Q.R's capital account showed an opening balance of ₹1,00,000 on 1 April 2025. On 1 October 2025, R introduced additional capital of ₹40,000. Interest on capital is allowed at 12% per annum, and the accounting year closes on 31 March 2026. Calculate the interest on capital payable to R for the year.

Interest must be computed separately on the ₹1,00,000 held for the first six months and on the higher ₹1,40,000 balance held for the remaining six months.

Step 1 — Identify the two distinct capital-holding periods. From 1 April 2025 to 30 September 2025 (6 months), R's capital stood at ₹1,00,000. From 1 October 2025 to 31 March 2026 (6 months), after the additional ₹40,000 was introduced, R's capital stood at ₹1,40,000.

Step 2 — Compute interest for each period separately.

Period 1: ₹1,00,000 × 12% × 6/12 = ₹6,000.

Period 2: ₹1,40,000 × 12% × 6/12 = ₹8,400.

Step 3 — Total interest on capital. ₹6,000 + ₹8,400 = ₹14,400. …

Alternative method: compute interest on the original capital for the full year, then add interest on the additional capital only for the period it was actually held — this splits …

The most common error is applying the 12% rate to the CLOSING balance of ₹1,40,000 for the entire year, ignoring that the additional ₹40,000 was only introduced halfw …