READ THE FOLLOWING INFORMATION AND ANSWER THE FOLLOWING QUESTIONS-

Aman and Raghav were in partnership. On 1st April, 2020 they had Capitals of ₹5,00,000 and ₹3,00,000 respectively, General Reserve existed in the Balance Sheet at ₹50,000 and also Profit and Loss Account(Credit) of ₹1,00,000. On 1st October 2020, Aman advanced ₹1,00,000 for Loan to the firm and on the same date, the firm advanced loan ₹50,000 to Raghav. Both the loans were without any agreement. Interest on Capital is to be allowed @ 5%p.a. as a charge. Manager's Commission ₹20,000 was not yet allowed. Loss for the year before allowing and charging interest on loans was ₹50,000.

Where will interest on capital is showed in final accounts of the partnership firm?

Profit & loss A/c

The correct answer is option 1 i.e. Profit & loss A/c.

Interest on capital is a charge against profit. So, it is charged to profit and loss account.