Interest on Capital for Partnership Firm

This query is : Resolved

Accounts & Tax Consultant (Querist)
Follow

08 August 2023 Respected Experts,

Kindly clarify - while Calculating the Interest on Capital of Partners from which value we need to Calculate

Example: if Interest on Capital is 12%

Do we need to Calculate Interest Directly from Opening Balance of Capital

or Closing Balances ( as shown below)

Opening Balance of Partners: XXX Cr
Add: Partners Salary Payable: XXX Cr
Add: Share of Profit Payable: XXX Cr
Less: Salary paid XXX Dr
Less: Profit Paid XXX Dr
Less: Other Drawings by partners XXX Dr
Closing Balance XXX Cr
Add: 12 % Interest on Closing Balance XXX Cr

Now do we need to Calculate Interest on Capital from the ending balance as shown above

Kindly clarify

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
Follow

09 August 2023 Yes Calculate Interest Directly from Opening Balance of Capital/closing balance of capital.

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
Follow

09 August 2023 It depends on the wordings in the clause of the partnership deed. If method of calculating interest is silent, then ,generally accepted method is, calculate on the outstanding daily balance.