Profit Distribution

The governing concept is distribution of partnership profit according to ratio parts. The partners’ ratio is 3:4:5, so the total number of parts is 3+4+5=12. The value of one part is ₹24,000÷12=₹2,000. B is entitled to four parts, therefore B’s share is 4×₹2,000=₹8,000. Thus option B is correct. The result can be checked because A receives 3×₹2,000=₹6,000 and C receives 5×₹2,000=₹10,000; their total is ₹6,000+₹8,000+₹10,000=₹24,000. Option A is A’s share, option C is C’s share, and option D does not correspond to four of the twelve parts.

Both are amounts given to partners out of profit. Therefore they are shown in Profit and Loss Appropriation Account.

Interest on partners loan is treated like expense before profit is found. Do not treat it as appropriation in profit distribution.

The Profit and Loss Appropriation Account records items that affect the distribution of profit among partners. Interest on drawings is credited there because it is an amount charged to partners and received or receivable by the firm. This credit increases the amount available for appropriation among the partners.

The other listed items—interest on capital, partner salary, and partner commission—are normally debited to the appropriation account because they are amounts allowed to partners out of profit. Interest on drawings has the opposite effect: it brings income into the firm’s appropriation calculation. Therefore option B is correct. Its credit treatment does not mean that drawings themselves are income; only the interest charged on them is credited.

The governing concept is that the Profit and Loss Appropriation Account records the distribution or appropriation of profit among partners. Interest on capital is an amount allowed to partners according to the partnership deed or applicable rules; therefore, it is treated as an appropriation and is debited to this account. Interest on drawings is charged to the partners and credited to the appropriation account, so option A is not correct. Net profit is transferred to the credit side of the appropriation account, while old profit is not the relevant item in this adjustment. Hence, option B is correct.

The governing concept is the accounting treatment of interest on drawings. Drawings are amounts withdrawn by a partner for personal use, and interest on those drawings is a charge payable by that partner to the firm. Since the amount is recoverable from the partner, the partner’s account is debited. The firm’s Profit and Loss Appropriation Account is credited with the same amount. It is not an amount given to the partner, so option B reverses the treatment. It is also unrelated to a bank receipt or an automatic increase in goodwill. Therefore, option A is correct.

Interest on capital is paid to partners for use of their capital; in accounting it is treated as an appropriation of profit and therefore credited to the partner’s account (the firm owes this to the partner). Option B is misleading: amounts recovered from a partner apply to interest on drawings, which is charged to (debited from) the partner’s account, not credited. Exam tip: Memorise—interest on capital is credited to partners; interest on drawings is charged to them.

Distribution of profit is passed from the Profit & Loss Appropriation account and each partner’s Capital or Current account is credited with his/her share. Typical journal entry: Profit & Loss Appropriation A/c Dr. --- To Partner’s Capital/Current A/c (share of profit). Hence partners’ accounts are credited. Option B (debited) is incorrect because a debit reduces the partner’s account (used for drawings or losses). Option D (goodwill created) is irrelevant here — goodwill arises on admission, retirement or purchase considerations, not routine profit distribution. Exam tip: profit allocation increases partners’ capital (credit); drawings or losses cause debits.

A loss reduces the partners' claims (capital or current accounts). In accounting decreases are shown on the debit side, so the loss from the profit & loss appropriation (or P&L) is debited to the partners' accounts. Option B is incorrect because a credit entry indicates profit or increase, not a loss. Option C is wrong since a loss reduces capital rather than increasing it. Option D is incorrect because the accounting result must be adjusted in partners' accounts. Exam tip: remember the rule — loss → debit the partners' capital/current accounts; profit → credit them.

The governing concept is simplification of a ratio by dividing every term by the greatest common divisor shared by all terms. In the ratio 8:2, the greatest common divisor of 8 and 2 is 2. Dividing both terms by 2 gives 8 ÷ 2 : 2 ÷ 2 = 4:1. This preserves the exact relative entitlement of A and B while expressing the ratio in its simplest form. Option A is therefore correct. Options B and D reverse the order or represent the reciprocal relationship, so they do not preserve the stated A:B order. Option C changes only the second term and is not equivalent to 8:2. Thus 4:1 is the only valid simplified ratio.

The governing concept is simplifying a ratio by dividing every term by the greatest common divisor. The terms 2, 4 and 6 have greatest common divisor 2. Divide all three terms by 2 without changing their order: 2÷2 : 4÷2 : 6÷2 = 1:2:3. Thus option A is correct. This preserves the relative shares of A, B and C. Option B is not obtained by applying one common divisor to all original terms. Option C reverses the partner order, which changes the allocation, and option D incorrectly treats all partners as equal. Since 1, 2 and 3 have no common divisor greater than 1, 1:2:3 is already the simplest equivalent ratio.

The governing concept is distribution of remaining profit in the agreed ratio. The total ratio parts are 4 + 5 = 9. Each part is worth ₹90,000 ÷ 9 = ₹10,000, and A receives four parts. Thus A's share = 4 × ₹10,000 = ₹40,000, making option A correct. ₹50,000 is B's share, ₹90,000 is the total, and ₹10,000 is only one part.

Appropriations are amounts taken out of the profit for specific purposes, such as reserves or partners’ allowances. When a question asks for the profit left after appropriations, the appropriated amount must be subtracted from the net profit. The remaining amount is therefore smaller than the original net profit, not larger or equal to it.

Here, net profit is ₹78,000 and total appropriations are ₹18,000. Thus, remaining profit = ₹78,000 − ₹18,000 = ₹60,000. Therefore, option A is correct. Option B results from addition, while options C and D give only the appropriation or the original profit and do not represent the balance left after distribution.

The governing concept is determination of the residual or distributable profit after considering partnership appropriations. Interest on drawings is income earned by the firm from a partner, so it increases the amount available for distribution. Partner salary is an appropriation of profit and must be deducted before the remaining profit is divided. Therefore, distributable profit = Rs 55,000 + Rs 5,000 − Rs 10,000 = Rs 50,000. Option A is correct. Option B adds the salary instead of deducting it, while option C deducts both items and ignores that interest on drawings is firm income. Option D has no valid calculation basis. This answer assumes the figures supplied are the relevant profit and adjustments.

Annual salary \(=\text{monthly salary}\times 12=2000\times 12=24000\). So annual salary is \(\text{Rs }24000\).

There are four quarters in a year. So annual salary = quarterly salary × 4 = ₹3,000 × 4 = ₹12,000. Option D (₹36,000) is incorrect — it reflects multiplying by 12 (months) instead of 4; option B is just the quarterly amount and option C is only twice the quarterly amount. Exam tip: remember 'quarterly' means 4 times per year.

An annual salary is the amount fixed for a complete year. When a partner remains in the firm for the entire accounting year, the whole annual amount is allowed in the profit distribution calculation. Thus, A’s salary is twenty four thousand rupees. The word “annual” already refers to a full year, so no division or multiplication is needed.

If A had worked for only half a year, the amount would normally be calculated proportionately as ₹24,000 × 6/12 = ₹12,000. However, the question clearly says that A remained a partner for the full year. Therefore, option A is correct. Option B would apply only to a six-month period, while option D would wrongly double the annual salary.

Salary of a partner is normally paid proportionately to the time served unless otherwise agreed. Annual salary = ₹24,000; for half year salary = ₹24,000 × 6/12 = ₹12,000. Option B is incorrect because it assumes the full year; option C would correspond to only three months' pay; option D is only possible if no salary is payable by agreement, which is not the case here. Exam tip: check the period the partner was active and apply time-proportion (months or days) as required by the partnership deed or question.

The commission is calculated on the total profit. A's commission = 5% of ₹40,000 = \(0.05\times 40000=2000\), so the correct amount is two thousand rupees. A common distractor is four thousand rupees, which would correspond to 10% and is therefore incorrect. Exam tip: always apply the given percentage to the stated base (here total profit), not to partners' capitals or shares unless specified.

The governing concept is identification of the calculation base expressly stated in the partnership arrangement. When the agreement says that A receives commission on sales, the sales amount is the base, not capital, drawings, or residual profit. For example, if sales are Rs 2,00,000 and the agreed commission rate is 5%, the commission is Rs 2,00,000 × 5/100 = Rs 10,000. Therefore, option A is correct. A commission on remaining profit would be relevant only if the deed specifically prescribed profit as the base, so option B is too broad. Capital and drawings are separate accounting measures and cannot be substituted without an agreement. Exact wording of the deed remains decisive.

The governing concept is identification of the base specified for a partner’s commission. If the agreement states commission on profit, the amount of commission depends on the relevant profit figure and the stated percentage. For example, at 10% on profit of Rs 80,000, commission would be Rs 8,000 when the basis is profit before commission. If the wording says profit after commission, a different formula is required, so the exact condition must be read carefully. Goods, customer age and bank branch have no accounting connection with this commission. Thus, option A is correct.

In a partnership profits are distributed according to the profit-sharing ratio specified in the partnership deed. Thus the most common reason A's share exceeds B's is that A has a higher profit-sharing ratio. Drawings or a higher bank balance do not directly change the agreed profit ratio. Greater capital can only increase share if the deed states profits are shared in proportion to capital; otherwise the declared profit ratio controls. Exam tip: always check the partnership deed or the stated profit-sharing ratio first.

Drawings are not an appropriation item deducted from profit. Interest on drawings may be added separately.

When the firm pays an expense that belongs personally to a partner, the payment does not represent a cost incurred for earning the firm’s business income. It gives a personal benefit to that partner. In partnership accounting, such a personal payment is treated as a drawing because the partner has withdrawn firm resources for private use.

Thus, the amount should be recorded against the concerned partner as drawings, not as the firm’s normal expense. Treating it as a business expense would understate the firm’s profit and would incorrectly charge the other partners. Therefore option A, partners’ drawings, is the appropriate classification.

Depending on method profit share is credited to capital or current account. In fixed method current account is generally used.