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If the interest rate and payment date are both given for a retiring partner’s loan, on what basis is interest calculated?

Answer and explanation

Correct answer: On the outstanding loan according to the time period

Interest on a retiring partner’s loan is determined by applying the agreed interest rate to the outstanding loan for the relevant time period. If instalments or part-payments occur, the outstanding principal changes and interest may need to be calculated separately for each period. Thus option A is correct. Sales, General Reserve and stock quantity are unrelated bases for this loan interest.

Related tags

Partner Loan InterestOutstanding BalanceTime PeriodRetirementPartner's Loan AccountPartner S Loan AccountReconstitution Retirement Or Death Of A PartnerAccountancy

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