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If the deed is silent about both interest on capital and interest on drawings what will happen in profit distribution?

Answer and explanation

Correct answer: Both will not be considered

The direct answer is option A: neither interest on capital nor interest on drawings will be considered. In partnership accounting, these interest items are applied only when the partnership deed or a valid agreement provides for them, subject to the applicable legal rules. Here the deed is silent about both items. Therefore no interest on capital is credited to partners, and no interest on drawings is charged to partners. Option A is correct. Option B, six percent for both, is wrong because silence does not automatically create a six-percent rate for both items. Option C, only interest on capital, is wrong because the deed is equally silent about capital interest. Option D, only interest on drawings, is wrong for the same reason: there is no stated authority to charge it. Do not confuse statutory rules for an agreement expressly saying that interest is payable with a deed that says nothing. In a standard basic-concepts question, no provision means no appropriation for either interest item. Memory cue: “No clause, no interest entry,” unless a specifically applicable legal rule in the question changes the result.

Related tags

Deed SilentInterest RulesProfit Distribution

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