There are two statements marked as Assertion (A) and Reason (R). Mark your answer as per the options given below.

Assertion (A):  The interest on partner's capital is allowed even when the partnership firm has earned a loss during the accounting year.
Reason (R): No interest is allowed on partners’ capitals unless it is expressly agreed among the partners.

Assertion (A) is false, and Reason (R) is true.

The correct answer is Option 4: Assertion (A) is false, and Reason (R) is true.

Assertion (A):  The interest on partner's capital is allowed even when the partnership firm has earned a loss during the accounting year. This is incorrect. The interest on capital is allowed only when the firm has earned profit during the accounting year. Hence, no interest will be allowed during the year the firm has incurred net loss and if in a year, the profit of the firm is less than the amount due to the partners as interest on capital, the payment of interest will be restricted to the amount of profits.

Reason (R): No interest is allowed on partners’ capitals unless it is expressly agreed among the partners.This is correct. No interest is allowed on partners’ capitals unless it is expressly agreed among the partners. When the Deed specifically provides for it, interest on capital is credited to the partners at the agreed rate with reference to the time period for which the capital remained in business during a financial year.