Question

Ridhima and Kavita were partners sharing profits and losses in the ratio of 3:2. Their fixed capitals were |1,50,000 and |2,00,000 respectively. The partnership deed provides for interest on capital @ 8% p.a. The net profit of the firm for the year ended 31st March, 2023 amounted to |21,000. The amount of interest on capital credited to the capital accounts of Ridhima and Kavita will be:

• A. rupee 12,000 and rupee 16,000 respectively.
• B. rupee 10,500 and rupee 10,500 respectively.
• C. rupee 9,000 and rupee 12,000 respectively.
• D. rupee 16,000 and rupee 5,000 respectively.

Hint:

When the profit is insufficient to pay the full interest on capital, it is distributed in the ratio of the interest entitlement of each partner.

Answer 1

The Correct Option is C

The fixed capitals of Ridhima and Kavita are rupee 1,50,000 and rupee 2,00,000 respectively. 

The partnership deed allows interest on capital at 8\% p.a. \[ \text{Interest on capital for Ridhima} = rupee 1,50,000 \times \frac{8}{100} = rupee 12,000 \] \[ \text{Interest on capital for Kavita} = rupee 2,00,000 \times \frac{8}{100} = rupee 16,000 \] 

However, the net profit of the firm is rupee 21,000, which is insufficient to fully pay the interest on capital (rupee 28,000). 

Hence, the available profit is distributed in the ratio of interest entitlements: \[ \text{Ratio of interest entitlement} = rupee 12,000 : rupee 16,000 = 3 : 4 \] \[ \text{Adjusted interest for Ridhima} = rupee 21,000 \times \frac{3}{7} = rupee 9,000 \] \[ \text{Adjusted interest for Kavita} = rupee 21,000 \times \frac{4}{7} = rupee 12,000 \]