Profit Distribution

The governing concept is the statutory default rule for distributing partnership profits when the partnership deed is silent. If the deed does not specify a profit-sharing ratio, the partners share the profit equally, regardless of differences in their capital contributions, drawings, working time, or personal responsibilities. Therefore, option A is correct. The capital ratio cannot automatically replace the profit-sharing ratio, so option B is incorrect. Drawings represent withdrawals from the firm and do not determine a partner’s entitlement to profit, making option C unsuitable. Salary is a separate appropriation or remuneration item and is not a basis for dividing residual profit, so option D is also wrong. A valid contrary agreement would change this result.

Net profit is the amount that remains from business income after the ordinary expenses of running the business have been deducted. Such expenses may include operating costs and other normal charges. It is not the same as the money received in cash, because accounting profit also considers amounts earned or payable under accounting rules. In partnership accounting, this remaining profit is the amount considered for distribution among partners according to the agreement.

Therefore, the description in option B is correct: net profit is the profit left after deducting all normal expenses. Option A refers to a stage before the goods are sold, while option C describes only a cash receipt and option D describes a partner’s personal income. Net profit belongs to the business before it is appropriated among partners.

Profit shares are final distributions so they are debited in appropriation account. The same amounts are credited to partners accounts.

Net profit starts on the credit side of appropriation account. Then amounts payable to partners are debited.

The ratio 7:3 gives total parts = 7+3 = 10. So one part = ₹100,000 ÷ 10 = ₹10,000. B's share = 3 × ₹10,000 = ₹30,000. The closest distractor C (₹10,000) is wrong because it represents only one part; A (₹70,000) is A's share and D (₹100,000) is the whole profit. Exam tip: Always add the ratio parts to find the value of one part, then multiply by the partner's parts.

Total parts = 1+2+3 = 6. One part = ₹60,000 ÷ 6 = ₹10,000. C's share = 3 × ₹10,000 = ₹30,000. Option B (₹20,000) corresponds to B's share (2 parts), so it is not C's share. Exam tip: divide the total profit by total ratio-parts to find one part, then multiply by the partner's number of parts.

A partner’s commission is an appropriation of profit and is valid only if the partnership deed expressly provides for it or if all partners subsequently agree to it. Without such a provision or unanimous acceptance, a partner cannot unilaterally claim commission. Option B is incorrect because a commission is not automatically payable without provision; options C and D are irrelevant — customer or bank permission is not required. Exam tip: check the partnership deed first for clauses on salary/commission or look for a recorded partners’ resolution allowing it.

Interest on capital is an amount allowed to a partner because that partner has invested capital in the firm. It is treated as a return for the use of the partner’s capital, subject to the partnership deed and applicable accounting rules. In the partner’s capital or current account, the amount is normally credited because it increases the amount due to that partner. It is not a benefit given directly to customers or creditors.

Thus option B is correct: interest on capital benefits the partner who contributes capital. The firm records it as an appropriation of profit, so it reduces the profit available for further distribution, but the direct recipient is the capital-contributing partner. The wording “credited to the partner’s account” correctly describes the accounting entry in the usual partnership treatment.

Drawings are withdrawals by a partner so interest is recovered from that partner. It is income for the firm.

In partnership accounts a partner’s salary is deducted from net profit to get the profit available for distribution. Calculation: ₹80,000 − ₹20,000 = ₹60,000. So ₹60,000 remains for sharing. Option B (₹1,00,000) is wrong because that would be the result of incorrectly adding; option C (₹20,000) is only the salary, not the remaining profit; option D (₹80,000) is the net profit before deducting the salary. Exam tip: always deduct partner salaries and other appropriations from net profit first, then distribute the remaining profit according to the profit‑sharing ratio.

Interest on drawings is an amount charged to partners for using firm resources for personal purposes. From the firm’s accounting viewpoint, this amount is income and increases the profit available for distribution. Therefore it is added to the net profit when the question asks for profit available after considering interest on drawings.

The calculation is Rs 75,000 + Rs 5,000 = Rs 80,000. Thus the available profit is eighty thousand rupees, which is option B. The amount should not be subtracted as if it were a business expense. Although it is debited to the partner’s account, it is credited in the appropriation account because it is received or receivable by the firm.

The governing concept is deduction of an appropriation from the available partnership profit. The remaining profit is calculated as ₹45,000 − ₹8,000 = ₹37,000. Therefore, option A is correct. ₹8,000 represents the interest provided, while ₹45,000 is the initial profit. Adding the two amounts would produce the incorrect distractor of ₹53,000 rather than the balance left for distribution.

Partner’s salary is an appropriation of profit and therefore appears on the debit side of the Profit & Loss Appropriation Account; the corresponding credit is made to the partner’s current/capital account. Option B is incorrect because partner’s salary is not treated as an operating expense in the Profit & Loss Account but as an appropriation. Options C and D are also wrong — an entry must be passed and it is not added to sales. Exam tip: Memorise that partner salaries are shown in the appropriation account (not the P&L expense side).

Total appropriation includes items payable to partners before sharing profits, such as interest on capital and salary. Here interest = Rs 4,000 and salary = Rs 6,000, so total appropriation = 4,000 + 6,000 = Rs 10,000. The closest distractors are C (only salary = Rs 6,000) and D (only interest = Rs 4,000), which omit one component and are therefore incorrect. Exam tip: Always list and sum all partner-specific appropriations first, then distribute the remaining profit.

A reserve is created by setting aside a portion of the firm’s profit for a future purpose, such as strengthening financial stability or meeting an anticipated requirement. Because that portion is retained in the business rather than distributed immediately, the profit available for distribution among partners decreases by the amount transferred to the reserve. Hence option A is correct. Creating a reserve does not by itself alter the partners’ agreed profit-sharing ratio; changing that ratio requires a valid agreement or reconstitution. It also does not automatically stop drawings, which are separate withdrawals from the firm. Option B states the opposite effect, while option D has no accounting connection with reserve creation.

The direct answer is option A: ninety thousand rupees. Start with the total profit of ₹100,000. The reserve is 10% of this profit, so reserve = 10/100 × ₹100,000 = ₹10,000. Distributable profit means the amount left after transferring the reserve. Therefore, distributable profit = ₹100,000 − ₹10,000 = ₹90,000. Option A is correct because it gives this remaining amount. Option B, ₹10,000, is only the reserve amount, not the amount available for distribution. Option C, ₹110,000, adds the reserve to the profit, but a transfer to reserve is deducted from the amount available for distribution. Option D, ₹100,000, ignores the required reserve transfer. The important distinction is between total profit, reserve, and distributable profit. First calculate the reserve; then subtract it from total profit. Memory cue: “Reserve kept aside, balance is shared.”

The governing concept is proportional distribution of the remaining partnership profit. The total number of ratio parts is 3 + 5 = 8. One part equals ₹64,000 ÷ 8 = ₹8,000, and A receives three parts: 3 × ₹8,000 = ₹24,000. Hence option A is correct. ₹40,000 is B's five-part share, while ₹64,000 is the total remaining profit.

Total parts = 2 + 3 + 5 = 10. One part = ₹1,00,000 ÷ 10 = ₹10,000. B's share = 3 parts = 3 × ₹10,000 = ₹30,000. Option C (₹50,000) is incorrect because it represents C's 5 parts; option A (₹20,000) equals A's 2 parts. Exam tip: always add the ratio parts first, divide total profit by that sum to get one part, then multiply by the required partner's parts.

When the partnership deed is silent about interest on capital, interest is not payable by default. Interest becomes payable only if the deed provides for it or if partners subsequently agree to pay it. Option C is a common confusion — partners can agree later, but silence in the deed does not create an automatic right. Exam tip: check the partnership deed first; absence of a clause on interest means no default entitlement to interest on capital.

A partner’s salary is payable only if the partnership deed or partners’ agreement specifically provides for it. When the deed is silent on salaries, partners are not entitled to any separate salary; they receive their share of profits as agreed (or equally if no agreement on profit sharing). Closest distractors are incorrect because equal salary, payment to only the active partner, or payment in capital ratio would apply only when the deed/contract prescribes those modes. Exam tip: memorize — "No partner’s salary unless the deed/agreement specifies it."

Even if capitals are unequal profits are shared equally when deed is silent. This is an important default rule of partnership.

The governing concept is proportional distribution of partnership loss. The stated ratio 2:3 contains 2 + 3 = 5 total parts. Therefore, the value of one part is ₹34,000 ÷ 5 = ₹6,800. A is entitled to two parts, so A’s share is 2 × ₹6,800 = ₹13,600. Hence option A is correct. Option B represents B’s three-part share, while option C incorrectly divides the loss into two equal portions. Option D assigns the entire loss to A and ignores the agreed ratio. The two partners’ amounts, ₹13,600 and ₹20,400, add to the total loss of ₹34,000, confirming the calculation.

In a partnership, a loss reduces partners' claims (capital or current accounts), so each partner's account is debited with their share of the loss. The typical journal entry: Partner's Capital/Current A/c Dr; To Profit & Loss Appropriation/Account Cr. Option B (Credit) is wrong because credit entries generally increase capital or liabilities, whereas a loss reduces capital. Option C (Reserve) is incorrect since a reserve is a retained fund, not the method of allocating the partners' share of loss. Option D (Profit and Loss Account) is related—loss is closed to/cleared by the P&L—but the question asks how the loss appears in partners' own accounts, which is by debiting them. Exam tip: remember the rule—profit is credited to partners; loss is debited to partners.

A partner’s share of profit increases the partner’s capital/current balance and is therefore shown as a credit in the partner’s account. The closest incorrect option is Debit — a debit would reduce the partner’s balance (e.g., drawings), so it is not used for profit allocation. Exam tip: Profits/owner’s equity increase = credit; drawings/expenses = debit.

The governing concept is a minimum profit guarantee. A guarantee protects the partner up to the guaranteed amount; it does not mean that the guaranteed amount is automatically received in addition to the actual share. Since the guaranteed profit is ₹15,000 and the actual profit share is ₹12,000, the deficiency is calculated as ₹15,000 − ₹12,000 = ₹3,000. This amount must be contributed by the partner or partners bearing the guarantee, according to the partnership agreement. Thus option A is correct. Option B is only the actual share, option C is the guaranteed amount rather than the shortfall, and option D incorrectly adds the two figures. The actual share plus deficiency equals the guarantee: ₹12,000 + ₹3,000 = ₹15,000.