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Profit Share

Forums › FIA Forums › FA2 Maintaining Financial Records Forums › Profit Share

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by Ken Garrett.
Viewing 2 posts - 1 through 2 (of 2 total)
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    Posts
  • August 24, 2017 at 6:51 am #403274
    vickyxxi
    Participant
    • Topics: 18
    • Replies: 19
    • ☆

    This is the question from ACCA-X and I still don’t understand how to get the correct answer.
    The question:

    Tony and Benny are partners in their firm BenTone. The balances of each partner’s capital and current account at 1 October 20X2 were:

    Capital account: Tony $10,000 credit
    Capital account: Benny $10,000 credit
    Current account: Tony $3,000 debit
    Current account: Benny $8,000 credit

    In the year ended 30 September 20X3, BenTone made a profit of $14,000. Their partnership agreement provides for interest on capital at 8% p.a., interest on drawings at 10% p.a. and a profit share ratio of 2:1 in Tony’s favour.

    During the year, Tony took drawings of $10,000 from the firm and Benny took drawings of $40,000 from the firm.

    What is Benny’s share of profit for the year?
    A. $2,333
    B. $2,600
    C. $4,933
    D. $6,800

    The correct answer is B. $2,600.

    August 29, 2017 at 4:55 pm #404117
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10595
    • ☆☆☆☆☆

    Before the profit sharing ratio is applied to 14,000 it is updated by the amounts of interest paid/received on drawings and capital account:

    14000 + 10000 x 10% + 40000 x 10% – (10000+10000) x 8% = 17400

    Of this, Benny gets 1/3 = 5800. Before getting his share he is charged for his drawings and credited for his capital:

    5800 – 40000×10% + 10000 x 8% = 2600

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