Profit Distribution

A general reserve is an appropriation of profit made before distributing profit to partners. Creating the reserve reduces the amount of profit available for distribution, so the remaining distributable profit decreases. Option B is wrong because creating a reserve does not increase profit; C is incorrect because appropriation cannot double the remaining profit; D is wrong because creating a reserve does affect the distributable profit. Exam tip: Memorise the order of appropriations (e.g. reserves, partner salaries, interest on capital) to quickly determine distributable profit in exam problems.

Reserve = 20% of Rs 150,000 = Rs 30,000. Remaining profit = Rs 150,000 − Rs 30,000 = Rs 120,000. A's share = 2/(2+1) = 2/3 of the remaining = 2/3 × Rs 120,000 = Rs 80,000. The close distractor Rs 100,000 is wrong — it results from wrongly taking 2/3 of the total profit or not deducting the reserve. Exam tip: always deduct reserves or provisions first, then apply the profit-sharing ratio to the remainder; or compute A's share as (2/3)×(remaining).

Appropriation account is prepared to distribute net profit among partners. Hence net profit appears on credit side.

Interest on drawings is an amount charged to partners because they have used firm funds for personal purposes. From the firm’s viewpoint, this amount is income or a recovery from the partners. It increases the profit available for distribution, unlike interest on capital, which is an appropriation made in favour of partners and reduces the divisible profit.

The Profit and Loss Appropriation Account records items that adjust or distribute profit. Interest on drawings is placed on its credit side because it adds to the amount available for appropriation. Therefore option A is correct. It is not placed on the debit side, on both sides, or only in the capital account, although the corresponding partner adjustment may also be posted in the capital or current account.

The direct answer is option A: Rs 4000. A guarantee of minimum profit means A must finally receive at least Rs 30000. His normal share according to the agreed profit-sharing arrangement is only Rs 26000. Step 1: guaranteed minimum = Rs 30000. Step 2: normal share = Rs 26000. Step 3: deficiency = guaranteed amount − normal share = Rs 30000 − Rs 26000 = Rs 4000. Therefore an additional Rs 4000 must be provided under the guarantee, normally by the partner or partners who have undertaken the guarantee, according to the agreement. Option A is correct. Option B, Rs 56000, adds the two amounts instead of finding the shortfall. Option C, Rs 30000, is the guaranteed amount itself, not the deficiency. Option D, Rs 26000, is the normal share already available, not the additional amount required. The guarantee calculation compares what is promised with what is actually received. Memory cue: deficiency = guaranteed minimum minus actual or normal share, never their sum.

The guaranteeing partner (A) bears the deficiency. Under partnership accounting the deficiency is first adjusted against A's share of profit. Only if A's profit share is insufficient is the balance met from A's capital account. Option C is related but incorrect as the initial adjustment is from profit share; capital is a secondary recourse. Options B and D are incorrect because B's drawings are personal withdrawals and the firm does not meet a guarantee by directly charging its bank loan as the primary method. Exam tip: Reduce A's profit share in the Profit & Loss Appropriation (or adjust in partners' accounts); if still deficient, make an entry against A's capital account.

A minimum-profit guarantee promises that a specified partner will receive at least the guaranteed amount. If that partner’s normal share is lower than the guaranteed amount, the difference is called a deficiency. When the firm gives the guarantee, the deficiency is borne out of the firm’s distributable profit; in practical terms, it reduces the residual amount available for distribution among the other partners. Hence option A is correct. The adjustment does not exclusively affect the bank account or stock account, because it is an appropriation of profit rather than a purchase or cash transaction. Option D is incorrect because the deficiency must be allocated to someone under the guarantee arrangement.

Total parts = 2 + 2 + 1 = 5. C has 1 part, so C's share = (1/5) × 90000 = Rs 18000. Option B (₹36000) corresponds to A's or B's share (each has 2 parts → 2/5 × 90000 = ₹36000), so it is not C's share. Exam tip: always add the ratio parts first, then multiply the total profit by the partner's fraction of those parts.

The total number of ratio parts is 4 + 3 + 2 = 9. B receives 3 of those 9 parts, so B’s share is (3/9) × ₹81,000 = ₹27,000.

Loss is debited to partners accounts and its second effect may be credit in appropriation account. Remember the double effect.

Interest on drawings is added and interest on capital is deducted from net profit. Rs 50000 plus Rs 2000 minus Rs 7000 equals Rs 45000.

Both salary and commission are deducted from net profit. Total deduction here = Rs 10000 + Rs 5000 = Rs 15000. Therefore residual profit = Rs 70000 − Rs 15000 = Rs 55000. Option C (Rs 65000) is incorrect because it represents subtracting only the commission (70000 − 5000) and ignores the salary. Exam tip: Always add up all partner charges (salary, commission) first and subtract the total from net profit to get residual profit.

The partnership deed determines the order and conditions of appropriations. If it specifically states that salary is to be allowed first, the salary must be deducted from the profit available for appropriation before the remaining profit is divided in the agreed profit-sharing ratio. Thus option A gives the correct sequence. For example, if profit is P and salary is S, the residual profit is P − S; that residual is then divided according to the ratio. Option B reverses the authorised order and may overstate the distributable amount. Option C is wrong because salary is an appropriation, not a partner’s withdrawal. Option D confuses a partner adjustment with business revenue.

Many questions specifically give order of appropriations. If no order is given use normal logic to find residual profit.

The governing concept is that interest on capital is an appropriation of profit, not an ordinary business expense. When the available profit is insufficient, the total interest normally admissible is restricted to that available profit and is distributed among partners proportionately to their interest claims. Thus option A is correct. It is not automatically paid in full during a loss, nor is it sales or drawings.

When the profit available for appropriation is insufficient to meet the total interest-on-capital claims, the available profit is distributed among the partners in proportion to their claims, unless a different governing agreement is specified. The total claim is Rs 20,000, but only Rs 16,000 is available. Since A and B have equal claims, each receives one-half of the available amount: Rs 16,000 ÷ 2 = Rs 8,000. Therefore option A is correct. Rs 10,000 is half of the total claim, but it would require Rs 20,000 of profit. Option C is the entire available amount, not A’s individual share, while option D is the total claim and cannot be paid from the stated profit.

Partner salary is allowed only if provided in deed. Working for the firm alone does not create salary right.

Interest on drawings is not an automatic charge in every partnership. It can be imposed only when the partnership deed expressly provides for it, or when the partners otherwise have a valid agreement requiring it. The rate, method, and timing must come from that authority. If the deed is silent and no separate agreement exists, the firm should not invent a rate or calculate interest merely because drawings were made.

Therefore, option A is correct: interest on drawings will not be charged. A rate of 6 percent cannot be assumed, and neither the profit-sharing ratio nor the capital ratio supplies a rate by itself. The important rule is to follow the agreed terms rather than add an unsupported adjustment to profit distribution.

Profit share is payable to partners. Hence it is credited to their capital or current accounts.

A loss reduces partners' claims (their capital/current balances), so partners' capital or current accounts are debited when the loss is distributed. The typical journal entry is: (Partner A's Capital/Current A/c) Dr. ... To Profit & Loss A/c (or Appropriation A/c). Option B is incorrect because accounts are credited only when profit is distributed. Option C is a common trap — when transferring a loss, the Profit & Loss account is credited (not debited) to clear its debit balance. Exam tip: Memorize the rule — loss distributed → debit partners' accounts; profit distributed → credit partners' accounts and recall the standard journal entry form.

Salary and commission paid to partners are not ordinary operating expenses in this context. They are appropriations of profit, meaning that the firm’s profit is distributed to partners according to the partnership deed. In the Profit and Loss Appropriation Account, such appropriations are shown on the debit side. This treatment separates distribution of profit from expenses incurred to earn that profit.

A’s salary of Rs 12,000 and B’s commission of Rs 8,000 are both amounts appropriated for partners. Hence both are recorded on the debit side, making option A correct. They are not placed on opposite sides merely because one is called salary and the other commission. They would not be omitted, and they do not become capital simply because they are recorded through the appropriation account.

Residual profit is Rs 70000 and Bs three tenths share is Rs 21000. Adding commission gives Bs total share Rs 31000.

Interest on capital and interest on drawings have opposite effects in the Profit and Loss Appropriation Account. Interest on capital is an amount allowed to partners, so it is an appropriation that reduces the profit remaining for distribution. Interest on drawings is charged to partners for using firm funds, so it is income to the firm and increases the amount available for distribution.

To find the combined net effect on divisible profit, subtract the total interest on capital and add the total interest on drawings. This is exactly the treatment stated in option A. The entries are not both deductions or both additions because their economic effects differ. They should not be ignored when the deed provides for them, though their amounts must be calculated first.

As normal share is five eighths which is Rs 45000. Guaranteed amount is Rs 50000 so deficiency is Rs 5000.

Bs normal share is one fourth which is Rs 20000. Guarantee is Rs 25000 so deficiency is Rs 5000.