If interest on partners loan is payable as per the deed, how will it be treated in the Profit and Loss Account?

Correct answer: Debited as expense

Interest on a partner’s loan is a cost incurred by the firm for using money lent by that partner. It is different from interest on capital, which is generally an appropriation of profit according to the partnership agreement. Loan interest is treated like other business expenses because the firm has to pay it before deciding how the remaining profit will be distributed among partners.

Therefore, when the deed makes this interest payable, it is debited to the Profit and Loss Account as an expense. It is not shown later in the Profit and Loss Appropriation Account. The payment is connected with the firm’s borrowing, not with the division of profit, so option A is correct. The other choices incorrectly describe it as drawings, sales, or a later appropriation.