay and Nitya during the year ended 31st March, 2022 were ₹72,000 and ₹50,000 respectively. Profit for the year before allowing interest on capital and salary to Nitya @6000 per month amounted to ₹8,00,000. 10% of the divisible profit is to be set aside as General Reserve.
How much profit is left with the partnership firm that will be transferred to partners in their profit-sharing ratio?
Answer & explanation
Correct answer: option 4
The correct answer is option 4- ₹6,14,700.
Profit is ₹8,00,000
Interest on capital is 5%p.a.
Partner's capital = 5,00,000 + 4,00,000
= 9,00,000
Interest = 9,00,000 x 5/100
= ₹45,000
Salary to Nitya = 6,000 x 12
= ₹72,000
Profit after interest and salary = 8,00,000 - 45,000 - 72,000
= 6,83,000
10% is transferred to general reserve = 6,83,000 x 10/100
= ₹68,300
Profit distributed between partners = 6,83,000 - 68,300
= ₹6,14,700