Question

Shruti and Vandna were partners. Their capitals as on 1st April 2023 were ₹ 3,00,000 and ₹ 2,00,000, respectively. Interest on capital is to be allowed @ 8% p.a. as a charge. On 1st November 2023, Shruti advanced ₹ 2,00,000 as a loan to the firm, and on the same date, the firm advanced a loan of ₹ 80,000 to Vandna. Both the loans were without an agreement. The loss for the year ending 31st March, 2024, before allowing and charging interest on the loan, was ₹ 35,000.

Based on the above information, choose the correct answer:

Interest on capital ______.

Options

• Will be allowed debiting profit and loss appropriation A/c.

• Will be allowed debiting profit and loss A/c.

• Will be allowed @ 6% p.a. debiting profit and loss A/c.

• Will not be allowed because the firm has incurred a loss during the year.

Answer 1

Interest on capital will be allowed debiting profit and loss A/c.

Explanation:

As interest on capital is mentioned as a charge in this question, it will be allowed even if the firm has incurred a loss.