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How is the profit-sharing ratio determined in a partnership?
How is the profit-sharing ratio determined in a partnership?
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Practice Questions
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Q1
How is the profit-sharing ratio determined in a partnership?
Equal distribution among partners
Based on capital contribution
Based on the partnership agreement
Based on the age of partners
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The profit-sharing ratio is determined based on the partnership agreement, which outlines how profits and losses are to be shared.
Questions & Step-by-step Solutions
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Q
Q: How is the profit-sharing ratio determined in a partnership?
Solution:
The profit-sharing ratio is determined based on the partnership agreement, which outlines how profits and losses are to be shared.
Steps: 5
Show Steps
Step 1: Review the partnership agreement. This document outlines the terms of the partnership.
Step 2: Look for the section that specifies how profits and losses will be shared among partners.
Step 3: Identify the ratio mentioned in the agreement. This could be equal shares or based on each partner's investment or contribution.
Step 4: If there is no specific ratio mentioned, partners can agree on a new ratio through discussion.
Step 5: Document any changes to the profit-sharing ratio in writing to avoid confusion in the future.
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