Methods of Dividing Profit and Loss 1 Arbitrary
Methods of Dividing Profit and Loss 1. Arbitrary Ratio (any agreed ratio) 2. Capital Ratio Based on any of the following: a) Initial or original capital b) Beginning yearly capital c) Ending yearly capital d) Average Capital 3. Interest on investments, balance in an agreed ratio
METHODS OF DIVIDING PROFIT AND LOSS 4. Salaries to partners, balance in an agreed ratio 5. Interest on investments, salaries to partners, balance in an agreed ratio 6. Interest on investments, salaries to partners, bonus to managing partner, balance in an agreed ratio. Where bonus is expressed as: 1. A distribution of profit (certain percentage of income) 2. An expense (a certain percent of net income after bonus)
GIVEN: A, Capital B, Capital C, Capital Net Income P 300, 000 200, 000 100, 000 P 90, 000 1) Arbitrary Ratio ( 3: 2: 1) A, Drawing B, Drawing C, Drawing GIVEN: Jan 1 Apr 1 Jun 30 Oct 1 (3/6 x 90, 000) (2/6 x 90, 000) (1/6 x 90, 000) A, CAPITAL 300, 000 250, 000 (200, 000) Net Income P 300, 000 P 45, 000 30, 000 15, 000 B, CAPITAL 200, 000 50, 000
1. a) Initial or Beginning Capital Income & Expense Summary P 300, 000. 00 A, Drawing (300/500 x P 300, 000) B, Drawing (200/500 x P 300, 000) P 180, 000. 00 120, 000. 00 b) Ending Ratio Income & Expense Summary 300, 000. 00 A, Drawing (350/600 x P 300, 000) B, Drawing (250/600 x P 300, 000 P 175, 000. 00 125, 000. 00 c) Average Capital A, Capital 1/1 300, 000. 00 x 6 mos 6/30 550, 000. 00 x 3 mos 10/1 350, 000. 00 x 3 mos Total Dividend by 12 months 1, 800, 000 1, 650, 000 1, 050, 000 4, 500, 000 375, 000
B, Capital 1/1 4/1 200, 000 x 3 mos 250, 000 x 9 mos Total Divided by 12 mos 600, 000 2, 250, 000 2, 850, 000 237, 500 INTEREST ON PARTNERS CONTRIBUTION BALANCE DISTRIBUTED IN AN AGREED RATIO GIVEN: A, CAPITAL 350, 000 B, CAPITAL NET INCOME : P 300, 000. 00 INTEREST 12% RATIO 2: 1 12% interest on capital (12% x 350, 000) (12% x 250, 000) Balance at 2: 1 (2/3 x 228, 000) (1/3 x 228, 000) TOTAL Income and Expense Summary A, Drawing B, Drawing 250, 000 A, DRAWING B, DRAWING 42, 000 30, 000 152, 000 194, 000 300, 000 76, 000 106, 000 194, 000 106, 000
Case 2 Net Income is P 60, 000 12% interest on Contribution (12% x 350, 000) (12% x 250, 000) Balance based ib 2: 1 (2/3 x 12, 000) (1/3 x 12, 000) TOTAL ENTRY : A, Drawing 42, 000 ( 8, 000) 34, 000 B, Drawing 30, 000 ( 4, 000) 26, 000 Income and Expense Summary 72, 000 A, Drawing 42, 000 B, Drawing 30, 000 To distribute interest to partners. A, Drawing 8, 000 B, Drawing 4, 000 Income and Expense Summary 12, 000 To distribute the remaining profit based on arbitrary ratio.
COMBINATION OF INTEREST AND SALARIES, BALANCE IN AN AGREED RATIO Case 3 : A, Capital P 500, 000 B, Capital P 300, 000 P&L ratio agreement : 12% Interest on Capital balances, Salary of 15, 000 per month to B Balance to be divided equally NET LOSS P 24, 000 12% Interest on capital Salary to B 15, 000 per month Balance equally (P 300, 000/2) Total Entries: A, Drawing 60, 000 (150, 000) (90, 000) Income and Expense Summary A, Drawing B, Drawing 36, 000 180, 000 Total 96, 000 180, 000 (150, 000) P 66, 000 96, 000 60, 000 36, 000 (300, 000) P 24, 000
Income and Expense Summary B, Drawing 180, 000 A, Drawing 150, 000 B, Drawing 150, 000 Income and Expense Summary 180, 000 300, 000
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