Question

A and B entered into partnership by investing their own money in ratio of 1 : 2. Y invests in their business by acting as angel investor and his investment was 25% of the total investment. According to the MOU signed by A and B they will give 10% of profit earned to the angel investor and will divide the rest according to the capital invested by them. If the business earned Rs. 200,000 at the end of year 1 calculate the capital investment by A if profit earned is 20% of total investment made, also find the difference between profit share of B and A by assuming 25% of earnings as expenditure. 

1. Rs. 175,500, Rs. 65,000
2. Rs. 150,000, Rs. 75,000
3. Rs. 225,000, Rs. 55,000
4. Rs. 187,500, Rs. 45,000
5. None of the above

Answer 1

Correct Answer - Option 4 : Rs. 187,500, Rs. 45,000

Given:

Expenditure = 25%

Earnings = Rs. 200,000

Y = 10% of profit earned

A : B = 1 : 2 (Capital invested)

Profit gain = 20%

Angel investor = 25% of total investment

Formula used:

Profit earned in Rs = Profit earned in % × investment

Earnings – Expenditure = Profit earned

Calculation:

Profit earned = 200,000 (1 – 0.25)

⇒ Profit earned = Rs. 150,000

⇒ 10% to angel investor = 15000

⇒ Difference between B’s share and A’s share = (2 × 135000/ 3) – (135000/ 3) (∵ 150000 – 15000 = 135000)

⇒ Difference between B’s share and A’s share = 45000

⇒ Total investment = 150,000/ 0.20

⇒ Total investment = Rs. 750,000

⇒ Angel investor’s investment = 750000 × 25/ 100

⇒ Angel investor’s investment = 187,500

⇒ Remaining investment = 750000 – 187500

⇒ Remaining investment = 562500

⇒ Capital investment by A = 562500 × 1/ 3

⇒ Capital investment by A = 187500

∴ Capital investment by A is Rs. 187500, Difference between B’s share and A’s share is 45000