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CMA Intermediate · Financial Accounting · Death of Partner

On the death of a partner, Rs 2,40,000 is found due to the executors. The firm pays Rs 90,000 at once and transfers the balance to the Executor's Loan Account, with interest at 6% p.a. How much interest is payable on the balance for 8 months?

The interest is Rs 6,000. Only the unpaid balance of Rs 1,50,000 stays in the Executor's Loan Account, and interest on it at 6% for 8 months is Rs 1,50,000 x 6% x 8/12 = Rs 6,000.

  1. ARs 6,000Correct
  2. BRs 9,000
  3. CRs 9,600
  4. DRs 4,500

Explanation

The balance transferred to the loan account is 2,40,000 - 90,000 = Rs 1,50,000. Interest for 8 months is 1,50,000 x 6% x 8/12 = Rs 6,000. Rs 9,600 wrongly charges interest on the full Rs 2,40,000, ignoring the part paid at once.

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