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CA Foundation · Business Laws · The Indian Partnership Act, 1932

Eshan, Farid and Gita are partners. The partnership deed is silent on interest on capital, remuneration and the sharing ratio. Eshan contributed Rs 6,00,000 as capital, Farid Rs 3,00,000, and Gita Rs 1,00,000. The firm earned a profit of Rs 3,00,000 for the year. Gita alone managed the daily affairs. Which is the correct distribution under the Act?

Each partner receives Rs 1,00,000. When the deed is silent, profits are shared equally regardless of capital, and no interest on capital or remuneration for conducting the business is payable, so Gita's extra work earns her nothing additional.

  1. AEshan Rs 1,80,000, Farid Rs 90,000, Gita Rs 30,000
  2. BEach partner gets Rs 1,00,000, with no remuneration for GitaCorrect
  3. CGita gets extra remuneration, then the balance is shared equally
  4. DEshan Rs 1,50,000, Farid Rs 1,00,000, Gita Rs 50,000

Explanation

Absent agreement, partners share profits equally irrespective of capital contribution, no interest on capital is allowed, and no partner is entitled to remuneration for taking part in the business. So Rs 3,00,000 is divided equally, giving Rs 1,00,000 each. The capital-ratio option is a common mistake.

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