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CA Foundation · Accounting · Partnership and LLP Accounts

Asha and Bharat are partners. Their partnership deed is silent about interest on capital, interest on drawings and salary. Asha contributed ₹5,00,000 and Bharat ₹2,00,000 as capital. Which of the following is correct for the distribution of profit?

Profits are shared equally and no interest on capital is allowed. When the partnership deed is silent, the default provisions apply: equal sharing irrespective of capital contributed, and no interest on capital, salary or commission to any partner.

  1. AProfits are shared equally, and no interest on capital is allowedCorrect
  2. BProfits are shared in the ratio of capitals, 5:2
  3. CInterest on capital at 6% p.a. is allowed before profits are shared equally
  4. DInterest on capital at 12% p.a. is allowed to the partner who contributed more capital

Explanation

When the deed is silent, the Partnership Act rules apply: profits are shared equally regardless of capital contributed, and no interest on capital, salary or commission is allowed. Sharing in capital ratio is wrong because capital contribution does not decide the profit ratio.

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