This quiz on the interest on partners capital with 15 practice questions. Test your knowledge about the partnership accounts - Fundamentals , concepts of interest on partners capital, how it is calculated, what are its journal entries, typical cases of calculation of interest on partners capital etc. 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 MCQ 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
Journal entry for allowing interest on capital (as appropriation) is:
A
Correct Answer: Dr. Interest on Capital Ac, Cr. Partners' Capital/Current Acs
Adjusting Entry: Dr. Interest on Capital Ac, Cr. Partners' Capital/Current Acs (Individually). Interest on capital allowed.
Question 2
Transfer entry for interest on capital (as appropriation) is:
B
Correct Answer: Dr. P&L Appropriation Ac, Cr. Interest on Capital Ac
Transfer Entry: Dr. P&L Appropriation Ac, Cr. Interest on Capital Ac. Interest transferred to P&L Appropriation Account.
Question 3
If interest on capital is specified as charge, Journal entry is:
A
Correct Answer: Dr. Interest on Capital Ac, Cr. Partners' Capital/Current Acs
Adjusting entry remains same: Dr. Interest on Capital Ac, Cr. Partners' Capital/Current Acs. Only transfer entry differs.
Question 4
If interest on capital is specified as charge, transfer entry is:
C
Correct Answer: Dr. P&L Ac, Cr. Interest on Capital Ac
When specified as charge: Dr. P&L Ac, Cr. Interest on Capital Ac. It is transferred to debit of P&L Account as expense.
Question 5
Interest on capital when treated as charge is allowed:
B
Correct Answer: Whether firm earns profit or incurs loss
When interest on capital is treated as charge, it is allowed whether the firm earns profit or incurs loss.
Question 6
Time period for calculating interest on capital is:
C
Correct Answer: Period for which capital remained invested in business
Interest on capital is calculated for the period for which the capital remained invested in the business during the accounting year.
Question 7
If capital is introduced during the year, interest is calculated for:
C
Correct Answer: Number of months from introduction to year end
Interest is calculated for the number of months from the date of introduction to the end of the accounting year.
Question 8
If drawings against capital are made during the year, interest on capital is calculated on:
D
Correct Answer: Opening capital from start of year till date of drawings. Reduced capital for remaining period till year end
Opening capital from start of year till date of drawings. Reduced capital for remaining period till year end
Question 9
Difference between interest on capital and interest on loan by partner:
B
Correct Answer: Capital interest is appropriation, loan interest is charge
Interest on capital (unless specified as charge) is appropriation of profit. Interest on loan by partner is always a charge against profit.
Question 10
Priority between interest on capital (as appropriation) and interest on loan by partner:
C
Correct Answer: Loan interest has priority as it's a charge
Interest on loan by partner is a charge (allowed before net profit). Interest on capital as appropriation is allowed after net profit.
Question 11
If firm incurs loss and interest on capital is appropriation:
C
Correct Answer: It is not allowed
Interest on capital as appropriation is not allowed when firm incurs loss or has no distributable profit.
Question 12
If firm incurs loss and interest on capital is specified as charge:
B
Correct Answer: It is allowed as it's a charge against profit
When specified as charge, interest on capital is allowed whether firm earns profit or incurs loss.
Question 13
When calculating opening capital from closing capital, which items are added back?
B
Correct Answer: Drawings and loss
To calculate opening capital from closing: Add drawings and loss (items that reduced capital), deduct profit and interest (items that increased capital).
Question 14
If capital changes multiple times during the year:
B
Correct Answer: Interest is calculated on each amount for period it remained invested
If capital changes multiple times, interest is calculated on each amount for the period for which that amount remained invested.
Question 15
Interest on capital is allowed at the rate:
B
Correct Answer: Agreed in Partnership Deed or oral agreement
Interest on capital is allowed at the rate agreed in Partnership Deed or oral agreement among partners.
