Question

If profit is not sufficient, then in which ratio, interest on capital is to be allowed to partners?​

Answer 1

Answer:-

If profit is not sufficient, then no interest on capital is payable.

$\sf\implies\purple{interest \: on \: capital: - }$

• The interest on capital is paid to the partners as a compensation for their capital contribution to the firm.

The interest on capital is an expense for the firm and gain for partners induvidually. Interest on Capital is to be allowed to the partners only if the partnership deed provides for it. If there is no such provision in the deed, partners have no right to claim interst on capitals. Interest on capital is generally calculated on the opening capital and credited to capital account. Interest on capital will be calculated on time basis.

The interest on capital is allowed considering 3 factors:-

• $\rm\red{ \: rate}$
• $\rm\green{ \: amount}$
• $\rm\blue{ \: period }$

It should be noted that no interest on capital is payable if the firm is working at a loss.

$\tt\implies\pink{\: interest \: on \: capital =}$

$\rm\orange{ \: capital \times \:rate/100 \times period \: remained \: in \: the \: business}$