Profit Distribution

The governing concept is the fixed-capital method of maintaining partners’ accounts. Under this method, the balance of each partner’s capital account is intended to remain unchanged except when the agreed permanent capital is introduced or withdrawn. Regular adjustments such as partner salary, interest on capital, interest on drawings, drawings, and the share of profit or loss are consequently recorded in a separate current account. Therefore option B is correct. The capital account is not normally used for these recurring appropriations under the fixed-capital method. Trading Account is concerned with gross profit from trading operations, while Bank Account records receipts and payments; neither is the appropriate personal account for these partner adjustments.

The available profit is insufficient to meet the total claims in full. The total claim is Rs 20,000 salary + Rs 30,000 interest on capital = Rs 50,000. When the deed gives no order of priority, the available profit is distributed between these claims in proportion to their amounts. Salary represents 20,000/50,000, or 2/5, of the total claims. Therefore, the proportionate salary is 2/5 × Rs 40,000 = Rs 16,000. The remaining Rs 24,000 goes toward interest on capital. Option B ignores the insufficiency, while the other amounts do not follow the proportional calculation.

Distributable profit is one lakh sixty thousand plus eight thousand minus thirty thousand minus eighteen thousand minus twenty thousand equal to one lakh. A share is three fifths which is sixty thousand rupees.

Interest on capital is normally appropriation and cannot exceed available profit. If profit is lower allow interest proportionately.

For commission after charging commission use profit times rate divided by one hundred plus rate. One lakh ten thousand times ten divided by one hundred ten equals ten thousand.

The direct answer is Option B: Rs 15,000. The phrase ‘commission on profit before charging commission’ means the base is the full profit before deducting commission. Compute 20% of Rs 75,000: \\(20/100 \\times 75,000 = Rs 15,000\\). Therefore A’s commission is Rs 15,000. Option B is correct. Option A, Rs 12,500, would result from a different base or an incorrect calculation. Option C, Rs 18,750, is not 20% of Rs 75,000 and may arise from an unsuitable reverse formula. Option D, Rs 60,000, is 80% of the profit, not the commission. The common mistake is using the formula for commission after charging commission; here the question clearly says before charging commission.

C actual share is five tenths of two lakh which is one lakh rupees. Since actual share is more than guarantee there is no deficiency.

C actual share is twenty thousand so deficiency is twenty thousand. Shared by A and B in three to two makes A deduction twelve thousand.

After salary and interest remaining profit is thirty thousand. In three to two ratio A gets eighteen thousand and B gets twelve thousand.

Available profit before appropriations includes interest on drawings. Ten percent of one lakh sixty thousand is sixteen thousand rupees.

A reserve is created before the commission in the stated order. The original profit is ₹1,20,000, and ₹20,000 is transferred to the reserve first. The amount left for the stated commission is therefore ₹1,00,000. The commission rate must then be applied to this remaining amount, not to the original profit before the reserve.

The calculation is: remaining profit = ₹1,20,000 − ₹20,000 = ₹1,00,000. A’s commission = 10% of ₹1,00,000 = ₹10,000. Hence option A follows directly. A commission of ₹12,000 would result from incorrectly applying ten percent to the full original profit, ignoring the instruction that the reserve must be created first.

Interest on partner loan is an expense before calculating profit. Show it in Profit and Loss Account not Appropriation Account.

Equal share gives B forty five thousand and deficiency is ten thousand. It is deducted from A so A final profit is thirty five thousand.

B actual share is forty five thousand so deficiency is five thousand. A actual share was sixty thousand and after bearing deficiency it becomes fifty five thousand.

Such clause makes interest on capital a charge against profit. Deducting sixty thousand from fifty thousand profit creates loss of ten thousand.

After salary the base is eighty thousand rupees. Since commission is after charging commission eighty thousand times ten divided by one hundred ten is about seven thousand two hundred twenty seven.

Available profit is forty four thousand plus four thousand minus twelve thousand equal to thirty six thousand. B one fourth share is nine thousand rupees.

C is exempt from losses so A and B share loss in two to two which is equal. A share is twenty five thousand rupees.

If debit side is higher the balance is treated as loss. Debit it to partners in applicable loss or profit ratio.

The partnership deed places a special limit on A’s salary: it is payable only to the extent of available profit. The firm has a net profit of Rs 48,000, while the stated salary is Rs 60,000. Since the available profit is smaller than the agreed salary, the amount actually allowed cannot exceed Rs 48,000. The excess Rs 12,000 is not treated as an additional loss merely to pay the full salary.

Therefore option B is correct. The entire available profit is used to allow A’s salary, so A receives or is credited with Rs 48,000 under this condition. Option A ignores the limiting clause in the deed and would create a loss, which the clause prevents. Option C incorrectly treats the salary as completely unavailable, and option D ignores the specific salary provision and does not follow the stated agreement.

If deed gives an order the earlier item gets priority. If no profit remains the later appropriation may not be allowed.

Interest on drawings should be credited but debiting it makes available profit appear lower. Difference from correct position can be double.

Let commission be \(C\) rupees. Profit before commission is \(56000\), so profit after charging commission is \(56000 - C\). Given commission is \(12\%\) of profit after commission: \(C = 0.12(56000 - C)\). \(C = 6720 - 0.12C\) ⇒ \(1.12C = 6720\) ⇒ \(C = 6000\). So commission is \(\text{Rs }6000\).

B commission is seven thousand and remaining profit is ninety three thousand. A share is four sevenths which is about fifty three thousand one hundred forty three.

Reserve is first created through Profit and Loss Appropriation Account. Direct debit to capital accounts misstates profit distribution presentation.