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Question
A and B are partners in a firm. They are entitled to interest on their capitals, but the net profit was not sufficient for this interest. Then the net profit will be distributed among partners in ______.
Options
Agreed Ratio
Profit Sharing Ratio
Capital Ratio
Equally
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Solution
A and B are partners in a firm. They are entitled to interest on their capitals, but the net profit was not sufficient for this interest. Then the net profit will be distributed among partners in capital ratio.
Explanation:
When the net profit is not sufficient to pay the full interest on capital as per the agreement, then the available profit is distributed in the ratio of the interest amounts each partner is entitled to. Since interest on capital is usually based on capital amounts, the available profit is effectively distributed in the capital ratio.
