MCQ Interest on loan by partner to firm - Partnership accounts
This quiz on the interest on loan by partner to firm with 20 practice questions. Test your knowledge about the meaning and accounting of interest on loan by partner to firm with this MCQ practice test. This quiz contains questions 1-20 covering what is loan by partner, how is interest charged in such loan and he accounting treatment. Answer all questions and get instant feedback with detailed explanations. The quiz suits well for conceptual clarity for your board exams
CBSE MCQ class 12 accounts
The below MCQ test is designed as per the latest syllabus prescribed by CBSE board. With the rise in weightage of MVQ questions, the practice of MCQ questions becomes very important. The quiz is equally useful for students of CUET exams.
How to attempt the quiz
One by one go through the below questions and select the right option. Do all the questions and in the end press submit. Instantly you will get your score and the explanation against each question. Go through your mistakes and reattempt the quiz any number of times as needed.
MCQ Quiz - Practice Questions
MCQ Quiz
Question 1
When a partner gives loan to the firm, interest is:
A
Correct Answer: Allowed at agreed rate or 6% p.a. if not agreed
Interest on loan by partner is allowed at the rate agreed. If not agreed, it is allowed at 6% p.a. as per Partnership Act, 1932.
Question 2
If rate of interest on loan by partner is not agreed, it is allowed at:
B
Correct Answer: 6% p.a. as per Partnership Act, 1932
In absence of agreement, interest on loan by partner is allowed at 6% p.a. as per Indian Partnership Act, 1932.
Question 3
Interest on loan by partner is:
C
Correct Answer: A charge against profit
Interest on loan by partner is a charge against profit. It is paid whether the firm earns profit or incurs loss.
Question 4
Interest on loan by partner is transferred to:
C
Correct Answer: Interest in Loan by Partner A/c
Interest on loan by partner is a charge against profit, hence debited to Interest on loan by partner A/c.
Question 5
Interest on loan by partner is credited to:
A
Correct Answer: Partner's Loan Account or Outstanding Interest Account
Interest on loan by partner is credited to Partner's Loan Account or Outstanding Interest Account when allowed.
Question 6
The nature of interest on loan by partner is:
C
Correct Answer: An expense for the firm
Interest on loan by partner is an expense for the firm and is a charge against profit, payable whether firm earns profit or incurs loss.
Question 7
When firm incurs loss, interest on loan by partner is:
C
Correct Answer: Still paid as it's a charge against profit
Interest on loan by partner is a charge against profit, so it is paid whether the firm earns profit or incurs loss.
Question 8
Journal entry for interest on loan by partner is:
A
Correct Answer: Dr. Interest on Loan by Partner Ac, Cr. Loan by Partner Ac
For allowing interest on loan by partner, Interest on Loan by Partner Account is debited and Loan by Partner Account or Outstanding Interest Account is credited.
Question 9
Transfer entry for interest on loan by partner to P&L Account is:
B
Correct Answer: Dr. P&L Ac, Cr. Interest on Loan by Partner Ac
For transfer, Profit & Loss Account is debited and Interest on Loan by Partner Account is credited as it's an expense.
Question 10
Loan Account and Capital Account of a partner are maintained separately because:
A
Correct Answer: At dissolution, loan is repayable before capital
Loan and Capital Accounts are separate because at dissolution, loan by partner is repayable before repayment of capital to partners as per Partnership Act.
Question 11
When interest on loan by partner is paid in cash, the journal entry is:
C
Correct Answer: Dr. Loan by Partner Ac, Cr. Cash/Bank Ac
When interest is paid, Loan by Partner Account or Outstanding Interest Account is debited and Cash/Bank Account is credited.
Question 12
If Partner gives loan to firm on 01-Jun of the financal year, then interest is paid for
A
Correct Answer: 12 months
Interest is always allowed for the period money is used.so interest allowed for 10 months form June to March of financial year
Question 13
Interest on loan by partner has priority over:
A
Correct Answer: Salary to partners
Interest on loan by partner is a charge against profit (allowed before net profit). Salary to partners is appropriation (allowed after net profit).
Question 14
Difference between interest on loan by partner and interest on capital:
A
Correct Answer: Loan interest is charge, capital interest is appropriation
Interest on loan by partner is a charge against profit. Interest on capital (unless specified as charge) is an appropriation of profit.
Question 15
If partner gives loan and Partnership Deed mentions interest rate of 8% then:
D
Correct Answer: Interest @ 8% p.a. is allowed
If Partnership Deed interest rate of 8% , then interest is allowed at 8% as per partnership deed. Provision of partnership act does not apply in this case
Question 16
Interest on loan by partner affects distributable profit by:
C
Correct Answer: Decreasing it as it reduces net profit
Interest on loan by partner is an expense (charge), so it reduces net profit, thereby decreasing distributable profit.
Question 17
Why do partners get interest on loan even without agreement?
B
Correct Answer: Partnership Act provides 6% p.a. as default
Partners get interest on loan at 6% p.a. even without agreement because Partnership Act, 1932 provides this default rate.
Question 18
Which statement is correct about interest on loan by partner?
D
Correct Answer: It is recorded in P&L Account as expense
Interest on loan by partner is a charge against profit, recorded in debit of P&L Account as an expense.
Question 19
Partners get interest on loan but not on capital (if not agreed) because:
A
Correct Answer: Loan is different from capital and Act provides 6% for loan
Loan and capital are maintained separately. Partnership Act provides 6% p.a. interest on loan but does not provide interest on capital.
Question 20
Journal entry for loan given by partner to firm is
A
Correct Answer: Bank A/c Dr.. , To Loan by Partner A/c
Firm receives money so bank A/c gets debited, Firm liability increases so Loan by Partner A/c gets credited
