Partnership Question

Residual profit is what's left after 'salaries' to partners and 'interest' on their capital (these salaries and interest payments are really appropriations of profits). 'Interest' on drawings would be added back. Drawings themselves are irrelevant as they do not affect profits. So: 108,255 - 19,000 - 10,200 - 9,300 + 2,100 (?) + 3,300 = 75,155 The $75,155 is then divided in the agreed profit sharing ratio.

Dear Tutor Show the appropriation of the pro?ts to the two partners with allitle explanation. Q: A partnership makes pro?ts of $118,000. The partnership agreement stipulates that: - Partner A receives a salary of £30,000 and interest on capital account of 10% pa - Partner B receives a salary of $20,000 and interest on capital account of 10% pa - Capital accounts: Partner A = $200,000; Partner B = £120,000 Pro?t sharing ratio A:B = 3:2 Best Regards,

profits

Here's the answer.... Profit------------------------------------118,000 Interest on Capital A----------------20,000 Interest on Capital B----------------12,000 Salaries (20,000+30,000)---------50,000 Residual Profit-----------------------36,000 Distribution of Profit: (Ratio 3:2) Partner A: 36,000 x 3/5 = 21,600 Partner B: 36,000 x 2/5 = 14,400

"Alex and Jose are in partnership. Under the terms of the partnership, alex is entitled to a salary of $4,000 per annum. In the year to 31 December 20X1, the net profit of the partnership was $20,000. Interest on capital and interest on drawings for the year have been calculated as: Alex Jose Interest on capital $2,000 $1,000 Interest on drawings $6,000 $2,000 What is the residual profit for the year to 31 December 20X1? Select one: a. 18000 b. 23000 c. 21000 d. 17000 pls help me

The salary is an appropriation of profits, so deduct that: 20,000- 4,000 = 16,000 Interest on capital is also an appropriation, so deduct that also: 16,000 - 1,000 - 2000 = 13,000 Interest on drawings is charged to partners and represents income to the partnership. It's a bit like the reverse of interest on the capital the partners have invested. So ass that: 13,000 + 6,000 + 2,000 = 21,000.

Hi. How to differentiate if the question asks for a share of residual profit or a share of total profit? I did a partnership question and the question stated, 'profit share', I thought it was referring to a share of total profit but actually it was for share of residual profit.

The profit sharing ratio always applies to residual profits ie after salaries and interest on capital. However, salaries, interest on capital and the PSR are all components if the profit sharing agreement. Generally, if there is interest and/or salaries the profit share is likely yo refer to residual profits.

Thank you!

No problem!