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In a partnership, how is the profit-sharing ratio determined?

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Question: In a partnership, how is the profit-sharing ratio determined?

Options:

  1. Equally among all partners
  2. Based on capital contribution
  3. As per partnership agreement
  4. By mutual consent only

Correct Answer: As per partnership agreement

Solution: 

The profit-sharing ratio is determined as per the partnership agreement made by the partners.

In a partnership, how is the profit-sharing ratio determined?

Practice Questions

Q1
In a partnership, how is the profit-sharing ratio determined?
  1. Equally among all partners
  2. Based on capital contribution
  3. As per partnership agreement
  4. By mutual consent only

Questions & Step-by-Step Solutions

In a partnership, how is the profit-sharing ratio determined?
  • Step 1: Partners discuss how they want to share profits.
  • Step 2: They create a partnership agreement that outlines the profit-sharing ratio.
  • Step 3: The ratio can be equal or based on each partner's investment or contribution.
  • Step 4: All partners must agree to the terms in the partnership agreement.
  • Profit-Sharing Ratio – The method by which partners in a partnership agree to divide the profits and losses among themselves.
  • Partnership Agreement – A legal document that outlines the terms of the partnership, including how profits are shared.
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