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Class 12AccountancyPartnership Accounts - Basic ConceptsProfit DistributionMedium
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If commission is on profit after charging commission what care is needed in calculation?

Answer and explanation

Correct answer: Commission must be calculated as included in profit

The direct answer is option A: commission must be calculated by treating it as included in the profit figure, because the commission is charged after commission. “Profit after charging commission” means the stated or relevant profit is the amount left after deducting the commission itself. Therefore a direct multiplication of the pre-commission profit by the percentage is not appropriate. If the rate is r percent and profit before commission is P, commission is generally calculated as P × r/(100 + r), when the wording says commission is a percentage of profit after charging commission. For example, if profit before commission is Rs 11000 and the rate is 10%, commission is 11000 × 10/110 = Rs 1000; profit after commission is Rs 10000, and 10% of that is Rs 1000. Option A is correct because it warns us to include the commission in the calculation base correctly. Option B is wrong because no fact makes commission zero. Option C is wrong because the question bases it on profit, not sales. Option D is wrong because commission is an appropriation or expense/charge according to the agreement, not a partner’s drawings. Exam cue: “after charging commission” usually requires the denominator 100 + rate for a percentage calculation.

Related tags

Commission After ChargingCalculationProfit Distribution
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10 more MCQs
  1. 1If the partnership deed says profit will first be transferred to reserve, what type of adjustment is this?
  2. 2A is guaranteed a minimum profit of rupees twenty thousand. His actual share of profit is rupees seventeen thousand. What is the deficiency?
  3. 3If the deed requires fixed capitals in which account will appropriations like salary and interest be recorded?
  4. 4The deed says interest on drawings is credited to the Profit and Loss Appropriation Account. Why is it credited?
  5. 5The deed provides a monthly salary of Rs 6,000 to partner A and equal profit sharing. Where will the annual salary appear?
  6. 6If the deed says profit will first be transferred to reserve and then shared among partners, what is the first step?
  7. 7If the deed allows A a twenty percent commission on profit before distributing the remaining profit, what is the nature of this item?
  8. 8The deed gives B a firm guarantee of minimum profit of Rs 15,000. Total profit is Rs 60,000 and B’s normal share is Rs 12,000. By how much will profit available to other partners reduce?
  9. 9What is the main basis of profit distribution in partnership?
  10. 10If the partnership deed does not provide profit sharing ratio how will profit be distributed?
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