READ THE FOLLOWING INFORMATION AND ANSWER THE FOLLOWING QUESTIONS-

Aman and Raghav were in partnership. On 1st April, 2020 they had Capitals of ₹5,00,000 and ₹3,00,000 respectively, General Reserve existed in the Balance Sheet at ₹50,000 and also Profit and Loss Account(Credit) of ₹1,00,000. On 1st October 2020, Aman advanced ₹1,00,000 for Loan to the firm and on the same date, the firm advanced loan ₹50,000 to Raghav. Both the loans were without any agreement. Interest on Capital is to be allowed @ 5%p.a. as a charge. Manager's Commission ₹20,000 was not yet allowed. Loss for the year before allowing and charging interest on loans was ₹50,000.

Which of the following will be the correct treatment of Manager's Commission in the books of accounts of the partnership firm?

will be allowed and debited to Profit and Loss Account

The correct answer is option 3- will be allowed and debited to Profit and Loss Account.

Manager's Commission will be allowed, it being a charge and therefore, is to allowed whether the firm earns profit or incur loss and debited to profit and loss account. Debiting manager's commission will increase the loss of the firm.