AFAR 2 – PARTNERSHIP OPERATION

Problem 1: L, V and M are partners when the partnership earned a profit of 30,000. Their agreement provides the following
regarding allocation of profits and losses:
a. 8% interest on partner’s ending capital in excess of 75,000.
b. Salaries of 20,000 for L and 30,000 for V.
c. Any balance is to be distributed 2:1:1 for L, V and M, respectively.

Assume ending capital balances of 60,000, 80,000 and 100,000 for partners L, V and M respectively. What is the amount of profit
allocated for M, if each provision of profit and losses agreement is satisfied to whatever extent possible using the priority order?

(3,600)

L V M Total
8% interest 400 2,000 2,400
Salaries 20,000 30,000 50,000
Shared Balance (11,200) (5,600) (5,600) (22,400)
Share in Profits 8,800 24,800 (3,600) 30,000

Net Income 30,000

Less:Distribution Based on Agreement (52,400)
Balance to be Shared (22,400)