• 1 Marks

FA – Nov 2012 – L1 – SA – Q16 – Partnership Accounts

Determining when interest on partners’ capital is paid.

When duties to be carried out by each partner are of equal value but the capital contributed is unequal, it is:

A. Unreasonable to pay interest on the partners’ capital out of profit
B. Reasonable to pay interest on the partners’ current account out of profit
C. Reasonable to pay interest on the partners’ loan account out of profit
D. Unreasonable to pay interest on the partners’ current account out of profit
E. Reasonable to pay interest on the partners’ capital out of partnership profit

E. Reasonable to pay interest on the partners’ capital out of partnership profit

Explanation:
The correct answer is E because it is generally accepted in partnership accounting that partners should receive interest on their capital contributions when profits are distributed, particularly when the contributions are unequal.

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