Payment of Interest must be authorized by the partnership deed and It should be related to the period of the partnership deed. ... The rate of interest should not exceed 12%. If the amount of interest exceeds 12% of the capital then such excess amount is disallowed.
How do you charge interest on capital?
nterest on capital is an expense for the business and is added to the capital of the proprietor thereby increasing his total capital in the business.
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Accounting and Journal Entry for Interest on Capital.
| Interest on Capital A/c | Debit | Debit the increase in expense |
|---|
| To Capital A/c | Credit | Credit the increase in capital |
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