Division of profit and losses PDF

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Content: Division of profits and losses In addition to profit or loss sharing, the partnership agreement may also stipulate any of the following: a. Salaries – normally, an industrial partner receives salary in addition to his share in the partnership’s profits as compensation for his services to the partnership. b. Bonuses – the managing partner may be entitled to a bonus for excellent management performance. Unlike for salaries, a partner is entitled to a bonus only if the partnership earns profit. The partner is not entitled to any bonus if the partnership incurs loss. c. Interest on capital contributions – the partnership agreement may stipulate that capitalist partners are entitled to an annual interest on their capital contributions. The items above are normally provided first to the respective partners and any remaining amount of the profit or loss is shared among the partners based on their stipulated profit or loss ratio. Illustration 1.1: Salaries (w/ remaining profit) – different P/L ratios A and B formed a partnership. The partnership agreement stipulates the following:  Annual salary allowances of P50,000 for A and P30,000 for B. Salary allowances are to be withdrawn by the partners throughout the period and are to be debited to their respective drawings' accounts.  The partners share profits equally and losses on a 60:40 ratio. During the period the partnership earned profit of P100,000 before salary allowances. Requirements: a. Compute for the respective shares of the partners in the profit. b. Provide journal entries Illustration 1.2: Salaries (no remaining profit) – different P/L ratios A and B formed a partnership. The partnership agreement stipulates the following: o Annual salary allowances of P80,000 for A and P40,000 for B.

o The partners share profits equally and losses on a 60:40 ratio. During the period the partnership earned profit of P100,000. Illustration 1.3: No P/L ratio A and B formed a partnership on January 1, 20x1. Their contributions were credited to their respective capital accounts as follows: Capital accounts A, Capital 150,000 B, Capital 250,000 400,000 During the year, the partnership earned profit of P1,000,000. There was no stipulation in the agreement on how profits are to be shared by the partners. Requirement: Compute for the respective shares of the partners in the profit....