ARBITRARY AGREEMENTS IN COMPUTING PROFITS AND LOSSES

1 EQUALLY
Santos, Rosales and Guzman formed a partnership on January 1, 2021.
Santos invested P150,000.00, Rosales P150,000 and Guzman P200,000.

Profit for the year is at P300,000.

Santos Rosales Guzman Total

P300,000 / 3 100,000.00 100,000.00

100,000.00 100,000.00
100,000.00 100,000.00

100,000.00 100,000.00 100,000.00 300,000.00

2 SPECIFIED RATIO OR PERCENTAGE

Santos, Rosales and Guzman formed a partnership on January 1, 2021.
Santos invested P150,000.00, Rosales P150,000 and Guzman P200,000.
The articles of partnership states that partners Santos, Rosales and Guzman agrees that
the profits would be shared in the ratio of 40:25:35, respectively.

Profit for the year is at P1,000,000

Santos Rosales Guzman Total

40% 25% 35%

P 1,000,000 x40% 400,000.00 400,000.00

P 1,000,000 x25% 250,000.00 250,000.00
P 1,000,000 x35% 350,000.00 350,000.00
0.00
400,000.00 250,000.00 350,000.00 1,000,000.00
 3 RELATIVE CAPITAL BALANCES

3.1 ORIGINAL CAPITAL CONTRIBUTION

- amounts should be based on the amount originally invested
by the partners

Santos, Rosales and Guzman formed a partnership on January 1, 2021.

Santos invested P150,000.00, Rosales P350,000 and Guzman P200,000.

Profit for the year is at P1,000,000

Santos Rosales Guzman Total

1,000,000.00
214,285.71 214,285.71
500,000.00 500,000.00
285,714.29 285,714.29

214,285.71 500,000.00 285,714.29 1,000,000.00

Santos 150,000.00 / 700,000 = 0.214285714

Rosales 350,000.00 / 700,000 = 0.5
Guzman 200,000.00 / 700,000 = 0.285714286
Total Contribution 700,000.00

3.2 BEGINNING BALANCES OF THE ACCOUNTING YEAR

- based on the beginning balances of the current year for profit and
loss allocation.
Santos, Rosales and Guzman formed a partnership on January 1, 2020.
Santos invested P150,000.00, Rosales P350,000 and Guzman P200,000.
On January 1, 2021 the beginning capital balances of the partners are as follows:,
Santos - P200,000, Rosales - P400,000 and Guzman P250,000.

Profit for the year is at P500,000

Santos Rosales Guzman Total

500,000.00
117,647.06 117,647.06
235,294.12 235,294.12
147,058.82 147,058.82

117,647.06 235,294.12 147,058.82 500,000.00

Santos 200,000.00 / 850,000 = 0.235294118

Rosales 400,000.00 / 850,000 = 0.470588235
Guzman 250,000.00 / 850,000 = 0.294117647
Total Contribution 850,000.00
 3.3 AVERAGE CAPITAL BALANCES

3.3.1 SIMPLE AVERAGE CAPITAL METHOD

-simply add the beginning and ending capital
balance divided by 2

Santos, Capital Guzman, Capital

150,000.00 80,000.00 200,000.00
100,000.00

250,000.00 120,000.00

Rosales Capital
50,000.00 350,000.00
75,000.00

375,000.00

Capital Contributions
Santos 150,000 + 250,000
= 200,000 = 0.27681661
2

Rosales 350,000 + 375,000

= 362,500 = 0.501730104
2

Guzman 200,000 +120,000

= 160,000 = 0.221453287
2
722,500
Santos, Rosales and Guzman formed a partnership on January 1, 2020.
Santos invested P150,000.00, Rosales P350,000 and Guzman P200,000.

For the year the following events took place:

Rosales withdrew P50,000 on March 1, 2020.
Santos invested additional P100,000 on July 1, 2020.
Rosales invested additional P75,000 on August 30, 2020.
Guzman withdrew P80,000.00 on October 1, 2020

Profit for the year is at P500,000

Santos Rosales Guzman Total

500,000.00
138,408.30
250,865.05
110,726.64

138,408.30 250,865.05 110,726.64

 3.3.2 WEIGHTED AVERAGE CAPITAL METHOD
- also known as "peso-month" or "peso-day" average capital
method. Under this method, the computation of the average
capital considers the period in which the capital contributions
have been used in a given accounting period.

# of Months
Date Capital balance Month x Capital Balances Peso Months Average
Unchanged
Santos Jan. 1 150,000.00 6 900,000.00
July 1 250,000.00 6 1,500,000.00
12 2,400,000.00 200,000
***2,400,000 / 12 = 200,000
* 150,000 x 6
** 250,000 x 6
150,000 (beginning abalance) + 100,000 (additional investment) = 250,000

# of Months
Date Capital balance Month x Capital Balances Peso Months Average
Unchanged
Rosales Jan 1 350,000.00 2 700,000.00
March 1 300,000.00 6 1,800,000.00
**(350,000 - 50,000)

Aug. 30 425,000.00 4 1,700,000.00

**(300,000 + 125,000) 12 4,200,000.00 350,000.00
**(4,2000,000 / 12)
 # of Months
Date Capital balance Month x Capital Balances Peso Months Average
Unchanged
Guzman Jan 1 200,000.00 9 1,800,000.00
Oct. 1 120,000.00 3 360,000.00
(200,000 - 80,000)

12 2,160,000.00 180,000.00
(2,160,000 / 12)

Santos, Rosales and Guzman formed a partnership on January 1, 2020.

Santos invested P150,000.00, Rosales P350,000 and Guzman P200,000.

For the year the following events took place:

Rosales withdrew P50,000 on March 1, 2020.
Santos invested additional P100,000 on July 1, 2020.
Rosales invested additional P125,000 on August 30, 2020.
Guzman withdrew P80,000.00 on October 1, 2020

Profit for the year is at P500,000

Santos Rosales Guzman Total

500,000.00
136,986.30
239,726.03
123,287.67

136,986.30 239,726.03 123,287.67

Santos 200,000.00 = 0.273972603

Rosales 350,000.00 = 0.479452055
Guzman 180,000.00 = 0.246575342
730,000.00
Another Example:

PAUL
Jan 1 - invested 200,000
March 31 - withdrew 100,000
June 30 -invested - 300,000
Sept. 30 - 400,000

# of Months
Date Capital balance Month x Capital Balances Peso Months Average
Unchanged
PAUL Jan 1 200,000.00 3 600,000.00
March 31 100,000.00 3 300,000.00
200,000- 100,000

June 30 400,000.00 3 1,200,000.00

100,000 +300,000

Sept. 30 800,000.00 3 2,400,000.00

400,000 + 400,000

12 4,500,000.00 375,000.00
(4,500,000 / 12)