The interest on capital is an income of the firm. (State True or False)
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no the statement is false
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Answer:
No, the above-given statement is false.
Explanation:
The interest on capital is not an income but expense for the firm. The interest on capital is the amount paid to the proprietor or the partner for the amount of capital invested by him in the business.
The capital invested by a proprietor is treated as a liability on the firm as per the principle of the separate legal entity. This liability is removed by paying interest to the proprietor.
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