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If the deed says A will not share losses but will share profits, how will A be treated in loss distribution?

Answer and explanation

Correct answer: A will not be charged loss

The governing concept is that the partnership deed controls the agreed rights and obligations of partners. Here the deed expressly states that A will participate in profits but will not bear losses. That specific agreement must be followed for loss distribution, unless it is legally invalid under the applicable partnership law. Therefore A is excluded from the loss, and the loss is distributed among the remaining partners according to their agreed loss-sharing ratio or, where relevant, the applicable default rule. Option A is correct. Options B, C, and D incorrectly impose a loss on A by assuming that profit sharing automatically requires identical loss sharing, which is not true when the deed clearly provides otherwise.

Related tags

Partnership DeedLoss DistributionProfit SharingProfit DistributionPartnership Accounts Basic ConceptsAccountancyClass 12 Mcq

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