Question

Neeru and Meetu are partners in a firm with capitals of ₹ 2,00,000 and ₹ 1,50,000 respectively. If the firm earned a profit of ₹ 17,500 for the year ended 31st March 2023, then interest on capital @ 10% p.a. would be:

• A. Neeru ₹ 15,000; Meetu ₹ 20,000
• B. Neeru ₹ 8,750; Meetu ₹ 8,750
• C. Neeru ₹ 20,000; Meetu ₹ 15,000
• D. Neeru ₹ 10,000; Meetu ₹ 7,500

Hint:

When the profit is insufficient to pay the full interest on capital, distribute the profit in the ratio of capitals.

Answer 1

The Correct Option is D

The interest on capital (IOC) is calculated at the rate of \( 10% \) p.a. on the capital contributions of Neeru and Meetu. \[ \text{IOC (Neeru)} = \frac{10}{100} \times 2,00,000 = ₹ 20,000 \] \[ \text{IOC (Meetu)} = \frac{10}{100} \times 1,50,000 = ₹ 15,000 \] The total interest exceeds the available profit of ₹ 17,500. Therefore, the interest will be adjusted in the ratio of their capitals, which is \( 2,00,000 : 1,50,000 = 4:3 \). \[ \text{Adjusted IOC (Neeru)} = \frac{4}{7} \times 17,500 = ₹ 10,000 \] \[ \text{Adjusted IOC (Meetu)} = \frac{3}{7} \times 17,500 = ₹ 7,500 \] Hence, the correct answer is (D) Neeru ₹ 10,000; Meetu ₹ 7,500.