If interest is payable on a partner’s Loan Account and the firm has incurred a loss, what happens to the interest?

Correct answer: It will still remain a payable expense

Interest on a partner’s Loan Account is a charge against the firm’s profit, not an appropriation of profit. A charge is recorded before arriving at the final profit or loss, so it remains payable even when the firm reports a loss. The firm must recognise the interest expense and the corresponding liability according to the partnership agreement or applicable terms. Option B is incorrect because a loss does not cancel a contractual expense. Option C confuses loan interest with appropriations such as partner’s commission or interest on capital. Option D has no accounting connection with loan interest. Therefore, the interest remains a payable expense, making option A correct.