Question

Interest on capital is calculated on _____________.

• A. Opening capital
• B. Additional Capital
• C. Closing capital
• D. Both A & B

Answer 1

The correct option is D Both A & B

Interest on capital is to be calculated on the capitals at the beginning for the relevant period. If there is any additional capital introduced or capital withdrawn during the year, it will cause change in the capitals and interest is to be calculated proportionately on the changed capitals for the relevant period.

Interest on capital = Amount of capital x Rate of interest per annum x Period of interest