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

Ridhima and Kavita's fixed capitals are ₹1,50,000 and ₹2,00,000 respectively.

The partnership deed mandates 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 firm's net profit is ₹21,000, which is insufficient to cover the total interest on capital (₹28,000).

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