The profits of a partnership are shared by the partners in the agreed ratio. If there is no agreed ratio, the profits are shared equally.
The partnership agreement can specify the factors that are taken into account when determining the profit sharing ratio. These factors may include the capital contributions of the partners, the amount of work done by the partners, or the skills and expertise of the partners.
The partnership agreement can also modify or exclude the default profit sharing ratio set out in the Indian Partnership Act, 1932.
Here are some MCQs on the relations of partners to one another: profits earned by partners:
- Which of the following is a factor that can be taken into account when determining the profit sharing ratio?
- The capital contributions of the partners.
- The amount of work done by the partners.
- The skills and expertise of the partners.
- All of the above.
- The answer is (d). All of the above are factors that can be taken into account when determining the profit sharing ratio.
- A partner in a banking partnership contributes more capital than the other partners. Are they entitled to a larger share of the profits?
- Yes, they are entitled to a larger share of the profits.
- No, they are not entitled to a larger share of the profits.
- The answer is (a). Yes, a partner in a banking partnership who contributes more capital is entitled to a larger share of the profits.
- A partnership agreement specifies that the profits will be shared equally, but one partner does more work than the other partners. Can the more hardworking partner claim a larger share of the profits?
- Yes, the more hardworking partner can claim a larger share of the profits.
- No, the more hardworking partner cannot claim a larger share of the profits.
- The answer is (a). Yes, the more hardworking partner can claim a larger share of the profits, even if the partnership agreement specifies that the profits will be shared equally.