Question

Rohit, Mohit and Sandeep were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. On 1st April, 2020, Rohit retired. On the date of retirement ₹ 6,00,000 were due to him. Mohit and Sandeep agreed to pay Rohit in four equal yearly instalments plus interest @ 9% p.a. on the unpaid balance starting from 31st March, 2021. The firm closes its books on 31st March every year.
Prepare Rohit’s Loan Account till it is fully paid.

Hint:

In retirement cases with interest, use reducing balance method and apply interest before deducting each instalment.

Answer 1

Step 1: Key Details –
Amount due to Rohit = ₹ 6,00,000
Instalments = 4 equal yearly instalments = ₹ 1,50,000 per year
Interest = 9% p.a. on reducing balance
Payment starts from: 31st March, 2021

Step 2: Rohit's Loan Account

 

Date	Particulars	Amount (₹)	Date	Particulars	Amount (₹)
2021 Mar 31	Interest A/c	54,000	2021 Mar 31	Bank A/c	1,50,000
				Balance c/d	5,04,000
2022 Mar 31	Interest A/c	45,360	2022 Mar 31	Bank A/c	1,50,000
				Balance c/d	3,99,360
2023 Mar 31	Interest A/c	35,942	2023 Mar 31	Bank A/c	1,50,000
				Balance c/d	2,85,302
2024 Mar 31	Interest A/c	25,677	2024 Mar 31	Bank A/c	3,10,979

Calculation Breakdown:
Year 1 interest = 9% of ₹6,00,000 = ₹54,000
Year 2 interest = 9% of ₹5,04,000 = ₹45,360
Year 3 interest = 9% of ₹3,99,360 = ₹35,942
Year 4 interest = 9% of ₹2,85,302 = ₹25,677
Final payment = Principal + Last year’s interest = ₹2,85,302 + ₹25,677 = ₹3,10,979