Zainab and Chidi are partners in a firm. For the year ended 31 December 2025, the firm reported a net profit of ₦450,000 before accounting for interest on Chidi's loan of ₦50,000 at 10% per annum.
According to their partnership agreement:
- Interest on capital: Zainab ₦20,000; Chidi ₦15,000
- Annual salary: Zainab ₦60,000
- Interest on drawings: Zainab ₦5,000; Chidi ₦4,000
- Profit-sharing ratio: 3:2
What is the net divisible profit to be shared between the partners?
Answer: 359000 ₦
Answer
The net divisible profit to be shared between the partners is ₦359,000.
The correct net divisible profit is ₦359,000. Interest on a partner's loan is a charge against profit and must be deducted to find the true net profit (₦450,000 - ₦5,000 = ₦445,000). Adding total interest on drawings (₦9,000) yields ₦454,000. Deducting interest on capital (₦35,000) and partner salary (₦60,000) leaves ₦359,000 as net divisible profit.
Step-by-Step Solution
Key Concept
Distinction between charges against profit (e.g., loan interest) and appropriations of profit (e.g., interest on capital, salaries, interest on drawings).