Ram and Laxman started business on 1st Jan 2020 with a capital of ₹1,20,000 and ₹80,000 respectively. Ram Introduced ₹50,000 to the firm on 1st July 2020 as additional capital. If the rate of interest is 15% p.a. Assuming that accounts are closed as per calender year then the Interest payable to Ram on Capital would be:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Rs. 21,750
Interest on capital is calculated on each amount for the time it stayed in the business. The accounts close on 31st December, so the opening capital earns interest for the full year and the additional capital brought in on 1st July only for the remaining 6 months.
On opening capital = Rs. 1,20,000 × 15/100 = Rs. 18,000
On additional capital = Rs. 50,000 × 15/100 × 6/12 = Rs. 3,750
Interest payable to Ram = Rs. 18,000 + Rs. 3,750 = Rs. 21,750
Charging the additional Rs. 50,000 for a full year would give Rs. 25,500, and ignoring it would give Rs. 18,000; both are among the options.