Final answer:
In a situation of loss, Partners Man and Cap need to absorb the total loss including their allocated interests on capital. Man's share of the total loss, according to the agreed division of 3:1, results in a P170,000 decrease in his capital.
Step-by-step explanation:
The question deals with a partnership situation where profits and losses are to be allocated between partners according to agreed-upon terms, including interest on capital contributions and remaining profit or loss distributions. Partners Man and Cap are allocated interest amounts of P100,000 and P150,000 respectively, before splitting the residual profit or absorbing the remainder loss.
Since the company sustained a loss of P110,000 for the year, there are no profits to be distributed; instead, the loss needs to be absorbed after considering the interest on capital. Man and Cap's interests total to P250,000 (P100,000 + P150,000). Adding the total loss of P110,000 to the interest amounts, we get a combined amount of P360,000 (P250,000 + P110,000) that needs to be absorbed by Man and Cap.
According to the division ratio of 3:1, Man will absorb 3/4 of this combined loss, which amounts to P270,000 (3/4 of P360,000). This is the total amount that Man has to absorb, including his interest on capital. Therefore, Man's capital will decrease by the difference between the interest on his capital and his share of the loss, which is P270,000 - P100,000, that equals to P170,000 decrease in Man's capital.