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CSEET · Fundamentals of Accounting · Partnership and LLP Accounts

Ravi and Meena are partners in a firm whose partnership deed is silent on interest on capital, salary to partners and the profit-sharing ratio. Which of the following is the correct treatment under the default rules followed in partnership accounting?

If the partnership deed is silent, profits and losses are shared equally among partners, and no interest on capital or salary is allowed. Capital ratio does not determine sharing by default, so equal sharing without interest on capital is the correct treatment.

  1. AProfits are shared equally and no interest on capital is allowedCorrect
  2. BProfits are shared in the ratio of their capitals and interest on capital is allowed at 6% p.a.
  3. CProfits are shared equally and each partner gets a salary for the work done
  4. DProfits are shared in the ratio of drawings and interest on capital is allowed at 12% p.a.

Explanation

When the deed is silent, partners share profits and losses equally. No interest on capital and no salary is allowed. Sharing in the capital ratio is wrong because capital contribution does not decide the ratio when the deed is silent.

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