Interest on a partner’s loan
Interest on a genuine loan advanced by a partner is a finance cost of the partnership before profit appropriation, rather than interest on ownership capital. Record the borrowing separately from the partner’s capital and current accounts. The agreement and question distinguish loan funding from capital contributions and specify the rate. Unpaid interest creates an appropriate liability.
Worked example
A lends the partnership $10,000 at 6% annually. Recognise $600 interest expense for a full year before calculating profit available for appropriation; do not treat it as interest on capital.
Common mistake
A person can be both owner and lender. The label partner does not turn every payment to that person into an appropriation.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | K1 | Supporting | July 2027–August 2028 |
Related terms
Also called: Partner loan interest