Partnership between D and E with capital ₹70,000 and ₹100,000 respectively, profit share 1:1. After 5 years, they admit new partner F with ₹20,000 capital. Partners agree that F will receive interest at 8% per annum on his capital for the period he is admitted, and profit share ratio will be 2:1:1 (D:E:F). Compute (i) interest payable to F, and (ii) profit share of each partner after admission.
Answer
Interest payable to F is ₹8,000. Profit share: D gets 50% of profit, E gets 25% of profit, F gets 25% of profit.
The correct answer is Interest payable to F is ₹8,000. Profit share: D gets 50% of profit, E gets 25% of profit, F gets 25% of profit. — F’s share = 1/4 = 25% of profit.
Step-by-step solution
- Interest on F’s capital: ₹20,000 × 8% × 5 years = ₹8,000.
- Total profit shares after admission = 2+1+1 = 4 parts.
- D’s share = 2/4 = 50% of profit.
- E’s share = 1/4 = 25% of profit.
- F’s share = 1/4 = 25% of profit.
Common mistake: Applying interest for only one year instead of the whole admission period
Concept tested: Interest on capital and new profit share ratio
Published · How this solution was prepared and checked
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