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CA Foundation · Accounting · Partnership and LLP Accounts

Asha and Bhaskar are partners in a firm whose partnership deed is silent on interest on capital, interest on drawings and salary. Bhaskar claims interest on his capital at 6% p.a. because he contributed more capital. Which statement is correct?

Bhaskar cannot claim interest on capital because, when the partnership deed is silent, partners have no right to interest on their capital. Such interest is payable only if the agreement provides for it, and even then usually only out of profits.

  1. ABhaskar is entitled to interest at 6% p.a. on his capital
  2. BBhaskar is not entitled to interest on capital, as it is allowed only if the deed provides for itCorrect
  3. CBhaskar is entitled to interest at 12% p.a. but only out of profits
  4. DInterest on capital is payable to Bhaskar only if the capitals are unequal, in proportion to capital

Explanation

Under the Partnership Act, 1932, partners are not entitled to interest on capital unless the agreement provides for it. Since the deed is silent, no interest is allowed. Option A and C assume an entitlement that does not exist; unequal capitals do not change this rule.

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