PARTNERSHIP OPERATIONS

1. A and B are partners who share profits and losses in the ratio of 70% and 30%, respectively. A
salary is P100, 000 and P50, 000 for B. The partners are also paid interest in their average capital
balances. In 2020, A received P25, 000 of interest and B, P15, 000. The profit and loss allocation
are determined after deductions for the salary and interest payments. If B’s share in the residual
income (income after deducting salaries and interest) was P90, 000 in 2020, what was the total
partnership income?
Answer: P490, 000
Solution:
A B
Salaries 100, 000 50, 000 = P150, 000
Interest on ave. capital 25, 000 15, 000 = 40, 000
Share in residual income 90, 000 = 300, 000 (90K/.3)
Total income = P490, 000

2. The Partnership has the following accounting amounts:

Sales P700, 000
Cost of Goods Sold 400, 000
Operating Expenses 100, 000
Salary allocations to partners 130, 000
Interest paid to banks 20, 000
Partners’ withdrawals 80, 000

The partnership net income (loss) is:

Answer: P180, 000

Solution:
P700, 000 – 400, 000 – 100, 000 -20, 000 = P180, 000

Salary allocation to partners is different from the ordinary salary expense of an employee in a way that the former is not treated as a
component of net income but as a way of distributing net income. Partners’ withdrawals are not considered as expense thus,
excluded from the computation of net income.
3. Carl is trying to decide whether to accept a salary of P50,000 or a salary of P10, 000 plus a bonus
of 25% 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 P150, 000. What amount of income
would be necessary so that Carl would consider the choices to be equal?

Answer: P360, 000

Solution: Bonus after salaries and after bonus

X= income after salaries and after bonus
P50, 000 = 10, 000 + .25x
P40, 000 = .25x
X= 160, 000

Yun 160,000 ay after salaries and bonus na, dahil ang hinahanap natin is yung actual income, we
must add back all salaries and the bonus itself.
(150, 000 na salaries ng ibang partners + 10, 000 na possible maging salary ni Carl)
P160, 000 + 160, 000 + 40, 000 = P360, 000

Alternative solution:
Dahil binabalance natin yung Option 1 tsaka Option 2, therefore ang bonus ay
P40, 000 (50, 000 = 40, 000 + 10, 000)

P40, 000 is the bonus after salaries and after bonus

Bonus = .25( NI – Salaries – Bonus) (160, 000 *.25) (P40, 000 *.25)
40, 000 = .25NI – 40, 000 – 10, 000
90, 000 = .25NI
Net income = P360, 000

4. C and D are partners. They have shared the profits and losses 70/30 for a number of years. C has
indicated that he is going to reduce his involvement in the partnership so the profit and loss ratio
is being modified to 60/40. At the date of the change in the profit and loss ratio, the partnership
own vacant land with a market value of P300, 000 and a book value of P100, 000. C and D
compile a list of assets with market value and book value differences. Two years after the change
in the profit and loss ratios, the land is sold for P450,000. How much of the gain is allocated to
C?

Answer: P230, 000

Solution:

Gain number 1: At the date of change of Profit and Loss Ratio:

P300, 000 – 100, 000 = P200,000
Gain number 2: At the date of sale:
P450, 000 – 300,000 = 150, 000

Paano ang hatian?

Ang gagamitin mong Profit and Loss ratio is yung Profit and Loss ratio nung nangyari yung gain.
 Gain #1: P200, 000 *.7 = P140, 000; Gain #2: P150,000 *.6 = P90, 000 (140+90=P230K)

5. E and H are partners who are changing their profit and loss ratios from 50/50 to 80/20. At the
date of change, the partners choose to revalue assets with market value different from book value.
One asset revalues is land with a book value of P80, 000 and a market value of 160, 000. Two
years after the profit and loss ratio is changed, the land is sold for P230, 000. What is the amount
of change to H’s capital account at the date the land is sold?

Answer: P14, 000

Solution:
Parang pareho yung number 4 and number 5 pero may kaunti silang difference.
Ano yun? Sa 4, ito ang tanong, “How much of the gain is allocated to C?” Ibig sabihin ang
hinanap ay allocation ng TOTAL GAIN. Pero sa number 5, ito ang tanong, “What is the amount
of change to H’s capital account at the date the land is sold?”. Tama. AT THE DATE THE
LAND IS SOLD. Ibig sabihin yung gain lang na attributable sa sale ang hahanapin natin. Ignore
Gain#1.

P230, 000 – 160, 000 = P70, 000 * .2 = P14, 000

6. Taylor is a managing partner in a local business. Part of his profit allocation is a bonus based on
the store’s operating income. The bonus is 20% of operating income in excess of P1, 000, 000
after deducting the bonus. If operating income for the year is P1, 300, 000, what is Taylor’s
bonus?

Answer: P50, 000

Solution: P1,300, 000 – 1, 000, 000 = P300, 000 (Dito ibe-base ang bonus)
P300, 000 / 1.2 * .2 = P50, 000 (short cut ito) (pwede mo gamitin ung short cut sa ibang
problems; ung percentage lang babaguhin mo, so, kung 40 percent…
P300, 000 /1.4 *.4)

Long method:
Bonus = .2(NI – Bonus)
B = .2(300, 000 – B)
B = 60,000 - .2B
1.2B = 60, 000
B = P50, 000
(take note, hindi na si ex, si bih na yeeee, peace, quarantine joke)

7. Kris has a bonus as part of his partner profit allocation. The bonus is based on the partnership’s
net income. James receives a bonus equal to 15% that the net income exceeds P500, 000. If the
net income for the current year is P555, 555, how much bonus does Kris receive?
Answer: P8, 333. 25
Inspired by today’s ulam. nyahahaa
P555, 555 – 500, 000 = P55, 555
P55, 555 *.15 = P8, 333.25
 Pag silent ang problem, bonus = before salaries and before bonus. 😊

8. Sharon is the manager of a local store. She is also a partner in the company and she receives a
bonus as part of the profit and loss allocation. Sharon’s bonus is based on the increase in revenues
recorded during the period. The bonus arrangement is that Sharon receives 1% of net income for
every full percentage growth for revenues in excess of a 5% revenue growth. During the most
recent period, revenues grew from P300, 000 to P330, 000 and net income grew from P15, 000 to
P27, 000. How much bonus does Sharon receive for this period?

Answer: P1, 350

Solution:
P330, 000 – 300, 000 = P30, 000 increase; in percentage, P30, 000/ P300, 000 = 10%
10% - 5% = 5%
Using the net income for this period: P27, 000*.05= P1, 350

9. F, M and G are partners. The company has P500, 000 net income for the period. How much
should G get from the partnership if the following profit or loss allocation process is followed?
F M G
Weighted average capital P100, 000 P200, 000 P300, 000
Salary 10, 000 20, 000 30, 000
Bonus .05 (Net income – 50,000)

Residual profit/ loss ratios 15% 30% 55%

Return on invested capital (10%)

Answer: P279, 125

Solution:
F M G
Salary P10 ,000 P20,000 P30,000
Interest or return on invested capital 10, 000 20, 000 30, 000
Bonus 22, 500
Residual profit 196, 625
Total P279, 125
 Note: Yung interest daw ay based sa invested capital pero dahil walang given na invested capital
ang gamitin natin is ung average capital, pero kung may original investment, yun ang gagamitin.
G’s Bonus = P500, 000 – 50, 000 = P450, 000 *.05 , Pag silent, before bonus
G’s share in residual profit:
Compute muna natin ung residual: P500, 000 – 60, 000 – 60, 000 – 22, 500 = P357, 500
P357, 500 *. 55 = P196, 625; Hindi ko na pinakita ung kay F and M na share sa residual kasi di man sila
yung focus ng tanong.

10. I and J are considering forming a partnership whereby profits will be allocated through the use of
salaries and bonuses. Bonuses will be 25% of net income after total salaries and bonuses. I will
receive a salary of P50, 000 and a bonus. J has the option of receiving a salary of P60, 000 and a
bonus or simply receiving a salary of P70, 000. Both partners will receive the same amount of
bonus. Determine the level of income that would be necessary so that J will be indifferent to the
profit - sharing option selected.

Answer: P210, 000

Solution: Anong pinagkaiba nito sa number 3, dito 2 tao ang may bonus, si I and J. Sa number 3,
isa lang, The rest of the employees, wala.

Bonus after salaries and after bonus

X= income after salaries and after bonus
P70, 000 = 60, 000 + .25x/2 (Hati si I and J)
P10, 000 = .125x
X= 80, 000

P80, 000 + 110, 000 + 20, 000 = P210, 000

Alternative solution:
Dahil binabalance natin yung Option 1 tsaka Option 2, therefore ang bonus ay
P20, 000 ( (70, 000 = 10, 000 + 60, 000) *2 )

P20, 000 is the bonus after salaries and after bonus

Bonus = .25( NI – Salaries – Bonus) (110, 000 *.25) (P20, 000 *.25)
20, 000 = .25NI – 27, 500 – 5, 000
52, 500 = .25NI
Net income = P210, 000

Indifferent = Hindi ka makapag decide kasi same lang sila ng effect sayo. For example, Pumasa sa Quali or Maging Jowa si Crush,
Kahit alin ang piliin mo, di ka lugi. Indifferent ka kasi same lang sila ng benefits. So para maging indifferent, dapat equal yung value
ng dalawang option.