Question

" NETS 'S NO
then the partner has to share the
profits as well as the losses incurred in
the business in equal ratio.​

Answer 1

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Share of residual profit:

This is the amount of profit available to be shared between the partners in the profit and loss sharing ratio, after all other appropriations have been made. The profit and loss sharing ratio is sometimes simply called the ‘profit sharing ratio’ or ‘PSR’.

In accordance with the provisions of the partnership deed, the profits and losses made by the firm are distributed among the partners. However, sharing of profit and losses is equal among the partners, if the partnership deed is silent.

Therefore, candidates need to be aware that there is a distinction to be made between the profit for the year (income minus expenses), which is calculated in exactly the same way as for a sole trader and residual profit (the remaining profit after profit for the year has been adjusted by the appropriations in accordance with the partnership agreement).

It is worth pointing out that when a question states the profit or loss sharing ratio, that the proportions are always applied to the residual profit – not the profit for the year.