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Other Profit Distribution Provisions

The document discusses several partnership agreements and their profit distribution provisions. It includes examples of: 1) A partnership between Dexter and Joliver where profits were distributed based on salaries, interest on capital contributions, and an equal split of remaining profits. 2) A scenario where partner MM must decide between a fixed salary or salary plus a bonus based on calculating the income needed for the options to be equal. 3) How a net loss would be allocated among partners Hanz, Ivy, Jasper, and Kelly based on their agreement involving salaries, interest, and splitting remaining profits.

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2K views

Other Profit Distribution Provisions

The document discusses several partnership agreements and their profit distribution provisions. It includes examples of: 1) A partnership between Dexter and Joliver where profits were distributed based on salaries, interest on capital contributions, and an equal split of remaining profits. 2) A scenario where partner MM must decide between a fixed salary or salary plus a bonus based on calculating the income needed for the options to be equal. 3) How a net loss would be allocated among partners Hanz, Ivy, Jasper, and Kelly based on their agreement involving salaries, interest, and splitting remaining profits.

Uploaded by

sunshine
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Other profit distribution provisions

1. Dexter and Joliver are partners agreeing to allow monthly salaries (6,000
and 5,000 respectively), 6% interests on the capital investment at the
beginning of the year (300,000 and 230,000 respectively) and on the
remaining balance, to the equally share. the first year registered a net
income of 100,000 profits share of the partners are:
Dexter, 58,100 and Joliver, 41,90

Dexter Joliver Total


Annual salary P72, 000 P60, 000 P132, 000
Interesst 18, 000 13, 800 31, 800
Balance, equally (31, 9000 (31, 900) (63, 800)
Total P58, 100 41, 900 P100, 000
2. MM is trying to decide whether to accept a salary of 40,000 or a salary
of 25,000 plus a bonus of 10% of net income after salaries and bonus as
a means of allocating profit among the partners. Salaries traceable to
the other partners are estimated to be 100,000. What amounts of
income would be necessary so that MM would consider the choices to
be equal?
290,000

Bonus required (P40, 000 - P25, 000) P15, 000


Divided by 10%
Total comprehensive income after bonus and
150, 000
salaries
P125,
Add back: Salaries (P25, 000 + P100, 000)
000
Bonus 15, 000 140, 000
P290,
Net profit before bonus and salaries
000
3. Hanz, Ivy, Jasper, and Kelly own a publishing company that they operate
as a partnership. Their agreement includes the following:
· Hanz will receive a salary of 20,000 and a bonus of 3% of income after
all the bonuses.
· Ivy will receive a salary of 10,000 and a bonus of 2% of income after all
the bonuses.
· All partners are to receive the following: Hanz – 5,00; Ivy – 4,500; Jasper
– 2,000; and Kelly – 4,700, representing 10% interest on their average capital
balances.
· Any remaining profits are to be divided equally among the partners.

How would a net loss of 40,000 would be allocated among the partners?
Hanz Ivy Jasper Kelly
3,450.00 (7,050.00) (19,550.00) (16,850.00)

Hanz Ivy Jasper Kelly TOTALS

Amount being (40,000.0


allocated 0)

Salaries 20,000.00 10,000.00 30,000.00

Interest 5,000.00 4,500.00 2,000.00 4,700.00 16,200.00

(86,200.0
0)

(21,550.0 (21,550.0 (21,550.0 (21,550.0


(21,550.00) 0) 0) 0) 0)

(19,550.0 (16,850.0 (40,000.0


TOTALS 3,450.00 (7,050.00) 0) 0) 0)

4. On January 2, 20CY Phil, Art and Rey formed the PAR partnership
contributing cash as follows:
Phil 192,000
Art 288,000
Rey 432,000
5.
6. The partnership contract provides the following provisions in respect with
partner’s remuneration:
7. Interests of 12% on average capital balances
Annual salaries as follows:
Phil 28,800
Art 24,000
Rey 27,200

Remainder of the net income divided 40%, 30% and 30% to Phil, Art, and Rey,
respectively.

Income before partners’ salaries and interests for the year ended December
31, 20CY was 184,160. Phil invested additional cash of 48,000 to the
partnership on July 1, 20CY. Rey withdrew 72,000 from the partnership on
October 1, 20CY. The partners also withdrew 1,500 monthly against their
share of net income for the year.

What is the capital balance of Phil on October 31, 20CY?


8. 274,320
P192,
Phil Capital, January 2, 2013
000
Additional Investment 48, 000
Profit share, (Schedule 1) 52, 320
(18,
Drawings (P1, 500 x 12)
000)
Phil Capital balance, December 31, P274,
2013 320

Schedule 1:

Phil Art Rey Total


P25, P34, P49, P110,
Interests, (Schedule 2)
920 560 680 160
Salaries 28, 800 24, 000 27, 200 80, 000
Remainder, 4:3:3 (2, 400) (1, 800) (1, 800) (6, 000)
P52, P56, P75, P184,
Total
320 760 080 160
Schedule 2:

P192, 000 x
Phil: 1/1 P96, 000
6/12=
7/1 240, 000 x 6/12= 120, 000
P216, 000 x P25,
12%= 920
P34,
Art: 1/1 P288, 000 x 12%=
560
P432, 000 x
Rey: 1/1 P324, 000
9/12=
10/1 360, 000 x 3/12= 90, 000
P414, 000 x P49,
12%= 680
9. The partnership agreement of Reid and Simm provides that interest at
10% per year is to be credited to each partner on the basis of weighted-
average capital balances. A summary of Simm’s capital account for the
year ended December 31, 2017, is as follows:
Balance, January 1 140,000
Additional investment, 40,000
July 1
Withdrawal, August 1 (15,000)
Balance, December 31 165,000

What amount of interest should be credited to Simm’s capital account for


2017?
15,375
Simm

1-Jan 140,000.00 1.00 140,000.00

1-Jul 40,000.00 0.50 20,000.00

1-Aug (15,000.00) 0.42 (6,250.00)

153,750.00

10% 15,375.00
10. Garcia and Henson formed a partnership on January 2, 20CY and agreed
to share profits 90%, 10%, respectively. Garcia contributed capital of
25,000. Henson contributed no capital but has a specialized expertise and
manages the firm full time. There were no withdrawals during the year.
The partnership agreement provides for the following:

· Capital accounts are to be credited annually with interests at 5% of


beginning capital.
· Henson is to be paid salary of 1,000 a months
· Henson is to receive a bonus of 20% of income calculated deducting his
salary and interests on both capital accounts.
· Bonus, interests, and Henson’s salary are to be considered partnership
expenses.

The partnership 20CY income statement follows:


Revenues 96,450
Expenses( including salary, interests
49,700
and bonus)
Net income 46,750

What is Henson’s 20CY bonus? 15,000


Comprehensive income P46, 750

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