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Difficulty: Very hardNature of Partnership and Provisions of Partnership Deed

Femi, Gbenga, and Hassan formed a commercial partnership without executing a formal Partnership Deed. Femi contributed ₦1,000,000₦1,000,000 as capital, Gbenga contributed ��600,000��600,000, and Hassan contributed no capital but managed daily operations full-time, demanding an annual salary of ₦300,000₦300,000. On 1st July 2025, Gbenga advanced a loan of ₦200,000₦200,000 to the business. The net profit before adjusting for salaries or loan interest for the year ended 31st December 2025 was ₦410,000₦410,000. In accordance with the Partnership Act 1890, what is Gbenga's share of the divisible profit for the year?

  1. ₦135,000Answer
  2. B
    ₦35,000
  3. C
    ₦151,875
  4. D
    ₦133,333

Answer

Gbenga's share of the divisible profit is ₦135,000.
Under the Partnership Act 1890, in the absence of a Partnership Deed: (1) profits and losses are shared equally among all partners, (2) no partner is entitled to a salary, and (3) interest on partner loan is allowed at 5% per annum as a charge against profit. Gbenga's loan interest for 6 months (July 1 to Dec 31) equals ₦200,000×5%×612=₦5,000₦200,000 \times 5\% \times \frac{6}{12} = ₦5,000. Subtracting this charge from net profit yields ₦410,000−₦5,000=₦405,000₦410,000 - ₦5,000 = ₦405,000 divisible profit. Splitting ₦405,000 equally among the three partners yields ₦135,000 for each partner.

Step-by-Step Solution

1
Calculate the statutory interest on partner loan under the Partnership Act 1890
Interest on Gbenga's loan = ₦200,000×5%×612=₦5,000₦200,000 \times 5\% \times \frac{6}{12} = ₦5,000
The Partnership Act 1890 grants 5% per annum interest on loans advanced by partners beyond their capital. Since the loan was advanced on 1st July 2025, interest applies for 6 months.
2
Determine net profit available for distribution (Divisible Profit)
Divisible Profit = ₦410,000−₦5,000=₦405,000₦410,000 - ₦5,000 = ₦405,000
Interest on partner loan is a charge against profit (debited in the Profit and Loss Account), not an appropriation of profit. Partner salaries are disallowed in the absence of a deed.
3
Apportion the divisible profit among partners according to statutory default rules
Share per partner = ₦405,0003=₦135,000\frac{₦405,000}{3} = ₦135,000
Under the Partnership Act 1890, all partners share profits and losses equally regardless of their capital contributions.

Key Concept

Statutory default provisions under the Partnership Act 1890 in the absence of a formal Partnership Deed.
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Topics

Nature of Partnership and Provisions of Partnership Deed

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