Question

In case the deed provides the payment of interest on capital but does not specify the rate, the interest will be paid at the rate of ____ percent per annum.

• A. 6
• B. 5
• C. 4
• D. 7

Answer 1

The correct option is A 6

Partnership comes into existence as a result of agreement among the partners. There are various provisions affecting partnership accounts. Interest on capital is one of the provision affecting partnership account. No partner is entitled to claim any interest on the amount of capital contributed by him in the firm as a matter of right. However, interest can be allowed when it is expressly agreed to by the partners. Thus, no interest on capital is payable if the partnership deed is silent on the issue. In case the deed provides for payment of interest on capital but does not specify the rate, the interest will be paid at the rate of 6 % per annum. Further the interest is payable only out of the profits of the business and not if the firm incurs losses during the period.