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In: Accounting

“Gibbson, a partner in G&B partnership wants to extend a loan to the partnership. He is...

“Gibbson, a partner in G&B partnership wants to extend a loan to the partnership. He is unsure
of how this would affect the partnership accounts”. Advice Gibbson.

Solutions

Expert Solution

When a partner extends a loan to his partnership Firm, he has to charge interest at the rate of the market from the firm & the same is treated as Loan from Partner in the Books of accounts.

When the owners of a partnership provide or loan money that will be used by his partnership firm for expansion or working capital, this providing of funds does not affect the tax status of the business. The business will have extra capital because of the loan but that capital isn't taxed as income because it has been transferred from an owner's personal account to the shared business account rather than earned by the business through operating activities.

However, in accounting it is normally treated as Loan from Partner in his capital account in firm & interest shall be charged on such loan from the partner & at market rate as mentioned. Also, this shall be decided mutually by the partners & in the terms of Partnership Agreement .

ekkarill92 answered 2 years ago
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