CA FOUNDATION: ACCOUNTING · PARTNERSHIP ACCOUNTS

Interest on partners’ capital

Interest on capital (when the deed allows) = Capital × Rate × Period. Additional capital earns interest only from the date it is introduced.

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Worked examples

Example 1 · level 1

The deed of Patel Brothers allows interest on capital @ 9% p.a. Pooja’s capital throughout the year was ₹8,40,000. Find the interest on Pooja’s capital for the year.

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Interest = ₹8,40,000 × 9/100 = ₹75,600.

Answer: ₹75,600

Example 2 · level 2

Ravi joined Mehta Enterprises on 1 June with capital of ₹6,30,000. Interest on capital is allowed @ 6% p.a. Find the interest for the year ending 31 March.

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Annual interest = ₹37,800.
For 10 months: × 10/12 = ₹31,500.

Answer: ₹31,500

Example 3 · level 3

Ravi’s capital on 1 April was ₹6,10,000. Ravi introduced additional capital of ₹2,40,000 on 1 July. Interest on capital @ 9% p.a. is allowed by the deed. Find total interest on capital for the year ending 31 March.

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On opening capital: ₹6,10,000 × 9% = ₹54,900.
On additional capital: ₹2,40,000 × 9% × 9/12 = ₹16,200.
Total = ₹71,100.

Answer: ₹71,100