Interest on capital is allowed at 10% per annum. Partner W's capital changed during the year as shown. Date Event Capital balance $ 1 January Opening balanc...
Question 1 Report
Interest on capital is allowed at 10% per annum. Partner W's capital changed during the year as shown.
| Date | Event | Capital balance $ |
|---|---|---|
| 1 January | Opening balance | 60 000 |
| 1 July | Additional capital introduced | 80 000 |
Answer Details
The correct answer is $7 000.
Interest on capital must be calculated for each period at the rate the capital was held:
1 January to 30 June (6 months): $60 000 x 10% x 6/12 = $3 000
1 July to 31 December (6 months): $80 000 x 10% x 6/12 = $4 000
Total interest on capital = $3 000 + $4 000 = $7 000
The option $8 000 incorrectly applies 10% to $80 000 for the full year. The option $6 000 incorrectly applies 10% to $60 000 for the full year. The option $4 000 only calculates the second half of the year.
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