Partnership

Accounting

Medium

X and Y are partners sharing profits in the ratio 3:2. Capital introduced by X and Y is ₹ 1,00,000 and ₹ 5,00,000 respectively. Interest on capital is allowed to partners @ 10%p.a. Profit of the firm for the year ending March 31st, 2025 is ₹ 30,000. Calculate Interest on Capital to be allowed to the partners.

20,000 ; 10,000

18,000 ; 12,000

5,000 ; 25,000

12,000 ; 18,000

✅ Correct Option: 3

Interest on capital calculated at 10% p.a.:

X's Capital: ₹1,00,000 × 10/100 = ₹10,000

Y's Capital: ₹5,00,000 × 10/100 = ₹50,000

Total Interest on Capital = ₹10,000 + ₹50,000 = ₹60,000

Since the total interest on capital (₹60,000) exceeds the available profit (₹30,000), the profit is insufficient to pay full interest.

When profit is insufficient, the available profit must be distributed as interest on capital in the ratio of interest entitlement, not in the profit-sharing ratio.

Ratio of interest entitlement = 10,000 : 50,000 = 1 : 5

Distribution of ₹30,000 in the ratio 1:5:

Sum of ratio = 1 + 5 = 6

Interest on Capital allowed to X = 30,000 × $\frac{1}{6}$ = ₹5,000

Interest on Capital allowed to Y = 30,000 × $\frac{5}{6}$ = ₹25,000

The key point here is that when profits are inadequate to cover the full interest on capital, partners receive interest proportionate to their interest entitlement, not their profit-sharing ratio. This ensures fair distribution based on the capital contributed by each partner.

2025: 13 May Shift 2

Which section of the Partnership Act 1932, defines partnership?

2026: 23 May Shift 2

Select the correct options from the following in case there is no partnership deed:

A. Profit and losses of the firm are shared equally.

B. Interest on capital is to be paid at the rate of 6 percent per annum.

C. Interest on the partner's loan is to be paid at the rate of 6 percent per annum.

D. No interest is to be charged on the drawings made by the partners.

Choose the correct answer from the options given below:

2022: 16 July Shift 2

A firm which maintains fixed capital had two partners Vimla and Kamla sharing profits in the ratio 1:1 The firm credited the partners with profit without interest on Capital which is allowed in the deed. Choose the correct option to pass a journal entry for the past adjustment if the Interest on capital Rs.2000 for Vimla Rs.3000 for Kamla

2026: 29 May Shift 2

Aveer, Daksh and Kridha are equal partners. They decided to change the profit sharing ratio to 4:3:2. For this purpose, goodwill of the firm was valued at Rs. 90,000. The journal entry for treatment of goodwill on change in profit sharing ratio will be:

2022: 16 July Shift 2

Choose the correct sequence of financial statements prepared for a partnership firm at the end of a financial year.

A. Capital Accounts

B. Profit and Loss A/c

C. Profit and Loss Adjustment A/c

D. Balance Sheet

Choose the correct answer from the options given below:

2026: 6 June Shift 1

Deepti, Vinay and Himani are partners in a firm sharing profits and losses in the ratio of 3:3:2. They decided to share the profits equally w.e.f. April 01, 2025. Firm's Goodwill is Rs. 90,000. What is the share of each of the sacrificing partner to be recieved from the gaining partner?

Solution

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