Following is the extract of the Balance Sheet of, Neelkant and Mahdev as on March 31, 2013:
Balance Sheet as at March 31, 2013
Amount
Amount
Liabilities
Rs
Assets
Rs
Neelkant’s Capital
10,00,000
Sundry Assets
30,00,000
Mahadev’s Capital
10,00,000
Neelkant’s Current Account
1,00,000
Mahadev’s Current Account
1,00,000
Profit and Loss Apprpriation
(March 2007*)
8,00,000
30,00,000
30,00,000
During the year Mahadev’s drawings were Rs 30,000. Profits during 2013 is Rs 10,00,000. Calculate interest on capital @ 5% p.a for the year ending March 31, 2013.
* As per the question, this year should be March 2013
Following is the extract of the Balance Sheet of, Neelkant and Mahdev as on March 31, 2013:
| Balance Sheet as at March 31, 2013
| |||
|
| Amount |
| Amount |
| Liabilities | Rs | Assets | Rs |
| Neelkant’s Capital | 10,00,000 | Sundry Assets | 30,00,000 |
| Mahadev’s Capital | 10,00,000 |
|
|
| Neelkant’s Current Account | 1,00,000 |
|
|
| Mahadev’s Current Account | 1,00,000 |
|
|
| Profit and Loss Apprpriation |
|
|
|
| (March 2007*) | 8,00,000 |
|
|
|
| 30,00,000 |
| 30,00,000 |
|
|
|
|
|
During the year Mahadev’s drawings were Rs 30,000. Profits during 2013 is Rs 10,00,000. Calculate interest on capital @ 5% p.a for the year ending March 31, 2013.
* As per the question, this year should be March 2013
Interest on Capital
| Neelkant’s | 10,00,000 × = Rs 50,000 |
| Mahadev’s | 10,00,000 × = Rs 50,000 |
Note: In this question, as the balances of both Partner's Capital Account and of Partner's Current Account are mentioned, so it has been assumed that the capital of the partners is fixed.
As we know, when the capital of the partners is fixed, drawings and interest on capital does not affect the capital balances of the partners. Rather, it would affect their current account balances. Therefore, in this case, capital at the beginning (i.e. opening capital) and capital at the end (i.e. closing capital) of the year would remain same. Thus, the interest on capital is calculated on fixed capital balances (given in the Balance Sheet of the question).