Question

Assertion (A): P, Q and R are partners with capitals of ₹ 3,00,000; ₹ 4,00,000 and ₹ 5,00,000 respectively. As per partnership deed, interest on capital is to be allowed @ 5% p.a., and A is also allowed a quarterly salary of ₹ 40,000. Net profit for the year amounted to ₹ 2,50,000. The balance of profit will be distributed among them equally.

Reason (R): Distributable profit for the year is sufficient to allow all appropriations. Hence, the balance of profit will be distributed among them equally.

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

Options

• Both (A) and (R) are correct, and (R) is the correct reason of (A).

• Both (A) and (R) are correct but (R) is not the correct reason of (A).

• Only (A) is correct.

• Both (A) and (R) are wrong.

Answer 1

Both (A) and (R) are correct, and (R) is the correct reason of (A).

Explanation:

Interest on Capital:

P = `3,00,000 xx 5/100`

= ₹ 15,000

Q = `4,00,000 xx 5/100`

= ₹ 20,000

R = `5,00,000 xx 5/100`

= ₹ 25,000

Total Interest on Capital = 15,000 + 20,000 + 25,000

= ₹ 60,000

A’s Salary = 40,000 × 4

= ₹ 1,60,000

Total Appropriations = 60,000 + 1,60,000

= ₹ 2,20,000

Net Profit available = ₹ 2,50,000

Profit is sufficient to cover all appropriations ₹ 2,20,000, they will be allowed in full.

Balance Profit = ₹ 2,50,000 – ₹ 2,20,000

= ₹ 30,000

This balance will be distributed equally (since the deed specifies equal distribution of the remaining profit).