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A Level Accounting (9706)•9706/13/O/N/22
Question 16 from 9706/13/O/N/22

Explanation

Partnership profit allocation: interest on fixed capital then residual sharing in 3:2 ratio Steps:

  • Interest on J's capital: 10% × 40,000=40,000 = 40,000=4,000; on K's: 10% × 60,000=60,000 = 60,000=6,000; total interest $10,000
  • Residual profit: 250,000totalprofit−250,000 total profit - 250,000totalprofit−10,000 interest = $240,000
  • J's residual share: 3/5 × 240,000=240,000 = 240,000=144,000
  • J's total profit share: 144,000+144,000 + 144,000+4,000 interest = $148,000 Why C is correct:
  • Matches formula for profit appropriation in partnerships: interest credited first from gross profit, then residual divided per sharing ratio (3:2). Why the others are wrong:
  • A: Arithmetic error in residual allocation, e.g., understating J's residual share by $1,000.
  • B: Ignores interest deduction, e.g., 3/5 of overstated $300,000 profit.
  • D: Applies ratio only to small or wrong profit base, omitting interest entirely. Final answer: C
Topic: Types of business entity

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