Question : A and B are equal partners with capitals of Rs.2,00,000 and Rs.1,00,000 respectively. As per deed, they are allowed an interest @ 8% p.a. on capital. During the year, the firm earned a profit of Rs.12,000. Interest on capital allowed to A and B will be:
Option 1: Rs.16,000 and Rs.8.000 respectively
Option 2: Rs.8,000 and Rs.4,000 respectively
Option 3: Nil
Option 4: Rs.6,000 each
Correct Answer: Rs.8,000 and Rs.4,000 respectively
Solution : Interest on A's capital = Rs.2,00,000 X 8% = Rs.16,000 Interest on B's capital = Rs.1,00,000 X 8% = Rs.8,000 Total appropriation = Rs.16,000 + Rs.8,000 = Rs.24,000 which is more than profit Rs.12,000 Since profit available is only Rs.12,000 therefore, maximum interest can be distributed is12,000 in the ratio of interest calculated above i.e. 16,000 : 8,000 = 2:1
A's interest on capital = Rs.12,000 X 2/3 = Rs.8,000 B's interest on capital = Rs.12,000 X 1/3 = Rs.4,000 Hence, the correct option is 2.
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