Distribution of Profits or Losses Based On Partner's

DISTRIBUTION OF PROFITS OR LOSSES
BASED ON PARTNER’S AGREEMENT
Ballada, Win and Ballada, Susan (2020).

Partnership and Corporation. Domdane
Publishers & Made Easy Books. Sampaloc,
Manila.
The partners may agree on any of the following
scheme in distributing profit or losses:
1. Equally or in other agreed ratio
2. Based on partners’ capital contribution:
a. ratio of original capital investment
b. ratio of capital balances at the beginning of the year
c. ratio of capital balances at the end of the year
d. ratio of average capital balances
3. By allowing interest on partners’ capital and the balance in an
agreed ratio
4. By allowing salaries to partners and the balance in agreed ratio
5. By allowing bonus to the managing partner based on profit and
the
6. By allowing salaries, interest on partners’ capital, bonus and the
balance in an agreed ratio
Ilustration
The following series of illustration are based on the figures
obtained from Biore and Besario Partnership which had a
profit of 300,000 for the year ended Dec. 31, 2019. The
partnership contract provides that each partner may
withdraw 5,000 on the last day of each month; both
partners did so during the year. The drawings are recorded
by debits to the partners’ drawings and shall not be
considered in the division of profit and loss. It is the
intention of the partners that each partner’s share in the
profit or loss be either credited or debited to drawing
account.
Christopher Biore invested 400,000 on Janaury 1, 2019 and an additional
100,000 on April 1. Rose Besario invested 800,000 on January 1 and
withdrew 50,000 on July 1.
BIORE, Capital BESARIO, Capital
01/01 400,000 06/01 50,000 01/01 800,000
04/04 100,000
BIORE, Drawings BESARIO, Drawings

Jan – Dec 60,000 Jan – Dec 60,000
Income Summary
12/31 300,000
1. Equally or in agreed ratio
Assume that Biore and Besario share profits and losses in a ratio of
60:40 and profit was 300,000.
Income Summary 300,000

Biore, Drawing 180,000
Besario, Drawing 120,000
Computation:
Biore: 60% (300,000) 180,000
Besario: 40% (300,000) 120,000
2. Based on Partners’ Capital Contribution
a. Ratio of Original Capital Investment

Computation:
Biore: 300,000(400,00/1,200,000) 100,000
Besario: 300,000( 800,000/1,200,000) 200,000
2. Based on Partners’ Capital Contribution
b. Ratio of Capital Balance at the Beginning of

the year
Computation:
Biore: 300,000(400,00/1,200,000) 100,000
Besario: 300,000( 800,000/1,200,000) 200,000
2. Based on Partner’s Capital Contribution
c. Ratio of Average Capital Balances

BIORE
Date Capital Balance Portion of year AVERAGE
unchanged BALANCE
Jan 1 400,0003/12 100,000
April 1 500,0009/12 375,000
475,000
2. Based on Partner’s Capital Contribution
c. Ratio of Average Capital Balances

BESARIO
Date Capital Balance Portion of year AVERAGE
unchanged BALANCE
Jan 1 800,0006/12 400,000
July 1 750,0006/12 375,000
775,000
Average Balance
BIORE 475,000
BESARIO 775,000
TOTAL 1,250,000
Income Summary
Biore, Capital 114,000
Besario, Capital 186,000
Computation:
Biore: 300,000 (475,000/1,250,000) 114,000
Besario: 300,000 (775,000/1,250,000) 186,000
3. By allowing Interest on Capital and the
Balance in an agreed ratio
Continuing the illustration of Biore and Besario Partnership with a profit
of 300,000 for 2019 and capital balances as already shown, assume that
partnership agreement allowed 15% interest on average capital account
balances, with the balance to be divided equally.
BIORE BESARIO TOTAL
15% Int on Average Capital
BIORE (15%* 475,000) 71,250
BESARIO (15%* 775,000) 116,250 187,500
Balance to be divided equally
BIORE 56,250
BESARIO 56,250
________ _____ 112,500
127,500 172,500 300,000
4. By allowing salaries to Partners and the
Balance in an agreed ratio
Continuing the illustration for Biore and Besario Partnership, assume
that partnership agreement provided for an annual salary of 100,000 to
Biore and 60,000 to Besario, and the balance to be divided equally. The
profit of 300,000 for 2019 is divided as follows:
BIORE BESARIO TOTAL

Salary Allowances 100,000 60,000 160,000
BIORE(140,000*50%) 70,000
BESARIO (140,000*50%) 70,000
________ _____ 140,000
170,000 130,000 300,000
5. By allowing Bonus to the Managing Partner
Based on Profit and the Balance in an agreed
ratio
Assume that Biore and Besario Partnership agreement provided for a bonus
of 25% of profit before bonus to Partner Biore and the balance to be divided
equally. The profit is 300,000.
BIORE BESARIO TOTAL

Bonus (25%*300,000) 75,000 75,000
BIORE(225,000*50%) 112,500
BESARIO (225,000*50%) 112,500
________ _____ 225,000
187,500 112,500 300,000
B=0.25(300,000)
B= 75,000
6. By allowing Salaries, Interest on Capital, Bonus to
Managing Partner and the Balance in an agreed ratio
Assume that the profit for the year is 400,000 and the
partnership agreement for Biore and Besario is as
follows:
1. Bonus to Biore of 25% of profit after salaries and
interest but before bonus;
2. Annual salaries of 100,000 to Biore and 60,000 to
Besario
3. Interest on average capital balances of 71,250 and
116,250 to Biore and Besario respectively;
4. Balance to be divided in a ratio of 40:60
BIORE BESARIO TOTAL
1. Salary allowance 100,00060,000 160,000
2. Interest
3. Bonus
4. Balance to be divided equally
BIORE
BESARIO
________ _____ _______
100,00060,000 160,000
BIORE BESARIO TOTAL
2. Interest 71,250 116,250 187,500
3. Bonus
BIORE
BESARIO
________ _____ _______
171,250176,250 347,500
BIORE BESARIO TOTAL
2. Interest 71,250 116,250 187,500
3. Bonus
BIORE
BESARIO
________ _____ _______
171,250176,250 347,500
B=0.25(400,000-160,000-187,500)
BIORE BESARIO TOTAL
2. Interest 71,250 116,250 187,500
3. Bonus 13,125 13,125
BIORE
BESARIO
________ _____ _______
184,375176,250 360,625
B=0.25(400,000-160,000-187,500)
B= 13,125
BIORE BESARIO TOTAL
2. Interest 71,250 116,250 187,500
3. Bonus 13,125 13,125
4. Balance to be divided
BIORE (39,375*40%) 15,750
BESARIO (37,375*60%) 23,625
________ _____ 39,375
200,125199,875 400,000
B=0.25(400,000-160,000-187,500)
B= 13,125
BIORE BESARIO TOTAL
2. Interest 71,250 116,250 187,500
3. Bonus 10,500 10,500
4. Balance to be divided
BIORE (42,000*40%) 16,800
BESARIO (42,000*60%) 25,200
________ _____ 42,000
198,550201,450 400,000
B=0.25(400,000-160,000-187,500-B)
B= 13,125 – 0.25B
1.25B = 13,125
B = 10,500

Distribution of Profits or Losses Based On Partner's

Uploaded by

Copyright:

Available Formats

Distribution of Profits or Losses Based On Partner's

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Distribution of Profits or Losses Based On Partner's

Uploaded by

Copyright:

Available Formats

DISTRIBUTION OF PROFITS OR LOSSES

BASED ON PARTNER’S AGREEMENT

Ballada, Win and Ballada, Susan (2020).

BIORE, Drawings BESARIO, Drawings

Income Summary 300,000

a. Ratio of Original Capital Investment

b. Ratio of Capital Balance at the Beginning of

c. Ratio of Average Capital Balances

c. Ratio of Average Capital Balances

BIORE BESARIO TOTAL

BIORE BESARIO TOTAL

You might also like