Question

Ridhima and Kavita were partners sharing profits and losses in the ratio of 3 : 2. Their fixed capitals were Rs.1,50,000 and Rs.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 31^st March, 2023 amounted to Rs.21,000.
The amount of interest on capital credited to the capital accounts of Ridhima and Kavita will be:

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

Hint:

When net profit is insufficient to meet interest on capital, allocate it in the proportion of the partners’ entitlement.

Answer 1

The Correct Option is C

The partnership agreement specifies an 8% p.a. interest on capital. The fixed capitals of the partners are: Ridhima: Rs.1,50,000, Kavita: Rs.2,00,000. Step 1: Calculate the total interest on capital entitlement: Ridhima's Interest: \( Rs.1,50,000 \times \frac{8}{100} = Rs.12,000. \) Kavita's Interest: \( Rs.2,00,000 \times \frac{8}{100} = Rs.16,000. \) Total entitlement for interest on capital: \( Rs.12,000 + Rs.16,000 = Rs.28,000. \) Step 2: Allocate available profit proportionately: The firm's total profit is Rs.21,000, which is less than the total entitlement of Rs.28,000. The available profit will be distributed based on the ratio of interest entitlements: Ratio of Interest Entitlement: \( 12 : 16 = 3 : 4. \) Ridhima's Share: \( Rs.21,000 \times \frac{3}{7} = Rs.9,000. \) Kavita's Share: \( Rs.21,000 \times \frac{4}{7} = Rs.12,000. \) Conclusion: The interest on capital credited to Ridhima's and Kavita's capital accounts is Rs.9,000 and Rs.12,000, respectively.