Question

Sakshi, Kiara and Gunjan were partners in a firm sharing profits and losses in the ratio of 3:2:1. Kiara retired on 1-4-2023. After all adjustments the amount due to Kiara was Rs 5,00,000. The payment was to be made in two yearly instalments of Rs 2,50,000 each plus interest @ 10 per annum on the unpaid balance. The amount of first instalment paid on 31-03-2024 will be:

• A. Rs 3,00,000
• B. Rs 2,75,000
• C. Rs 5,50,000
• D. Rs 2,50,000

Hint:

When payments to a retiring partner are made in instalments 'plus interest on unpaid balance', each instalment payment consists of the fixed principal amount plus the interest calculated on the outstanding loan balance at the beginning of that period.

Answer 1

The Correct Option is A

To determine the first installment paid to Kiara on 31-03-2024, the following steps are performed:

1. Identify principal and interest rate: The total amount due to Kiara is Rs 5,00,000. The payment plan includes two annual installments of Rs 2,50,000 each, with an annual interest rate of 10% on the outstanding balance.

2. Calculate interest on unpaid amount: As no payment was made before 31-03-2024, interest is computed on the full unpaid balance of Rs 5,00,000.

   Interest = Principal × Rate × Time

    Interest = 5,00,000 × 0.10 × 1 = Rs 50,000

3. Add interest to the first installment: The first installment comprises the annual payment of Rs 2,50,000 plus the accrued interest.

    First installment = Annual payment + Interest

    First installment = 2,50,000 + 50,000 = Rs 3,00,000

Therefore, the first installment paid on 31-03-2024 amounts to Rs 3,00,000.