Explanation:

- Interest on capital calculation: It is calculated as a percentage of the partner's fixed capital.

- Kanu’s capital: Rs 5,00,000.

- Interest rate: 10% per annum.

- Interest on Kanu’s capital: \( Rs 5,00,000 \times 10\% = Rs 50,000 \).

- Distribution of firm’s profit: The total available profit is Rs 60,000.

- After crediting interest to both partners (Rs 50,000 to Kanu), profits are insufficient to cover the full interest.

- Interest has to be proportionally reduced, due to insufficient profits.

- Calculation of reduced interest: Profit of Rs 60,000 should be distributed based on total interest availability:

- Total required interest = Rs 1,00,000 (Manu) + Rs 50,000 (Kanu).

- Available ratio = Rs 50,000 (Kanu's share of available interest out of Rs 1,50,000).

- \( Kanu's adjusted interest = (Rs 50,000 / Rs 1,50,000) \times Rs 60,000 = Rs 20,000 \).

- Correct Option:

- Option 1: Rs 20,000.

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