How are profits distributed among partners?
Following the provisions of the partnership deed, the gains and losses made by the enterprise are allocated among the partners. Hence, sharing of gains and losses is equivalent among the partners, if the partnership deed is quiet.
The profits and losses of the firm are allocated among the partners in an accorded ratio. However, if the partnership deed is quiet, the partnership firm’s gains and losses are to be equally shared by all the partners.
- In the case of a sole proprietorship :
- The profit or loss, as determined by the profit and loss account is being transferred to the capital account of the proprietor. In case of a partnership, certain modifications such as interest on capital, interest on drawings, commission to partners and salary to partners are essential to be made
- For the described purpose, it is customary to prepare a Profit and Loss Appropriation A/c of the firm and ascertain the final figure of profit and loss to be allocated among the partners in their profit sharing ratio
The above mentioned is the concept that is explained in detail about Distribution of Profit among Partners for the class 12 students. To know more, stay tuned to BYJU’S.