methods of dividing profit and loss 1.arbitrary ratio (any agreed ratio) 2.capital ratio based on...
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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 capitalb) Beginning yearly capitalc) Ending yearly capitald) Average Capital
3. Interest on investments, balance in an agreed ratio
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4. Salaries to partners, balance in an agreed ratio5. Interest on investments, salaries to partners, balance in an
agreed ratio6. 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)
METHODS OF DIVIDING PROFIT AND LOSS
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GIVEN: A, Capital P300,000 B, Capital 200,000 C, Capital 100,000
Net Income P90,000.000
1) Arbitrary Ratio ( 3:2:1)
A, Drawing (3/6 x 90,000) P45,000 B, Drawing (2/6 x 90,000) 30,000 C, Drawing (1/6 x 90,000) 15,000
GIVEN: A,CAPITAL B,CAPITAL Jan 1 300,000 200,000 Apr 1 50,000 Jun 30 250,000 Oct 1 (200,000)
Net Income P300,000
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1.a) Initial or Beginning Capital
Income & Expense Summary P300,000.00 A,Drawing (300/500 x P300,000) P180,000.00 B, Drawing (200/500 x P300,000) 120,000.00
b) Ending Ratio
Income & Expense Summary 300,000.00 A, Drawing (350/600 x P300,000) P175,000.00
B,Drawing (250/600 x P300,000 125,000.00 c) Average Capital
A,Capital 1/1 300,000.00 x 6mos 1,800,000 6/30 550,000.00 x 3mos 1,650,000 10/1 350,000.00 x 3 mos 1,050,000 Total 4,500,000 Dividend by 12 months 375,000
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B, Capital 1/1 200,000 x 3 mos 600,000 4/1 250,000 x 9 mos 2,250,000 Total 2,850,000 Divided by 12 mos 237,500
INTEREST ON PARTNERS CONTRIBUTIONBALANCE DISTRIBUTED IN AN AGREED RATIO
GIVEN: A, CAPITAL 350,000 B,CAPITAL 250,000NET INCOME : P300,000.00 INTEREST 12% RATIO 2:1
A,DRAWING B,DRAWING12% interest on capital (12% x 350,000) 42,000 (12% x 250,000) 30,000Balance at 2:1 (2/3 x 228,000) 152,000 (1/3 x 228,000) 76,000 TOTAL 194,000 106,000Income and Expense Summary 300,000 A, Drawing 194,000 B, Drawing 106,000
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Case 2 Net Income is P60,000 A, Drawing B,Drawing12% interest on Contribution (12% x 350,000) 42,000 (12% x 250,000) 30,000Balance based ib 2:1 (2/3 x 12,000) ( 8,000) (1/3 x 12,000) ( 4,000) TOTAL 34,000 26,000
ENTRY : 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.
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COMBINATION OF INTEREST AND SALARIES, BALANCE IN AN AGREED RATIO
Case 3 : A, Capital P500,000 B, Capital P300,000 P&L ratio agreement : 12% Interest on Capital balances, Salary of 15,000 per month to B Balance to be divided equally NET LOSS P24,000
A, Drawing B,Drawing Total12% Interest on capital 60,000 36,000 96,000Salary to B 15,000 per month 180,000 180,000Balance equally (P300,000/2) (150,000) (150,000) (300,000)Total (90,000) P66,000 P 24,000Entries:
Income and Expense Summary 96,000 A, Drawing 60,000 B,Drawing 36,000
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Income and Expense Summary 180,000 B, Drawing 180,000
A,Drawing 150,000B,Drawing 150,000
Income and Expense Summary 300,000