Question

In the absence of an agreement to the contrary, the partners are :

• A. Entitled to $6\%$ p.a. interest on their capitals only when there are profits
• B. Entitled to $9\%$ p.a. interest on their capitals only when there are no profits
• C. Entitled to interest on capital at the bank rate only when there are profits
• D. Not entitled to any interest on their capitals

Answer 1

The correct option is D Not entitled to any interest on their capitals

Interest on capital is a mode of appropriation of profits to partners. Interest on capital is an income on the capital contributed by the partners. Interest on capital is calculated on time basis having regard to the introduction of fresh capital and withdrawal of capital.

Interest on capital can only be provided if there is a provision to that effect in the partnership deed. If the partnership deed is silent, then interest on capital is not allowed.