PARTNERSHIP OPERATIONS
DIVISION OF PROFITS AND LOSSES
• The partnership profits and losses should be distributed
among the partners in accordance with the profit and loss
sharing agreement provided for in the Articles of
Partnership
• If only the manner of sharing profits was agreed upon,
then the law on partnership provides that losses shall be
divided in the same proportion.
• In the absence of a specific profit and loss sharing
agreement among the partners, the law provides that it
shall be distributed in accordance with their capital
contribution.
• In this case, the industrial partner shall receive
a share of the profit that I deemed just and
equitable under the circumstances but he
shall not share in the losses of the
partnership.
• A stipulation which excludes one or more
partners from any share in the profits is void.
METHODS OF DIVIDING PROFITS AND
LOSSES
• Equal ratio
• Arbitrary or unequal ratio
• Ratio of capital account balances
o Original capital
o Beginning capital
o Ending capital
o Average capital
• By allowing interest on partners’ capital and the
balance in an agreed ratio
• By allowing salaries and/or bonus to partners and the
balance in an agreed ratio
• By allowing interest, salaries and/or bonus to partners
and the balance in an agreed ratio
ILLUSTRATIVE PROBLEM
JOY
DEBIT
JEN
DEBIT
DATE
CREDIT
1-Jan
60,000.00
28-Feb 10,000.00
30-Apr
10,000.00
1-Oct
15,000.00
31-Oct 12,500.00
NET INCOME
DATE
CREDIT
1-Jan
80,000.00
31-Mar
20,000.00
1-Jul 15,000.00
31-Aug
10,000.00
31-Oct 5,000.00
200,000.00
EQUALLY
Equal division of profits and losses:
JOY
=
1/2 X
200,000.00 =
100,000.00
JEN
=
1/2 X
200,000.00 =
100,000.00
200,000.00
ARBITRARY
PERCENTAGES (Joy-60% and Jen-40%)
JOY
= 60% X
200,000.00
=
120,000.00
JEN
= 40% X
200,000.00
=
80,000.00
200,000.00
ARBITRARY
FRACTIONS (Joy-3/4 and Jen-1/4)
JOY
=
3/4 X 200,000.00 =
150,000.00
JEN
=
1/4 X 200,000.00 =
50,000.00
200,000.00
ARBITRARY
RATIOS (Joy-5 and Jen-3) 5:3
JOY
=
5/8 X 200,000.00 =
125,000.00
JEN
=
3/8 X 200,000.00 =
75,000.00
200,000.00
CAPITAL RATIO
ORIGINAL CAPITAL (supposed the original invst of Joy and Jen
were 45,000 and 105,000)
JOY
JEN
Orig Cap Fraction
45,000.00 45/150
Income
200,000.00 =
Share
60,000.00
105,000.00 105/150
150,000.00
200,000.00 =
140,000.00
200,000.00
CAPITAL RATIO
BEGINNING CAPITAL
JOY
JEN
Orig Cap Fraction
60,000.00 60/140
80,000.00
140,000.00
80/140
Income
200,000.00 =
Share
85,714.00
200,000.00 =
114,286.00
200,000.00
CAPITAL RATIO
ENDING CAPITAL
JOY
JEN
Orig Cap
62,500.00
Fraction
62.5/152.5
Income
200,000.00 =
Share
81,967.00
90,000.00
152,500.00
90/152.5
200,000.00 =
118,033.00
200,000.00
CAPITAL RATIO
AVERAGE CAPITAL
JOY
JEN
Orig Cap
60,000.00
Fraction
60/150
Income
200,000.00 =
Share
80,000.00
90,000.00
150,000.00
90/150
200,000.00 =
120,000.00
200,000.00
COMPUTATION OF AVERAGE CAPITAL ON THE NEXT SLIDE
COMPUTATION OF AVERAGE CAPITAL
JOY, CAPITAL
MONTHS TO
DATE DEBIT
CREDIT
DEC 31
1-Jan
60,000.00
12
28-Feb 10,000.00
10
30-Apr
10,000.00
8
1-Oct
15,000.00
3
31-Oct 12,500.00
2
TOTAL
Divide
AVERAGE CAPITAL
PESOMONTHS
720,000.00
(100,000.00)
80,000.00
45,000.00
(25,000.00)
720,000.00
12
60,000.00
JEN, CAPITAL
MONTHS TO
DATE
DEBIT
CREDIT
DEC 31 PESO- MONTHS
1-Jan
80,000.00
12 960,000.00
31-Mar
20,000.00
9 180,000.00
1-Jul 15,000.00
6
(90,000.00)
31-Aug
10,000.00
4
40,000.00
31-Oct 5,000.00
2
(10,000.00)
TOTAL
1,080,000.00
Divide
12
AVERAGE CAPITAL
90,000.00
PROBLEM
Rwyne and Niolli formed a partnership with original capital contributions of
P60,000 and P30,000 respectively. In the second year of operation, the capital
and drawing balances of partners are traced in the general ledger as follows:
Rwyne
DATE
DEBIT
CREDIT
1-Jan
60,000.00
30-Jun
40,000.00
30-Aug 60,000.00
30-Sep
110,000.00
Niolli
DATE
DEBIT
CREDIT
1-Jan
50,000.00
31-Mar
30,000.00
1-May 60,000.00
1-Oct
80,000.00
During the year, the partnership generated an income of P200,000.
Compute for the sharing in profit of Rwyne and Niolli using the following method:
Equal ratio
Arbitrary or unequal ratio
oFraction ( 5/8 ; 3/8)
oPercentage (70% ; 30%)
oEnding capital ( 3:2 )
Ratio of capital account balances
oOriginal capital
oBeginning capital
oEnding capital
oAverage capital
ANSWER
• EQUALLY
RWYNE = 100,000
NIOLLI = 100,000
• Arbitrary or unequal ratio
oFraction ( 5/8 ; 3/8)
RWYNE = 125,000
NIOLLI = 75,000
oPercentage (70% ; 30%)
RWYNE = 140,000
NIOLLI = 60,000
oEnding capital ( 3:2 )
RWYNE = 120,000
NIOLLI = 80,000
• Ratio of capital account balances
oOriginal capital
RWYNE = 133,333
NIOLLI = 66,667
oBeginning capital
RWYNE = 109,091
NIOLLI = 90,909
oEnding capital
RWYNE = 120,000
NIOLLI = 80,000
oAverage capital
RWYNE = 125,000
NIOLLI = 75,000
SEATWORK:
1.
The amount of partnership total assets is P500,000 and its total
liabilities amount to P100,000. How much is the amount partner’s
A capital if his interest in the partnership is 60%?
2.
If the amount of liabilities is P165,000 and the percentage of
owner’s claim in the total partnership’s assets is 45%, the
partnership assets would be?
3.
The Caramba Partnership shows a net profit of P600,000 during the
year. If parners Car, Ra and Ba have income ratios of 50%, 30% and
20% respectively, how much is Ba’s share in net income?
4.
Dar and Ling share in the partnership’s profit in the ratio of 2:1,
respectively. Dar received P245,000 as his share. How much did
Ling receive as his share?
Answers
1.
2.
3.
4.
240,000
300,000
120,000
122,500