When computing interest on capital, the balance in a partner's current account is:

1. Interest on capital is computed on the capital contributed, not on every balance owed between partner and firm. 2. The textbook attaches an explicit note to its worked illustration: the balance of the current account will not be considered for calculation of interest on capital. 3. So a partner with a large credit current account earns no extra interest on it. 4. Interest is instead computed on the opening capital, with proportionate adjustment for any capital introduced or withdrawn during the year. 5. The relevant formula is capital multiplied by the rate multiplied by the period of interest. _Source: TN HSC Class 12 Accountancy (Samacheer Kalvi, Govt of Tamil Nadu), Unit 3 "Accounts of Partnership Firms - Fundamentals", §3.7.2 and Illustration 5_