Final answer:
The salary, interest, and agreed ratio method of profit allocation cannot be applied when the result of operations is a net loss. The statement is true.
Step-by-step explanation:
The statement is true. The salary, interest, and agreed ratio method of profit allocation cannot be applied when the result of operations is a net loss. These methods are usually used to distribute profits among partners or shareholders when the business generates a positive net income.
When a business operates at a loss, there is no profit to allocate, so these methods cannot be used. In such cases, the loss is typically subtracted from the partners' or shareholders' capital accounts, reducing their investments. This helps reflect the decline in the value of their ownership interests due to the loss.
For example, if a partnership incurs a net loss of $10,000, each partner's capital account would be reduced by their ownership percentage. If Partner A has a 30% ownership stake, their capital account would decrease by $3,000 ($10,000 x 30%).