Question

State the two situations in which interest on Partners' Capital is generally provided.

Answer 1

Interest on capital is provided in these two situations:-

1. When there is a provision in the partnership deed for providing the interest on capital. If the partnership deed is silent or does not exist,then interest on capital contribution cannot be allowed.

2. When there is profits:- Interest on capital can only be provided for when there are profits.In case of loss,no interest on capital can be allowed even if partnership deed contains such provision.