IGCSE/GCSE/O & A Level/IB/University Student Forum
Qualification => Subject Doubts => GCE AS & A2 Level => Commerce => Topic started by: cs on November 05, 2011, 03:49:34 am
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I am doing a2 this year,
and while doing some past year papers(partnership topic), i noticed interest on loan is not credited in current account, i refer back to the textbook, some of them has interest on loan in current account, while some don't, why is it?
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If the loan that the business takes is from the partners then the interest on loan would be credited to that particular partner from whom the loan is taken from and debited to the profit and loss. But if the business takes any other loan such as bank loan then the current accounts won't be credited in that case because partners have nothing to do with the loan.
Hope this helps. :)
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If the loan that the business takes is from the partners then the interest on loan would be credited to that particular partner from whom the loan is taken from and debited to the profit and loss. But if the business takes any other loan such as bank loan then the current accounts won't be credited in that case because partners have nothing to do with the loan.
Hope this helps. :)
this certainly helps a lot, thanks! didnt notice the difference :)
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what about this one
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and I have another question to ask,
for business purchase topic, if we are not told that the business take or does not take over the "bank", it means? no is it?
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A business taking over another business does not take over it bank. For example, firm X takes over firm Y, if the question mentions that the bank is taken over by firm X then you do the necessary adjustments, otherwise bank is never taken over. It will be a very rare case for firm X to take over firm Y's bank.
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You know any question in which interest on partner's loan is credited to the partner's current account? I haven't ever seen it. I'm sorry I don't have an explanation to your question about why interest on loan isn't credited. :/ But, i guess according to the current account format as per accounting standards, we don't include any such thing in the current a/c. The only items entered in the current a/cs are int on drawing, int on capital, drawings, share of profits and salaries.
I'll try to look for an explanation and get back to you as soon as possible but i'll really sorry for not being able to help you. :(
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Interest on loan by a partner is credited to the partner's current account, in case he hasn't yet withdrawn it from profits.
It is usually not accounted for in the Appropriation Account, but treated as an expense in the P & L Acc.
A partner may choose not to withdraw the interest he earns on the loan (for example in case when the partnership is facing liquidity problems). That is why interest on loan is credited to his current account, as he may choose to capitalise it instead of taking it out as drawings, just like in a company, some profits are retained.
http://books.google.mu/books?id=PaL4YA4zrQ8C&pg=PA380&lpg=PA380&dq=why+is+interest+on+loan+credited+to+a+partner%27s+current+account&source=bl&ots=H8KfavMn5j&sig=08cXaNaPHck7HjG7AW6ZMF4HGyM&hl=en&ei=mGm1TpBQxIviBPSa6ewD&sa=X&oi=book_result&ct=result&resnum=7&ved=0CEAQ6AEwBg#v=onepage&q&f=false
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Thank you so much for both of your help :)