Question

B. Duke and L. Duke operated a general partnership performing minor automobile repairs in their small rural town for nearly six years. During the past four moths the cousins have noticed a steady decline in customers thanks to the new Wal Mart that was built about ten miles away that offers one stop shopping for high quality low priced goods while you wait for your tire rotation, brake job, battery replacements, etc. All the Dukes have for their clients to look at is a field and a few festive chickens! As such, this month the Duke's industrious accountant R.P. Coltrane figured that they would have a $6.000 loss. B. Duke's Capital account shows $1,400 and L. Duke's Capital account shows $3,600 but their oral partnership agreement made no mention of how profits/losses would be divided.

How much of the loss will each of the Duke cousins bear?

	A.	B. Duke will bear $1,680 and L. Duke will bear $4,320 of the loss
	B.	B. and L. Duke will bear $3,000 and R. P. Coltrane will bear $3,000 of the loss because he should have warned them about what was going to happen in their business if they don't get on the ball!
	C.	B. Duke will bear $4,320 and L. Duke will bear $1,680 of the loss
	D.	B. Duke will bear $3,000 and L. Duke will bear $3,000 of the loss
	E.	None of the other answers

Answer 1

In case there is a partnership agreement in place ( whether written or oral ), then Profit Sharing Ratio as per the agreement shall be used to dibidi profits and losses. In case the partnership agreement ( whether written or oral ) doesn't mention the Profit Sharing Ratio, then the profits and lossed shall be divided equally among the partners.

In the given question, there is an oral partnership agreement but that agreement has no mention of the Profit Sharing Ratio. Hence, in this case, the loss shall be divided equally among all the partners.

Hence the loss of $6000 shall be divided equally among B. Duke and L. Duke i.e. B. Duke will bear $3000 and L. Duke will bear $3000 of the loss.

Hence the correct answer is D - B.Duke will bear $3000 and L.Duke will bear $3000 of the loss.