X and Y are partners sharing profits in the ratio 3:2. Capital introduced by X and Y is 1,00,000 and 5,00,000 respectively. Interest on capital is allowed to partners @ 10%p.a. Profit of the firm for the year ending March 31st, 2025 is 30,000. Calculate Interest on Capital to be allowed to the partners.
Answer & explanation
Correct answer: option 3
The correct answer is option 3- 5,000; 25,000.
Capital introduced by X and Y is 1,00,000 and 5,00,000 respectively.
Interest on capital is allowed to partners @ 10%p.a.
Interest on X's capital = 1,00,000 x 10/100
= 10,000
Interest on Y's capital = 5,00,000 x 10/100
= 50,000
Total interest = 10,000 + 50,000
= 60,000
Profit available = 30,000
So, interest on capital is provided according to profit. Appropriation of interest is done.
Appropriation ratio = 10,000 : 50,000
= 1:5
X's interest = 30,000 x 1/6
= 5,000
Y's interest = 30,000 x 5/6
= 25,000
Thus, X will get 5,000 and Y will get 25,000 as interest on capital.