Assume that the Barnes and Ardmore partnership agreement provides for a two-thir
ID: 2460335 • Letter: A
Question
Assume that the Barnes and Ardmore partnership agreement provides for a two-third/one-third sharing of income but says nothing about losses. The first year of partnership operation resulted in a loss, and Barnes argues that the loss should be shared equally because the partnership agreement said nothing about sharing losses. Is Barnes correct? Explain why or why not. After the partnership makes the decision above, what financial statement would show the allocation of partnership income among the partners?
Explanation / Answer
Barnes is correct.
In the absence of the loss sharing ratio in the partnership deed, the loss is shared equally among the partners. The ratio may be specified in terms of absolute values or it may be expressed as a ratio of their Capital account balance.