Question

Raju and Vaid started business on 1st January, 2021 with capitals 1,20,000 and 80,000 respectively. During the year, Raju introduced 20,000 as additional capital on 1st July, 21 They both withdrew 1,000 per month for household expenses in lieu of profits. Interest on capitals is to be allowed @ 10 % per annum. Calculate the interest on capital payable to Raju and Vaid for the year ending 31st December, 2021.

Answer 1

To calculate the interest on capital payable to Raju and Vaid for the year ending 31st December 2021, we need to follow these steps:

1. Determine the average capital for each partner.
2. Calculate the interest on the average capital at the rate of 10% per annum.
3. Divide the interest equally between the partners.
4. Adjust for any additional capital introduced during the year.

Let's go through each step:

1. Average Capital for Raju:

   Raju's initial capital = Rs. 1,20,000 Additional capital introduced on July 1st, 2021 = Rs. 20,000

   Total capital = Rs. 1,20,000 + Rs. 20,000 = Rs. 1,40,000

   Average capital for Raju = (Rs. 1,40,000 + Rs. 1,20,000) / 2 = Rs. 1,30,000

2. Average Capital for Vaid:

   Vaid's initial capital = Rs. 80,000

   Average capital for Vaid = (Rs. 80,000 + Rs. 80,000) / 2 = Rs. 80,000

3. Interest Calculation:

   Rate of interest = 10% per annum

   Interest on Raju's capital = 10% of Rs. 1,30,000 = Rs. 13,000 Interest on Vaid's capital = 10% of Rs. 80,000 = Rs. 8,000

4. Adjustment for Additional Capital:

   Raju introduced Rs. 20,000 additional capital on July 1st, 2021. This capital was there for only half a year. So, we calculate interest on this additional capital for half a year.

   Interest on additional capital = 10% of Rs. 20,000 = Rs. 2,000 As it was introduced on July 1st, it's there for 6 months.

   So, interest on additional capital for half year = Rs. 2,000 / 2 = Rs. 1,000

5. Total Interest Payable to Each Partner:

   For Raju: Rs. 13,000 (interest on initial capital) + Rs. 1,000 (interest on additional capital) = Rs. 14,000 For Vaid: Rs. 8,000

Therefore, the interest on capital payable to Raju for the year ending 31st December 2021 is Rs. 14,000, and for Vaid, it's Rs. 8,000.