Question

Interest is calculated at a given rate of interest on capital as at the _____ of the accounting year.

• A. beginning of the year
• B. ending of the year
• C. additional capital
• D. Both A & C

Answer 1

The correct option is D Both A & C

Sometimes, the proprietor may like to know the profit made by the business after providing for interest on capital. In such a situation, interest is calculated at a given rate of interest on capital as at the beginning of the accounting year. If however, any additional capital is brought during the year, the interest may also be computed on such amount from the date on which it is brought into the business. Such interest is treated as expense for the business on debit side of profit and loss account.