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Interest on Capital in Partnership with Losses
Fatima S
In a partnership, the capital accounts of the partners are credited with interest at the rate of 10% per annum. The partners have withdrawn their capital, but due to the losses in the business, they have not been paid interest for the last 2 years. Prepare the capital accounts of the partners, showing the treatment of the interest on capital, if applicable.
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Rahul Dubey
When a firm makes a loss, interest on capital being an appropriation of profit is not credited to the partners, even if the partnership agreement specifies a 10% annual rate. Therefore, for the last two years, since the business did not earn profits, no interest on capital will be recorded in the partners’ capital accounts. The only entries in these accounts will be for the opening balances, any withdrawals made, and the closing balances, with no entry for interest on capital during the loss-making period46.Fatima S – Thanks – Apr 18, 2025 - 16:30
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