alleryInterest on capital is treated as:
AIncome credit in P&L
BExpense debit in P&L
CAdded to capital direct
DBalance Sheet asset only
Answer & Solution
Correct answer: B. Expense debit in P&L
1. Interest on capital is a notional reward to the proprietor.
2. It is debited to P&L as an expense.
3. It is then credited to the capital account (increases capital).
_Source: ICAI BoS Foundation Paper 1, Ch 7 U1 "Final Accounts", §1.5 capital adjustments_
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