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Interest on Advances

The partner is entitled to claim interest on advances made by him over and above his capital at the rate of 6 per cent p.a. (Section 13(d)). The interest on advances keeps running even after dissolution and up to the date of payment.


Note: Interest on advance is payable even if the firm suffers a loss.

Illustration 4


X and Y start business with a capital of ₹ 1,00,000 and ₹ 60,000 on 1st April 2013. Y is entitled to a salary of ₹ 800 per month. Interest is allowed on capitals and is charged on drawings at 6 per cent p.a. Profits are to be distributed equally after the above noted adjustments. During the year, X withdrew ₹ 16,000 and Y withdrew ₹20,000. The profit for the year before allowing for the terms of the partnership deed came to ₹ 60,000. Assuming the capitals to be fixed, prepare the capital and current accounts of X and Y.





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