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A and B share profits in the ratio 3:2. Profit of ₹1,25,000 included unrealised income of ₹25,000. By how much will A’s profit share decrease after correction?

Answer and explanation

Correct answer: ₹15,000

The governing concept is correction of profit by removing income that has not actually been earned or realised. The reported profit contains ₹25,000 of unrealised income, so the profit available for distribution must decrease by ₹25,000. A’s agreed share is 3/(3+2), or 3/5. Consequently, the decrease in A’s share is ₹25,000 × 3/5 = ₹15,000. Option A is correct. B’s share would decrease by ₹25,000 × 2/5 = ₹10,000, which explains option B as a plausible distractor. Option C assigns the whole correction to A, and option D uses an incorrect fraction. The original profit figure is not needed for calculating the decrease caused by this correction.

Related tags

PartnershipAdjustmentsUnrealised IncomeProfit SharingAccountancyClass 12 McqPartnership Accounts Basic Concepts

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