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partnership

Forums › FIA Forums › FA2 Maintaining Financial Records Forums › partnership

  • This topic has 1 reply, 2 voices, and was last updated 2 years ago by Ken Garrett.
Viewing 2 posts - 1 through 2 (of 2 total)
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    Posts
  • November 4, 2022 at 3:10 pm #670669
    sunshinestateofmind
    Participant
    • Topics: 2
    • Replies: 1
    • ☆

    A partnership has a partnership agreement which stipulates:
    Interest on capital = 5% pa
    Partners’ capital: A $100,000; B $80,000; C $120,000
    Profit sharing ratio: A:B:C 2:3:4
    Additionally partner A had made a loan of $50,000 to the partnership of $50,000 on which interest of
    6% would be charged.
    Profits for a year before any interest $90,000.
    What is the total amount of profits appropriated to partner A?
    A $19,000
    B $16,000
    C $24,000
    D $21,000
    why is the correct answer D($21000) ?

    November 4, 2022 at 7:23 pm #670683
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10597
    • ☆☆☆☆☆

    Interest on a loan from a partner is a business expense just like paying interest to a bank.

    If profits before interest are 90,000 and interest is 50000 x 6% = 3000, profits after interest are 87000.

    From this profits are appropriated:

    Interest on capital: A 5000, B 4000, C 6000. Total = 15,000. This leaves 87000 – 15000 = 72000.

    Of this 2/9 is A’s ie 2/9 x 72000 = 16000.

    Totland profits going to A (NB not interest on the loan) are 5000 + 16000 = 21000.

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