CMA Intermediate · Financial Accounting · Treatment of Joint Life Policy
Mehta, Nair and Oberoi share profits 3:2:1. The firm pays an annual joint life policy premium of Rs 60,000, treated as an expense. The firm's profit before this premium is Rs 3,00,000. What is Nair's share of profit after charging the premium?
Nair's share is Rs 80,000. The premium of Rs 60,000 is charged first, leaving profit of Rs 2,40,000, and Nair receives two-sixths of it under the 3:2:1 ratio. Ignoring the premium would wrongly give Rs 1,00,000.
- ARs 1,60,000
- BRs 80,000Correct
- CRs 1,20,000
- DRs 1,00,000
Explanation
Net profit = 3,00,000 − 60,000 = 2,40,000. Nair's share is 2/6 × 2,40,000 = 80,000. Rs 1,00,000 would be his share of profit before the premium, ignoring the expense.
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