A and B contribute ₹ 4,00,000 and ₹ 3,00,000 respectively as their capitals. They decided to allow interest on capital @ 8% p.a. Their respective share of profit is 3 : 2

A and B contribute ₹ 4,00,000 and ₹ 3,00,000 respectively as their capitals. They decided to allow interest on capital @ 8% p.a. Their respective share of profit is 3 : 2 and the profit for the year is ₹ 42,000 before allowing for interest on capitals. Show the distribution of profits (i) Where there is no agreement except for interest on capitals, and (ii) Where there is a clear agreement that the interest on capitals will be allowed even if it involves the firm in loss.

[Ans. In first case, Interest on Capital A ₹ 24,000 and B ₹ 18,000. In Second case, Loss A ₹ 8,400 and B ₹ 5,600.]