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CSEET · Fundamentals of Accounting · Partnership and LLP Accounts

A partnership deed is silent on interest on partner's loan. Anil has lent ₹2,00,000 to the firm at the start of the year, as an advance beyond his capital. Under the default rule, what interest is the firm to allow him for the year?

The firm must allow interest at 6% per annum on a partner's loan when the deed is silent. On ₹2,00,000 this is ₹12,000 for the year. It is charged against profit, unlike interest on capital, which is not allowed by default.

  1. A₹12,000 at 6% p.a.Correct
  2. B₹10,000 at 5% p.a.
  3. C₹24,000 at 12% p.a.
  4. DNil, since the deed is silent

Explanation

The default rule allows interest at 6% p.a. on a partner's loan or advance. 2,00,000 × 6% = ₹12,000. Nil is wrong because the loan interest is allowed even when the deed is silent, unlike interest on capital.

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