Partners A and B have a profit‑sharing ratio of 4:4. A new partner D is admitted with a capital of ₹30,000 and is to receive interest at 9% per annum for the 6 months before his admission. After admission the profit‑sharing ratio becomes A:D:B = 4:2:4. If the partnership makes a profit of ₹45,000 during the year of admission, determine (i) the interest payable to D and (ii) D’s share of the profit.
Answer
Interest payable = ₹1,350; D’s profit share = ₹8,730
The correct answer is Interest payable = ₹1,350; D’s profit share = ₹8,730 — Hence, interest payable is ₹1,350 and D’s profit share is ₹8,730.
Step-by-step solution
- Calculate interest on D’s capital for 6 months: ₹30,000 × 9% × (6/12) = ₹1,350.
- Subtract the interest from total profit to obtain distributable profit: ₹45,000 – ₹1,350 = ₹43,650.
- Total parts in the new profit‑sharing ratio 4:2:4 = 10 parts.
- D’s share = 2/10 × ₹43,650 = ₹8,730.
- Hence, interest payable is ₹1,350 and D’s profit share is ₹8,730.
Common mistake: Distributing profit before deducting interest payable
Concept tested: Interest on capital of new partner
Published · How this solution was prepared and checked
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