Question

Mike and Ken were two partners sharing profits and losses in the ratio 4 : 3. Ken was in need of funds, so he took a loan of ₹ 50,000 from the firm at an agreed rate of interest being 10% p.a. If Interest is charged on loan to the partner it will be ______.

Options

• Debited to Profit and Loss A/c

• Credited to Profit and Loss A/c

• Debited to Profit and Loss Appropriation A/c

• Credited to Profit and Loss Appropriation A/c

Answer 1

Mike and Ken were two partners sharing profits and losses in the ratio 4 : 3. Ken was in need of funds, so he took a loan of ₹ 50,000 from the firm at an agreed rate of interest being 10% p.a. If Interest is charged on loan to the partner it will be credited to profit and loss A/c.

Explanation:

When a partner takes a loan from the firm, the interest on the loan is considered an income for the firm, which is then credited to the Profit and Loss Account. This treatment reflects that the firm is earning income through the interest charged on the loan to the partner, and this income is not part of the profit-sharing arrangement.