Question

Anurag and Abhishek are partners sharing profits and losses in the ratio of 3:2. Their capital accounts showed balances of Rs. 50,000 and Rs. 2,00,000 respectively on Jan 01, 2003. Show the treatment of interest on capital for the year ending December 31, 2019, in the following statement.

"If partnership deed provides for interest on capital @8% p.a. and the firm incurred a loss of Rs. 10, 000 during the year".

Options

• No interest will be paid on the capital to the partners & loss will however be shared by the partners in their profit sharing ratio.

• Interest will be paid on the capital to the partners & loss will however be shared by the partners in their capital ratio.

• The loss will not be shared by the partners in their capital ratio.

• None of the above

Answer 1

No interest will be paid on the capital to the partners & loss will however be shared by the partners in their profit sharing ratio.

Explanation:

No interest on capital will be paid to any partners because the firm lost money throughout the accounting year. The partners' profit sharing ratio will be used to share the firm's loss.