Interest on Capital(practice paper)

 (Basics of Partnership) 

Topic : Interest on Capital

Q.1 A Partnership deed provides for the payment of interest on capital but there was a

loss instead of profit during the year 2013-14. At what rate will the interest on capital will be allowed to the partners.

Q.2 What is meant by Unlimited Liability of a Partner?

Q.3 X and Y are partners in a firm having not partnership deed. X and Y have contributed Rs.2,00,000 and Rs.4,00,000 respectively as capitals. Y wants that profit should be distributed in the ratio of capitals and interest on capital should be 10% p.a. but X does not agree to this. State giving reason who is correct in this case.

4. X and Y are partner sin a firm having no partnership deed. X desires that Y should not participate in the conduct of the firm’s business and will not get any interest on capital but Y does not agree to this. State giving reason who is correct in this case.

 

 

5. X and Y started business on 1.1.2013 with capitals of Rs.1,20,000 and Rs.80,000 respectively. During the year, A introduced Rs.20,000 to the firm as additional capital on 1.7.2013. They withdrew Rs.1,000 per month for the house expenses in lieu of profit. Interest on capital is to be allowed @ 10% per annum. Calculate the interest payable to X and Y for the year ending 31.12.2013.

6. Vinod and Kumar started business on 1st April, 2013 with capitals of Rs.5,00,000 and Rs.3,00,000 respectively. On 1st October 2013 they decided that their capitals should be 4,00,000 each. The necessary adjustment in the capitals were made by introducing or withdrawing cash. Interest on capital is allowed at 8% p.a. Calcualte the interest on Kumar’s Capital on 31st March 2014.

7. A and B are partners and they had Rs.2,00,000 and Rs.3,00,000 in their respective capital accounts as on 1st April 2013. A paid in further Rs.25,000 on I November 2013 and another Rs.25,000 on 15 Feburary 2014. Calculate the Interest on capital for A when rate of interest on capital is 6% p.a.

8. X and Y are partners sharing profit and loss in the ratio 3:2. Their capitals on 1 April 2013 were Rs.1,00,000 and Rs.80,000. On 1st July 2013 X introduced Rs.20,000 as his 

 additional capital and Y introduced Rs.2,000 only. Find out interest on capital for both the partners @ 10% p.a.

9. M and R are partners in a firm. Their capital accounts showed the balance on January 1, 2000 as Rs.40,000 and Rs.30,000 respectively. During the year, M introduced additional capital of Rs.20,000 on May 1, 2000 and R brought in further capital of Rs.30,000 on July 1, 2000. R withdrew Rs.10,000 from her capital on October 1, 2000. Interest is allowed @6% p.a. on the capitals. Calculate the interest to be paid on capital.

Q.11 X and Y are partners in a firm sharing profits equally. Their capitals on 31st March 2014 were Rs.2,40,000 and Rs.1,80,000 respectively. Drawings of the partners to the date were Rs.40,000 and Rs.60,000 respectively. Profit for the year was Rs.1,60,000. Calculate interest on capital @ 8 % p.a. for the year ended 31st March 2014.

Accountancy Challenge

                                                            Challenge : 1

Vinod and Kumar are partners sharing profits and losses in the ratio of 3:2. Their capitals were Rs.1,00,000 and Rs.50,000 respectively. Rate of Interest on capital is 10% p.a. Show the distribution of profit when:

Case 1: Partnership deed is silent as to interest on capital and profit for the year is Rs.30,000. Case 2: Partnership deed provides for interest on capital but there is loss Rs.20,000.

Case 3: Partnership deed provides for interest on capital and profit for the year is Rs.20,000. Case 4: Partnership deed provides for interest on capital and profit for the year is Rs.9,000. Case 5: Interest on capital is a charge and profit for the year is Rs.9,000.

Case 6: Interest on capital is a charge and loss for the year is Rs.5,000.

Challenge : 2

From the following Balance Sheet of Vinod and Kumar calculate interest on capital payable to Kumar @5% per annum for the year ending 31st December 2013:

 

Liabilities	Amount	Assets	Amount
Vinod’s Capital Kumar’s Capital P/L Appropriation A/c (2013)	1,00,000 80,000 40,000	Sundry Assets	2,20,000
	2,20,000		2,20,000

During the year, Kumar’s Drawings were Rs.30,000 and Profits during 2013 were Rs.60,000.

                                                                        Solution

1. No interest on capital will be allowed to partners in case of loss because interest on capital is an appropriation here. If interest on capital is treated as charge (which is not mentioned in question) then it will be given to the partners whether there is profit or loss.

2. Partners are liable for firm’s debts jointly with other partners and also individually in their own capacity. Personal assets of the partner’s can be used to pay off the firm’s debts in case if firm’s assets are less and debts are more.

3. X is correct because in the absence of partnership deed profits are to be shared equally and no interest on capital in the absence of partnership deed to any partner.

4. Y is corrent becuase in the absence of partnership deed as per the Section 12(a) of Indian Partnership Act, 1932 is applicable according to which every partner is entitled to participate in the conduct of the firm’s business but not interest on capital will be allowed to any partner becuase there is not partnership deed

5. Interest on X’s Capital Rs.13,000 and Y Rs.8,000

6. Interest on Kumar’s Capital Rs.12,000 + 16,000 = 28,000

7. Interest on A’s Capital 12,812.50

8. Interest on X’s Capital Rs.11,500 and Y’s Capital Rs.8,150

9. Interest on capital to M Rs.3,200 and R Rs.2,550

10. Interest on X’s Capital Rs.16,000 and Y Rs.12,800

Challenge-1 : Case 1: Profit to Vinod Rs.18,000 and Kumar Rs.12,000

Case 2: No interest on capital to partners; Loss to Vinod Rs.12,000; Kumar 8,000.

Case 3: Interest on capital to Vinod Rs.10,000; Kumar Rs.5,000; Profit to Vinod Rs.3,000 and Kumar Rs.2,000.

Case 4: Distribute in the ratio of Appropriation Vinod Rs.6,000; Kumar Rs.3,000.

Case 5: Interest on capital to Vinod Rs.10,000; Kumar Rs.5,000; Loss to Vinod Rs.3,600 and Kumar Rs.2,400.

Case 6: Interest on capital to Vinod Rs.10,000; Kumar Rs.5,000; Loss to Vinod Rs.12,000 and Kumar Rs.8,000.

Challenge-2 : Opening Capital = 80,000 – 10,000(profit) + 30,000 (drawings) = 1,00,000 Interest on capital = 5,000