Question

Assertion (A): When the profit-sharing ratio is agreed upon among the partners, they will share the losses also in the same ratio.

Reason (R): Although in the definition of partnership given in the Partnership Act it is stated that profits will be shared, profits include losses also.

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 (R) 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:

When partners agree on a profit-sharing ratio, they will also share losses in the same ratio, unless otherwise agreed. This is because, under the Indian Partnership Act, the definition of partnership includes sharing of profits, and it is understood that profits include losses. Hence, both the assertion and reason are correct, and the reason correctly explains the assertion.