Question

A Partnership deed provides for the payments of interest on Capital but there was a loss instead of profit during the year 2010-2011. At what rate will the interest on capital be allowed?

Answer 1

If partnership deed provides for interest on capital as appropriation out of profits, then in case of loss no interest is allowed to the partners. However, if the deed provides for treatment of interest on capital as a charge, then interest has to be provided at the mentioned rate, even if the firm incurred losses during the year.