Sometimes the partnership agreement may specify that interest is to be charged on partner's drawings. The main reason for such a charge is:
A) to reduce partnership profits.
B) to increase the income of the partnership.
C) to encourage partner's to withdraw extra amounts.
D) to act as a disincentive to partners withdrawing excessive amounts from the partnership.

Question

Quizplus · Accepted Answer

Charging interest on partner's drawings acts as a disincentive to partners withdrawing excessive amounts from the partnership. This is done to ensure that partners do not withdraw more than their fair share, which can harm the financial stability of the partnership. This helps to ensure that the partnership remains financially stable and profitable.

Sometimes the Partnership Agreement May Specify That Interest Is to Be