Accountancy Part AAccounting for Partnership

Rate of interest on loan given by Sanjeev will be:

Read the following information to answer.

Arun and Ram are partners in a restaurant business sharing profits and losses in capital ratio. Their fixed capital from the beginning of the firm was ₹2,00,000 and ₹1,50,000 respectively.

The profit for the year ended 31 March 2022 before the appropriation of Salary and Interest on Capital was ₹2,20,000. Ram is allowed a salary of ₹2,000 per quarter, and both partners are allowed interest on capital @ 10% p.a.

Due to the further expansion of the business, they decided to admit Sanjeev as a new partner for 1/5 share in profits. It was agreed that Sanjeev will bring ₹1,00,000 as capital and ₹50,000 as his share of Goodwill. It was decided that he will give ₹1,00,000 as loan to the firm for 3 years.

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → 6% p.a.

NCERT (2026-27 edition):
Provisions of Partnership Act Relevant for Accounting – “… (d) Interest on Loan: If any partner has advanced loan to the firm for the purpose of business, he/she shall be entitled to get an interest on the loan amount at the rate of 6 per cent per annum.”