If a partnership agreement is silent about interest on drawings, what treatment generally applies under the Partnership Act?
Correct answer: C. No interest is charged on drawings
- A. Interest is charged at 6% per year
- B. Interest is charged at the firm’s lending rate
- C. No interest is charged on drawings
- D. Interest is fixed by the managing partner
Explanation
Interest on drawings is charged only when the partnership agreement provides for it. Therefore, no interest is charged when the agreement is silent, unlike interest on a partner’s loan to the firm.
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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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