A partnership deed is silent about interest on partners' capital. Under the usual legal rule, which treatment applies?
Correct answer: C. Interest is not allowed on capital
- A. Interest is allowed at 6% annually
- B. Interest is allowed at the bank rate
- C. Interest is not allowed on capital
- D. Interest is allowed at 10% annually
Explanation
When the agreement is silent, a partner is not entitled to interest on capital merely because capital has been invested. Interest may be allowed only when the partnership agreement or applicable law provides for it. The fixed rates in the other options do not apply automatically.
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About Partnership Accounts
Partnership accounts cover the partnership agreement, capital and current accounts, profit and loss appropriation, salaries, interest on capital, interest on drawings and profit-sharing ratios. They also address changes in partnership, including admission, retirement, goodwill, revaluation, dissolution and the settlement of partners’ balances.
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