How is interest on capital calculated when there are both additions and withdrawals of capital by the partners during a financial year?
Answer & explanation
Correct answer: option 4
Interest on capital is calculated according to the time period it remains in the business of the partnership firm.
On the opening balance of the capital accounts- Calculated for the whole year.
On the additional capital- Calculated from the date of introduction to the last day of the financial year.
On the reduced capital- Calculated for the remaining time period.