Skip to content

CA Foundation · Accounting · Partnership and LLP Accounts

Which statement about interest on a partner's loan to the firm is correct when the deed is silent?

Interest on a partner's loan is payable at 6% p.a. when the deed is silent, and it is a charge against profit debited to the Profit and Loss Account, so it is payable even if the firm makes a loss.

  1. AIt is paid at 6% p.a. and is a charge against profit, not an appropriationCorrect
  2. BIt is paid at 12% p.a. only if profits are sufficient
  3. CIt is paid at 6% p.a. only out of profits as an appropriation
  4. DNo interest is payable on partner's loan

Explanation

Under the Partnership Act, a partner who advances money beyond his capital is entitled to interest at 6% p.a. It is a charge against profit, payable even if the firm incurs a loss, and is debited to the Profit and Loss Account, not the Appropriation Account.

Did you get it right without looking?

One question tells you little. A timed set on Partnership and LLP Accounts shows your real accuracy, how long you take and where you lose marks.

Practise Partnership and LLP AccountsFree diagnostic mock

More Partnership and LLP Accounts questions