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While checking a new profit-sharing ratio, what should be the total of all partners' shares?

Answer and explanation

Correct answer: (1)

The governing concept is the completeness check for a profit-sharing ratio. The entire divisible profit is treated as one unit, so the shares allotted to all partners must collectively equal 1, or 100 percent. This remains true whether there are two, three or more partners and whether the ratio is written as fractions or as whole-number terms. For instance, shares 2/8, 4/8 and 2/8 total 8/8 = 1. If the total is less than 1, some profit is unallocated; if it exceeds 1, some profit has been counted twice. Thus option B is correct. Option A means no profit is distributed, while C and D are not the required total of all current shares.

Related tags

Checking RuleNew Profit Sharing RatioAdmissionReconstitution Admission Of A PartnerAccountancyClass 12 Mcq

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