Question

Sakshi, Kiara and Gunjan were partners in a firm sharing profits and losses in the ratio of 3:2:1. Kiara retired on 1-4-2023. After all adjustments the amount due to Kiara was Rs 5,00,000. The payment was to be made in two yearly instalments of Rs 2,50,000 each plus interest @ 10 per annum on the unpaid balance. The amount of first instalment paid on 31-03-2024 will be:

• A. Rs 3,00,000
• B. Rs 2,75,000
• C. Rs 5,50,000
• D. Rs 2,50,000

Hint:

When payments to a retiring partner are made in instalments 'plus interest on unpaid balance', each instalment payment consists of the fixed principal amount plus the interest calculated on the outstanding loan balance at the beginning of that period.

Answer 1

The Correct Option is A

To determine the first installment paid to Kiara on 31-03-2024, we will follow these steps:

1. Identify the principal amount and interest rate: The total amount due to Kiara is Rs 5,00,000. The payment plan consists of two yearly installments of Rs 2,50,000 each, with an interest rate of 10% per annum on the unpaid balance.

2. Calculate interest on the unpaid amount: Since no payment has been made before 31-03-2024, interest is calculated on the entire unpaid balance of Rs 5,00,000.

    Interest = Principal × Rate × Time

    Interest = 5,00,000 × 0.10 × 1 = Rs 50,000

3. Add the interest to the first installment payment: The first installment comprises the yearly payment of Rs 2,50,000 plus the interest accrued.

    First installment = Yearly payment + Interest

    First installment = 2,50,000 + 50,000 = Rs 3,00,000

Thus, the amount of the first installment paid on 31-03-2024 is Rs 3,00,000.

Answer 2

Amount due to Kiara on retirement (1-4-2023) = Rs 5,00,000. Payment schedule: Two yearly instalments of Rs 2,50,000 each, plus interest @ 10% p.a. on the unpaid balance. The first instalment is paid on 31-03-2024 (one year after retirement). 

1. Calculate Interest for the first year (1-4-2023 to 31-03-2024): 
Interest is calculated on the outstanding balance at the beginning of the year. Outstanding Balance on 1-4-2023 = Rs 5,00,000. Interest for Year 1 = Outstanding Balance \( \times \) Rate \( \times \) Time \[ \text{Interest}_1 = 5,00,000 \times \frac{10}{100} \times 1 = Rs 50,000 \] 

2. Calculate the total amount of the first instalment: 
First Instalment = Principal Amount + Interest for Year 1 \[ \text{First Instalment} = 2,50,000 + 50,000 = Rs 3,00,000 \] This payment is made on 31-03-2024.