Partnership appropriation account and interest on a parnter loan

KimRs

Morning,
In my study question on completing partnership appropriation the task includes a statement that halfway into the financial year the Partner Paul has made a loan of £100,000 to the partnership (there are 3 partners) and it carries an interest rate of 4% but has not been accounted for yet.

I can not find anywhere in study material to show how the interest on the loan is accounted for ? Would I be correct in thinking it would be classed as an expense to the business and therefore appear on the SP&L ? If so debit expense account, but where would the credit entry go, would it be Partner Paul's current account ?

Many thanks in advance.
Kim

Pian32

I think you'd treat it as a loan. So Debit interest and Credit the appropiate loan account. I would probably keep the loan separate on your workings and treat it separately to his standard account.

I haven't come across this situation with partners before so could be wrong.

douglasstroud

The partner has introduced capital into the business so this will show on his capital account, the 4% interest will be time apportioned and then allocated to the partner from the profits before the remaining profits are shared at the agreed ratio between all the partners

KimRs

Thanks for your help