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Introduction to partnership accounts

20 November 2015

X,Y and Z are partners in a firm. At the time of division of profit for the year there was dispute between the partners.Profits before interest on partner's capital was 6000 and Y determined interest @ 24%p.a. on his loan of 80000. There was no agreement on this point. Calculate amount payable to X,Y and Z respectively.

Answer is - 400 for X,5200 for Y and 400 for Z. How? Please explain.

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Anu K S (Cleared CA Final) (195 Points)
Replied 20 November 2015

Tarun, The question clearly states that there was no agreement on tne issue. The partnership act 1932 provides that if there is no deed, 1. Partners are not entitled to 1a. Any salary 1b. Interest on capital or, 1c. Interest on drawings. 2. The profit sharing ratio shall be equal. 3. Interest on partner's loan can be allowed @ 6%. Hence, y s claim for 24% cannot be allowed. Interest on loan to y rs.4800(80000*6%) is allowed to y first. The remaining profit rs.1200(6000-4800) is divided equally among the three. Hence, x gets 400, y gets 5200(4800+400) and z gets 400.

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