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If the partnership deed does not give a profit ratio and the capitals of A, B and C are different, how will profit be distributed?

Answer and explanation

Correct answer: Equally

The governing rule is the statutory default applicable when the partnership agreement does not specify a profit-sharing ratio. In that situation, A, B and C share profits equally, even if their capital contributions are different. The amount of capital does not automatically determine the ratio in which residual profit is divided. Capital differences may matter for interest on capital if such interest is authorised, but that is a separate adjustment and does not replace the profit ratio. Drawings and working hours are also not default legal bases for sharing profit. Consequently, option A is correct. Only a valid agreement expressly providing another ratio could produce a different distribution.

Related tags

Partnership DeedDefault Profit RatioEqual DistributionProfit DistributionPartnership Accounts Basic ConceptsAccountancyClass 12 Mcq

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