Question

Assertion (A): If the appropriations as per Partnership Deed are more than the amount of profit available for distribution, profit is distributed in the ratio of appropriations.

Reason (R): A, B and C are partners with capitals of ₹ 5,00,000, ₹ 3,00,000 and ₹ 2,00,000, respectively, sharing profits in a 3 : 2 : 1. The partnership deed allowed a salary of ₹ 5,000 per month to C and interest on capital @ 6% p.a. to all partners. Net Profit for the year is ₹ 80,000. Profit will be distributed among partners in the ratio of 5 : 3 : 12.

In the context of the above two statements, which of the following is correct?

विकल्प

• Both (A) and (R) are true, but (R) is not the correct explanation of (A).

• Both (A) and (R) are true and (R) is the correct explanation of (A).

• Both (A) and (R) are false.

• (A) is false, but (R) is true.

Answer 1

Both (A) and (R) are true and (R) is the correct explanation of (A).

Explanation:

When the total of appropriations (like interest on capital and salary to partners) exceeds the available net profit, the profit is not distributed as per the profit-sharing ratio but in the ratio of appropriations mentioned in the deed. In the given case:

Interest on capital:

A = `5,00,000 xx 6/100`

= ₹ 30,000

B = `3,00,000 xx 6/100`

= ₹ 18,000

C = `2,00,000 xx 6/100`

= ₹ 12,000

Salary to C = 5,000 × 12

= ₹ 60,000

C’s total appropriation = 12,000 + 60,000

= ₹ 72,000

Total appropriations = 30,000 + 18,000 + 12,000 + 60,000

= ₹ 1,20,000

But the available profit is only ₹ 80,000, which is less than the appropriations.

Profit will be distributed in the ratio 30,000 : 18,000 : 72,000, i.e., 5 : 3 : 12, as stated in the reason. Hence, both the assertion and reason are correct, and the reason properly explains the assertion.