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CA Foundation · Accounting · Partnership and LLP Accounts

Rohit and Sanjay are partners sharing profits equally. Their fixed capitals are ₹4,00,000 and ₹2,00,000. The deed allows interest on capital at 10% p.a. The profit for the year before interest is ₹50,000. What is the amount of interest on capital credited to Rohit if interest is allowed only out of profits?

Rohit gets about ₹33,333. Interest due is ₹60,000 (₹40,000 and ₹20,000) but profit is only ₹50,000, so interest is limited to profit and shared in the ratio of the interest due, 2:1. Rohit's share is two-thirds of ₹50,000.

  1. A₹40,000
  2. B₹25,000
  3. C₹33,333Correct
  4. D₹50,000

Explanation

Interest due: Rohit ₹40,000, Sanjay ₹20,000, total ₹60,000, which exceeds the profit of ₹50,000. Interest is paid out of profits only, so the profit is distributed in the ratio of interest, 2:1. Rohit gets 50,000 × 2/3 = ₹33,333. Option A ignores the shortfall.

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