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Difficulty: HardNature of Partnership and Provisions of Partnership Deed

Kalu and Morenike established a commercial enterprise without executing a written partnership deed. Kalu contributed ₦4,000,000 as capital, while Morenike contributed ₦2,000,000. On 1st January 2025, Morenike provided an additional advance of ₦600,000 as a loan to the firm. During the year, Morenike managed daily operations and claimed a salary of ₦400,000. For the year ended 31st December 2025, the business reported a net profit of ₦1,830,000 before taking any interest or partner allowances into account. Under the statutory provisions of the Partnership Act 1890, what is Kalu's final share of profit?

  1. ₦900,000Answer
  2. B
    ₦915,000
  3. C
    ₦1,200,000
  4. D
    ₦700,000

Answer

₦900,000
Under the Partnership Act 1890, in the absence of a written partnership agreement: (1) interest on loan is allowed at 5% per annum as a charge against profit in the Profit and Loss Account, reducing profit to ₦1,800,000; (2) no salary is allowed to any partner; and (3) profits must be shared equally. Therefore, Kalu receives half of ₦1,800,000, which equals ₦900,000.

Step-by-Step Solution

1
Calculate interest on partner's loan under the Partnership Act 1890
Interest on Morenike's loan = 5%×₦600,000=₦30,0005\% \times ₦600,000 = ₦30,000
When no partnership deed exists, partners are entitled to 5% per annum interest on loans advanced to the firm.
2
Determine the adjusted net profit for appropriation
Adjusted Net Profit = ₦1,830,000−₦30,000=₦1,800,000₦1,830,000 - ₦30,000 = ₦1,800,000
Interest on a partner's loan is a financial charge against profit (debited to the Profit and Loss Account), not an appropriation of profit.
3
Apply statutory rules regarding partner salary and profit sharing ratio
Partner salary = ₦0; Profit sharing ratio = Equal (1:1)
Under the Partnership Act 1890, partners are not entitled to remuneration/salary, and profits/losses must be shared equally regardless of capital contributions.
4
Compute Kalu's share of divisible profit
Kalu's share = ₦1,800,0002=₦900,000\frac{₦1,800,000}{2} = ₦900,000
Divisible profit of ₦1,800,000 is shared equally between Kalu and Morenike.

Key Concept

Statutory default rules under the Partnership Act 1890 when no partnership deed exists
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Topics

Nature of Partnership and Provisions of Partnership Deed

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