MODULE 2: PARTNERSHIP OPERATIONS

ILLUSTRATION: Rey Po, Ben Chen

ALLOCATION OF PROFITS BASED ON THE FOLLOWING ASSUMPTIONS:

Php 600,000 Income

Share of Profits

No. Assumption Po Chen Total

1 Divided equally 300,000 300,000 600,000

2 3:4 257,142.85 342,857.14 600,000

3 no agreement* 375,000.00 225,000.00 600,000

4 Beginning capital ratio** same as No. 3

2500/4000; 1500/4000

5 Ending capital ratio 381,818.19 218,181.81 600,000.00

3150/4950; 1800/4950

6 Average capital ratio*** 381,292.22 218,707.78 600,000.00

7 10% Ending Capital 315,000.00 180,000.00 495,000.00

Remaining: 60% 40% 63,000.00 42,000.00 105,000.00
378,000.00 222,000.00 600,000.00

8 Salaries 350,000.00 350,000.00

Remaining: 1:4 50,000.00 200,000.00 250,000.00
400,000.00 200,000.00 600,000.00

9 Bonus 20% 120,000.00 120,000.00

Ratio of Beginning capital 300,000.00 180,000.00 480,000.00
 300,000.00 300,000.00 600,000.00

10 Salaries (52 weeks) 260,000.00 520,000.00 780,000.00

10% ACR 274,583.60 157,500.00 432,083.60
Remaining: 2:3 - 240,000.00 - 367,250.16 - 612,083.60
294,583.60 310,249.84 600,000.00

11 Salaries 260,000.00 520,000.00 780,000.00

10% 274,583.00 157,500.00 432,083.00
Remaining: 2:3 - 524,833.44 - 787,250.16 - 1,312,083.00
9,749.56 - 109,750.16 -100,000.00

* based on original capital contribution

Po = 2.4/4
Chen = 1.5/4

** the beginning capital is also the original capital contribution

 ENTRIES:
1 Income Summary - 600,000
Po, capital 300,000
Chen, Capital 300,000

2 Income Summary - 600,000

Po, capital 257,143
Chen, Capital 342,857

3 Income Summary - 600,000

Po, capital 375,000
Chen, Capital 225,000

4 Income Summary - 600,000

Po, capital 375,000
Chen, Capital 225,000

5 Income Summary - 600,000

Po, capital 381,818
Chen, Capital 218,182

6 Income Summary - 600,000

Po, capital 381,292
Chen, Capital 218,708

7 Income Summary - 600,000

Po, capital 378,000
Chen, Capital 222,000

8 Income Summary - 600,000

Po, capital 400,000
Chen, Capital 200,000

9 Income Summary - 600,000

 Po, capital 300,000
Chen, Capital 300,000

10 Income Summary - 600,000

Po, capital 294,584
work back Chen, Capital 310,249.84

10 Chen, Capital 109,750.16

Po, capital 9,749.56
work back Income Summary - 100,000
COMPUTATION OF AVERAGE CAPITAL RATIO

PO'S AVERAGE CAPITAL

Date Running balance Months unchange
1-Jan 2,500,000.00 3/12
1-Apr 2,750,000.00 1/12
1-May 2,650,000.00 5/12
1-Oct 3,150,000.00 3/12

CHEN'S AVERAGE CAPITAL

Date Running balance Months unchange
1-Jan 1,500,000.00 5/12
1-Jun 1,350,000.00 3/12
1-Sep 1,850,000.00 3/12
1-Dec 1,800,000.00 1/12

TOTAL AVERAGE CAPITAL

Po's capital ratio

Chen's capital ratio
 Average balance
625,000.00
229,167.00
1,104,166.67
787,500.00
2,745,833.67

Average balance
625,000.00
337,500.00
462,500.00
150,000.00
1,575,000.00

4,320,833.67

2,745,834/4,320,834 x 600,000 381,292.22

1,575,000/4,320,834 x 600,000 218,707.78
 Po, Capital
100,000.00 2,500,000
250,000
500,000.00
3,150,000.00 ending balance
 Chen, Capital
150,000.00 1,500,000
50,000.00 500,000
1,800,000.00 Ending balance
 Partnership Income
salaries 260,000.00
salaries 520,000.00
interest 274,583.60
interest 157,500.00

600,000.00 1,212,083.60
600,000.00
- 612,083.60 loss after distribution of agreement
 Partnership Income/loss
salaries 260,000.00
salaries 520,000.00
interest 274,583.60
interest 157,500.00

100,000.00 - 1,212,083.60
- 100,000.00
loss after distribution of agreement - 1,312,083.60
total agreed salaries and interest regardless there is a profit or loss
loss in operations
total loss