Question

5) What is the interest on partners capital for a partner?
(A) An expense
(B) Liability
(C) An income
(D) Loss​

Answer 1

Answer:

(C) An income

Explanation:

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Answer 2

The interest in partners' capital for a partner is an income.

• In a partnership firm, partners invest capital into the business, and in return, they are entitled to a share of the profits.
• The partnership agreement may specify that partners are entitled to receive interest on their capital contributions.
• This interest is considered an income for the partner and is calculated as a percentage of the partner's capital balance in the firm.
• The interest on the partner's capital is not an expense as it does not represent a cost incurred by the business.
• Instead, it is a payment made to the partner for the use of their capital. It is not a liability either since the partner is entitled to receive this payment, and it does not represent an obligation or debt of the firm.
• Finally, it is not a loss since it represents income earned by the partner and not a reduction in the value of the firm's assets.

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