Following is the extract of the Balance Sheet of Neelkant and Mahadev as on 31st March, 2019. Balance sheet as at 31st March, 2019

Liabilities Rs. Assets Rs.
 Neelkant’s Capital10,00,000 Sundry Assets30,00,000
 Mahadev’s Capital10,00,000   
 Neelkant’s Current A/c1,00,000  
 Mahadev’ Current A/c1,00,000  
Profit and Loss Appropriation A/c (2018-19)8,00,000  
 30,00,000 30,00,000

During the year, Mahadev’s drawings were Rs. 30,000. Profits during the year ended 31st March, 2019 is Rs. 10,00,000. Calculate interest on capital @ 5% p.a. for the year ending 31st March, 2019.


Interest on Capital

Neelkant’s= 10,00,000×5/100=50,000
Mahadev’s= 10,00,000×5/100=50,000

Note: In this question, as the balances of both Partner’s Capital Account and of Partner’s Current Account are mentioned, so it is clear that the capital of the partners is fixed.
As we know, when the capital of the partners is fixed, drawings and interest on capital does not affect the capital balances of the partners. Rather, it would affect their current account balances. Therefore, in this case, capital at the beginning (i.e., opening capital) and capital at the end (i.e., closing capital) of the year would remain same. Thus, the interest on capital is calculated on fixed capital balances (given in the Balance Sheet of the question).

Leave a Reply