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If only the profit-sharing ratio is given and no separate loss-sharing ratio is stated, how will the loss be shared?

Answer and explanation

Correct answer: In the profit-sharing ratio

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 The answer depends on the information supplied in the deed or question, not on the amount withdrawn or contributed.

Related tags

Profit RatioLoss SharingPartnership DeedDefault RuleProfit DistributionPartnership Accounts Basic ConceptsAccountancyClass 12 Mcq

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