Profit Distribution

The governing concept is that a profit guarantee establishes a minimum receipt, not a fixed amount that replaces the actual profit share. The partner receives the higher of the actual share and the guaranteed minimum. Here, the actual share is ₹20,000 and the guarantee is ₹18,000. Since ₹20,000 is already greater than ₹18,000, no deficiency arises and the partner receives ₹20,000. Therefore option B is correct. Option A treats the guarantee as an exact payment and ignores the higher actual entitlement. Option C is only the difference between the two amounts, not the amount received. Option D incorrectly adds the actual share and guarantee. The comparison ₹20,000 > ₹18,000 is sufficient to settle the answer.

Deficiency is made good by the partner or partners who gave guarantee. Read the condition carefully in the question.

The governing concept is the distinction between commission calculated before and after charging commission. When commission is stated as a percentage of profit before charging commission, the given profit is the base. Therefore, A’s commission = 10% of ₹90,000 = 10/100 × ₹90,000 = ₹9,000. Hence option A is correct. The after-commission formula would be rate ÷ (100 + rate) × profit, which is not applicable here; that method would produce about ₹8,182 and explains option B as a plausible distractor. Option C uses an incorrect base or rate, and option D treats the entire profit as commission. The wording clearly says ‘before charging commission,’ so direct multiplication is required.

If commission is after charging commission the commission itself reduces profit. So reduced base must be considered.

A partner's personal income tax is a personal liability and not an expense of the firm. If the firm pays a partner's personal tax, that payment is treated as the partner's drawing and should be debited to the partner's capital/current account. Option A is incorrect except in cases where the tax is actually assessable to the firm (e.g., tax on the firm's profits); personal tax does not qualify as firm expense. Exam tip: Always treat private payments made by the firm for a partner as drawings and adjust the partner's account accordingly.

A partner’s personal life insurance premium is a private payment and does not arise from the ordinary operations of the firm. If the firm pays that premium, it has paid a personal obligation for the partner. The amount therefore represents money withdrawn or benefits taken by that partner from the firm, even though the payment went directly to the insurance company.

Accordingly, the premium is treated as the partner’s drawings, which is option B. It is not the firm’s salary expense, because the insurance is personal; it is not firm sales; and it is not interest on a loan given by the partner. The amount is adjusted through the partner’s capital or current account according to the method being followed.

Drawings are withdrawals by a partner, not income. If drawings are mistakenly added to profit, the profit figure becomes overstated. That will lead to incorrect profit sharing and wrong capital/reserve balances. The closest distractor C is wrong because adding drawings does not understate profit — under normal treatment drawings reduce partner capital but are not added to profit. Exam tip: Always post drawings to the partner’s drawings/capital account first and ensure only true net profit enters the profit appropriation statement.

Drawings and interest on drawings are related but they are not the same thing. Drawings are the actual cash, goods, or other resources taken by a partner from the firm for personal use. They reduce the partner’s capital or current account and represent the original withdrawal.

Interest on drawings is an additional charge calculated on the amount and period of that withdrawal, according to the partnership agreement. It compensates the firm for the partner’s personal use of firm resources and is treated as income for the firm. Thus drawings are the withdrawal itself, while interest is the charge on that withdrawal. Therefore option B is correct; the other choices confuse personal withdrawal with income, expense, or a firm loan.

Interest on a partner’s loan is paid because the partner has lent money to the firm. It is therefore a cost of obtaining finance, just as interest on an outside loan would be a business expense. This cost is considered before the firm’s net profit is determined, so it is called a charge against profit.

Because it is a charge, it is recorded in the Profit and Loss Account and not in the Profit and Loss Appropriation Account. The appropriation account is used for distributing an already determined profit, such as recording partners’ salaries, interest on capital, or shares of profit. Loan interest is not a distribution of profit. Therefore option A correctly explains why it is excluded from the appropriation account.

Interest on loan is a charge against profit so it is shown as expense in Profit and Loss Account. Keep it separate from partner salary.

A reserve is an appropriation of profit set aside for future needs. Therefore the reserve amount is deducted from the distributable profit and only the remaining profit is shared among partners. Option B is incorrect because reserve is not added to partners' drawings — drawings reduce capital and are not a method of creating a reserve. Options C and D are wrong since a reserve is neither sales nor an external loan; it is an internal appropriation of profit. Exam tip: Before distributing profit, first account for appropriations (reserves, provisions, bonuses, taxes), then distribute the net distributable profit according to the profit-sharing ratio.

The governing concept is distribution of partnership profit in the agreed profit-sharing ratio. The ratio 3:1 contains 3 + 1 = 4 total parts. The value of one part is therefore Rs 32,000 ÷ 4 = Rs 8,000. Partner A is entitled to three parts, so A's share is 3 × Rs 8,000 = Rs 24,000. Partner B receives one part, or Rs 8,000, and the two amounts add to Rs 32,000, confirming the calculation. Rs 32,000 would incorrectly assign the entire profit to A; Rs 8,000 is B's share rather than A's; and Rs 16,000 would correspond to half the profit, not three-fourths of it. Hence option A is the only consistent answer.

Total ratio parts = 1 + 1 + 2 = 4. Divide the total loss ₹40,000 by 4 to get one part = ₹10,000. C has 2 parts, so C's share = 2 × ₹10,000 = ₹20,000. Closest distractor: option A (₹10,000) is only one part so it underestimates C's share; option C (₹40,000) wrongly assumes C bears the entire loss; option D is clearly too small. Exam tip: always compute the value of one part first (total ÷ sum of ratio) — it avoids calculation mistakes.

The direct answer is Option A: Rs 8,000. Salary and commission are two separate amounts payable to A. To find the total credit, add them: Rs 5,000 + Rs 3,000 = Rs 8,000. A’s capital or current account is credited because these amounts increase what the firm owes A. Option A is correct. Option B, Rs 2,000, is the difference, not the total. Option C, Rs 5,000, includes only salary and leaves out commission. Option D, Rs 3,000, includes only commission and leaves out salary. The word ‘total’ is the important exam clue: add all amounts payable to the partner.

Interest on drawings is charged to the partner and reduces the partner's balance; therefore the partner's (A's) account is debited. The corresponding credit is made to Profit & Loss Account (or Interest on Drawings). Typical journal entry: A's Current/Capital A/c Dr. Rs.1,000 To Profit & Loss A/c (or Interest on Drawings A/c) Cr. Exam tip: always write the full journal entry — it makes clear which side (debit/credit) affects the partner's account.

The accounting entry is: Interest on capital (expense/appropriation) Dr. Rs.2,000; A's capital/current account Cr. Rs.2,000. Therefore A's account is credited. Option D correctly states that the interest expense/appropriation is debited, but that addresses the expense side — it does not answer what happens in A's account. Exam tip: Interest on capital is an appropriation of profit and is always credited to the partner's capital or current account.

Profit distribution in partnership accounts is made from the profit that remains after the normal business expenses and losses have been considered. This amount is called net profit. Gross profit is only the excess of sales over the direct cost of goods sold, so it is not yet the final amount available for appropriation. Cash profit and estimated profit are not the standard starting bases for appropriation.

The usual sequence is to determine net profit in the profit and loss account and then transfer it to the profit and loss appropriation account. Items such as partner salary, commission, interest on capital, and profit shares are adjusted there according to the deed. Therefore, the correct choice is net profit. Gross profit would be an earlier figure and could lead to distribution before other business expenses are deducted.

The governing accounting concept is the distinction between gross profit and net profit. Gross profit is generally calculated after deducting the cost of goods sold from revenue, but operating and other indirect expenses may still remain unpaid or unrecorded. Net profit is obtained only after deducting the relevant expenses, such as salaries, rent, depreciation, and administrative costs, from gross profit. Partnership profit should normally be distributed only after the profit available for appropriation has been determined. Therefore option A is correct. Option B is factually false, option C denies the existence of the partnership, and option D gives an irrelevant reason. Direct distribution of gross profit could overstate the amount available to partners and leave expenses unprovided.

The direct answer is option A: zero. “Remaining profit” is the amount left after all earlier adjustments or appropriations. If the remaining profit is zero, there is no amount available for a final distribution. Thus final profit distribution = ₹0. Option A is correct because it exactly states that nothing remains to be shared. Option B, ₹10,000 equally, invents an amount that is not present in the question. Option C, ₹5,000 in the capital ratio, is also impossible because a ratio can divide an amount but cannot create money when the amount is zero. Option D, profit in the bank ratio, is unrelated: profit is not distributed according to a bank balance ratio, and in any case the remaining profit is zero. In partnership accounts, first identify the amount actually available after adjustments; only then apply the agreed profit-sharing ratio. A zero amount divided in any ratio remains zero. Exam cue: never distribute a positive amount when the question clearly says that no balance remains.

When appropriations (such as partners' salaries, interest, reserves, etc.) are made and the resulting balance is negative, it represents a loss. This loss is distributed among partners in their agreed profit-sharing ratio and charged to their capital/current accounts. Option B (Reserve) is incorrect because reserves are created only out of available profits, not from a deficit. Exam tip: always check the sign of the balance after appropriations; a negative balance is transferred as loss to partners in the loss-sharing ratio.

Total parts = 2 + 3 = 5. One part = ₹25,000 ÷ 5 = ₹5,000. So A's share = 2 parts = 2 × ₹5,000 = ₹10,000. Fifteen thousand is incorrect because that equals B's share (3 parts); twenty-five thousand is wrong as it assumes the entire loss to one partner; five thousand is just one part. Exam tip: convert the ratio to fractions: (partner's ratio ÷ sum of ratios) × total loss to get the partner's share.

The governing partnership rule is that, in the absence of an agreement to the contrary, partners share both profits and losses in the agreed profit-sharing ratio. If the partnership deed specifies a separate ratio for losses, that separate ratio will apply; however, when no such ratio is given, the stated profit ratio is used by implication. Therefore option A is correct. Equal sharing in option B applies only when the partners have equal shares or no ratio has been provided and the applicable default rule requires equality. Option C incorrectly links loss sharing to capital invested, and option D confuses drawings with the distribution ratio. The answer depends on the information supplied in the deed or question, not on the amount withdrawn or contributed.

The governing concept is that the partnership agreement determines the basis for distributing profits. When all partners validly record a revised profit-sharing ratio in writing, the revised ratio becomes the operative agreement for distributions made from the effective date stated in that agreement. Therefore option B is correct for the next distribution, provided that the distribution relates to the period covered by the change. Option A ignores the amendment. Option C incorrectly substitutes the partners’ capital proportions, which do not automatically determine profit sharing. Option D confuses drawings with profit entitlement. In practice, the date and terms of the written change should be checked, because profits earned before the effective date may still be distributed under the old ratio.

To simplify a ratio divide both terms by their highest common factor (HCF/GCD). The HCF of 2 and 2 is 2, so (2÷2):(2÷2)=1:1. Therefore the simplest form is one to one. The closest distractor C (four to two) reduces to 2:1, not 1:1, so it is incorrect. Exam tip: always divide both terms by their HCF (GCD) to get the simplest ratio.

Divide both 6 and 4 by their greatest common divisor (GCD) 2 to get 3 : 2, so the simplified ratio is Three to Two. The nearest distractor B (Two to Three) is the reversed order and therefore incorrect — order matters in ratios. Exam tip: always simplify ratios by dividing both terms by their GCD to get the simplest form quickly.