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What is Interest on Capital?- Here you go!

Interest is allowed to every partner depending on the amount of capital that he contributes. For partners, Interest on capital is calculated for a specific time for which the capital has been used for business operations. The amount of capital withdrawn or introduced by a partner during a specific accounting year needs to be considered for calculation purpose. Know about some points related to the interest on the capital of a partner. Our writers are experts in all these spheres.

  • Interest on capital is the expense to a company, which is debited to the account for profit and loss appropriation.
  • If the profit prior to the interest is lower than the interest over the capital amount, there is distribution of profit in the ratio of capital that is contributed by every partner.
  • The interest is payable to firm partners. Naturally, the amount of interest is credited to the capital account of the partner.
  • There will not be any allowing of interest on capital if there is a loss.
  • In case of a silent partnership agreement, there will not be any interest on capital allowed.

The return that is received from funds investment in fixed capital goods can be smaller or larger than the interest rate that is paid on borrowed funds. A profit and loss appropriation account has to be prepared in order to show how profit will be distributed among the partners. Let us help you with any custom paper on Interest on Capital!

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