- Interest on Capital in a partnership is calculated as
follow:
Interest on Capital = Capital balance
x Rate of interest on capital as agreed.
- The rate of interest on capital is agreed upon between
partners.
- Example:
A and B forms a partnership and introduced capital of $ 200,000 and
$ 100,000, respectively, sharing profit and losses equally.
They also agreed for a 10% interest on capita on their original
capital.
In this case, the interest on Capital will be $ 20,000 [for ‘A’]
and $ 10,000 [for ‘B’]
200000 x 10% = 20000
100000 x 10% = 10000