Glossary · Also called PSR
Profit-sharing ratio
The agreed proportions in which partners divide the remaining profit or loss.
What it means
The ratio set out in the partnership agreement for dividing residual profit after other appropriations.
Example
Partners sharing 3:2 split a residual RM20,000 as RM12,000 and RM8,000.
Why it matters
It governs how the balance of profit, and any loss, is allocated between partners.
In practice
The profit-sharing ratio is applied at the very end of the appropriation account. By then, salaries, interest on capital and interest on drawings have all been dealt with. It divides whatever profit, or loss, remains. The shares are credited, or debited, to the partners' current accounts.
If RM45,000 is left and Aisha and Ben share profits 3:2, Aisha receives RM27,000 and Ben RM18,000.
The ratio applies only to this final residual figure, not to the earlier appropriations, which are settled first on their own terms. It should not be mixed up with the ratio of capital contributed. Partners may invest unequal capital and still agree to share the remaining profit equally, or the reverse. The sharing ratio reflects their agreement about effort, risk and experience, not only money. If no ratio was agreed, the Partnership Act applies and profits and losses are shared equally, however much each partner put in.
If the order of salary, interest and the final split catches you out, one of our teachers can practise a full appropriation account with you. Book a trial class.
Related terms
Syllabus reference: Cambridge 0452 and 0985, syllabus for 2027 to 2029, sub-topic 5.2 Partnerships (page 16).
Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.
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