Problem #1

Establishing Profit and Loss Sharing Method

Zenaida Rivadelo opted for an early retirement from a business process outsourcing company located in the Fort, Taguig
City and returned to Dagupan. She was presented with a business opportunity by her niece, Helen Mamitag, who has a
B.S. Degree in Consultants. Rivadelo contributed all the P700000 initial capital. She only devotes one-half time to the
business. Mamitag, the industrial partner, works full time. The monthly drawing were P50000 for Rivadelo and P75000
for Mamitag.

At the end of the first year of operations, the two partners talked about establishing an agreement to govern the
division of the partnerships’ profits or losses. Rivadelo proposed that the division be equal. Athough she devoted one-
half of Mamitag’s work time to the business, she contributed all of the startup funds and is the more experienced in this
line of business. Mamitag suggested that the income sharing ratio should be 2:1 in her favor because she works full time
in the business though she appreciated her bigger monthly drawings.

Required:

Propose an equitable income-sharing considering their contributions.

Mamita
  Rivadelo g Total
700000.0 700000.0
contribution 0   0
75000.0 125000.0
drawing 50000.00 0 0
drawing ratio 0.40 0.60 1.00
Rivadelo
suggested 0.50 0.50 1.00
Mamitag
suggested 0.67 0.33 1.00
Rivadelo total
ratio 0.58   0.58
Mamitag total
ratio   0.42 0.42