In case of Partnership, in the event of losses, unless agreed otherwise, the loss is to be borne by all the partners_________.a)Equallyb)In profit sharing ratioc)In capital ratiosd)By draw of lotsCorrect answer is option 'B'. Can you explain this answer?

Question

Answer

Sharing profits of the business: First, there must exist a business i.e. trade, occupation and profession. The motive of the business is the acquisition of gains. Therefore there can be no partnership where there is no intention to carry on

the business and to share the profit thereof. Secondly, there must be an agreement to share profits. The agreement to share losses is not an essential element. However in the event of losses, unless agreed otherwise, these must be born in the profit sharing ratio.

Answer

Equally

Answer

The right answer is .... capital ratio...

Answer

In the absence of partnership deed the profit and loss are shared equally among partners and if there is partnership deed then it will be shared in pre decided ratio.

Answer

In case of Partnership, in the event of losses, unless agreed otherwise, the loss is to be borne by all the partners in profit sharing ratio.

Partnership is a type of business structure where two or more individuals come together to carry on a business with a view to making a profit. In a partnership, the partners share the profits and losses of the business. The allocation of profits and losses among the partners is usually agreed upon in the partnership agreement.

Default Rule
Unless agreed otherwise in the partnership agreement, the default rule is that the losses of the partnership are to be borne by all the partners in profit sharing ratio. This means that the partners will contribute towards the losses in proportion to their share in the profits of the business.

Explanation of Options
a) Equally: This option suggests that the losses will be equally divided among the partners. However, this is not the default rule in a partnership unless specifically agreed upon by the partners.
c) In capital ratios: This option suggests that the losses will be shared based on the partners' capital contribution to the partnership. However, this is not the default rule and may vary depending on the partnership agreement.
d) By draw of lots: This option suggests that the partners will randomly decide who will bear the losses by drawing lots. This method is not commonly used in partnerships and is not the default rule.

Profit Sharing Ratio
The profit sharing ratio is the proportion in which the partners share the profits of the business. It is usually agreed upon in the partnership agreement and is based on various factors such as capital contribution, effort, skills, and experience of the partners. The profit sharing ratio determines the distribution of profits among the partners.

Application of Profit Sharing Ratio to Losses
In case of losses, the default rule states that the partners will bear the losses in the same proportion as their profit sharing ratio. This means that partners who have a higher profit sharing ratio will bear a larger portion of the losses, while partners with a lower profit sharing ratio will bear a smaller portion of the losses.

Example
For example, if there are three partners A, B, and C with profit sharing ratios of 2:3:5 and the partnership incurs a loss of $10,000, the losses will be shared as follows:
- Partner A will bear (2/10) * $10,000 = $2,000
- Partner B will bear (3/10) * $10,000 = $3,000
- Partner C will bear (5/10) * $10,000 = $5,000

Conclusion
In conclusion, in the event of losses in a partnership, unless agreed otherwise in the partnership agreement, the losses are to be borne by all the partners in proportion to their profit sharing ratio. It is important for partners to clearly define the allocation of losses in the partnership agreement to avoid any disputes or misunderstandings in the future.

Answer

A

Similar CA Foundation Doubts

32.Y & W were in partnership sharing profit & losses equally. They admit S as a partner and decide to share profits equally. Goodwill is valued at 60,000 but is to be immediately written off. The effect of this on Y's capital would be to -?

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