Question

P and Q are partners with profit sharing ratio of 2 : 3 with fixed capitals of ₹ 5,00,000 and ₹ 8,00,000 respectively. On 1st June 2023, P and Q granted loans of ₹ 2,00,000 and ₹ 1,00,000 respectively to the firm. Books of the firm are closed on 31st March 2024.

You are required to answer the following question:

Interest on Loan by Partner P ______.

Options

• Is an appropriation of Profit

• Is a charge against Profit

• Will be Debited to Profit & Loss Account

• Will be Debited to Profit & Loss Appropriation Account

Answer 1

Interest on Loan by Partner P is a charge against Profit and will be Debited to Profit & Loss Account.

Explanation:

Since interest on a partner's loan is a charge against profits, it will be deducted from the profit and loss account.