Interest on Capital for Partnership Firm

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This discussion clarifies how to calculate interest on capital for a partnership firm. Experts explain that the calculation method, whether using the opening or closing capital balance, depends on the specific wording within the partnership deed. If the deed is silent on the matter, the generally accepted practice is to calculate interest on the outstanding daily balance.

Accounts & Tax Consultant

Accounts & Tax Consultant (Querist)
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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)
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09 August 2023 Yes Calculate Interest Directly from Opening Balance of Capital/closing balance of capital.

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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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.

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