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Chapter 2 #11

Tria and Resulta established a consultancy partnership in 2016, with Tria investing P450,000 and Resulta investing P350,000. They are considering three profit distribution schemes: (1) dividing profits in the same ratio as their capital balances, (2) paying 10% interest on capital balances and dividing the remainder equally, or (3) paying salaries of P175,000 and P155,000 respectively, 10% interest on capital balances, and dividing the remainder equally. The schedules show how profits of P500,000 and P240,000 would be distributed under each scheme. Scheme C is most advisable as it provides salaries and fair compensation of capital through interest payments before dividing any remaining profit equally.

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8K views2 pages

Chapter 2 #11

Tria and Resulta established a consultancy partnership in 2016, with Tria investing P450,000 and Resulta investing P350,000. They are considering three profit distribution schemes: (1) dividing profits in the same ratio as their capital balances, (2) paying 10% interest on capital balances and dividing the remainder equally, or (3) paying salaries of P175,000 and P155,000 respectively, 10% interest on capital balances, and dividing the remainder equally. The schedules show how profits of P500,000 and P240,000 would be distributed under each scheme. Scheme C is most advisable as it provides salaries and fair compensation of capital through interest payments before dividing any remaining profit equally.

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Problem #11

Establishing the Profit Distribution Scheme

Tria and Resulta established a consultancy partnership in 2016. They will work full time in the firm. Tria will make an
initial investment of P450000 and Resulta, P350000. They are considering the following independent schemes for the
division of profits:

a. Division in the same ratio as the balances of their capital accounts.


b. 10% interest on their capital balances accounts at the beginning of the year and the remainder to be divided
equally.
c. Salary allowances of P175000 for Tria and P155000 for Resulta, 10% interest on their capital balance at the
beginning of the year, and the remainder to be divided equally.

Required:

1. Prepare the profit distribution schedule for the above schemes assuming a:
a. Profit of P500000
b. Profit of P240000
2. Which profit distribution scheme is most advisable? Cite reasons.
- Profit of a 500000 because it exceeds the ½ of its initial investment. The more successful the business is the
more attraction it can give to those people who want to invest to the business.

  Profit: P500000
Tria Resulta Total
450000.0 350000.0
initial investment 0 0 800000.00
280000.0 220000.0
a. profit 56:44 0 0 500000.00
b. interest 10% 45000.00 35000.00 80000.00
210000.0 210000.0
remainder 1:1 0 0 420000.00
255000.0 245000.0
total profit 0 0 500000.00
175000.0 155000.0
c. salary 0 0 330000.00
interest 10% 45000.00 35000.00 80000.00
remainder 1:1 45000.00 45000.00 90000.00
265000.0 235000.0
total profit 0 0 500000.00

  Profit: P240000
Tria Resulta Total
450000.0 350000.0
initial investment 0 0 800000.00
134400.0 105600.0
a. profit 56:44 0 0 240000.00
b. interest 10% 45000.00 35000.00 80000.00
remainder 1:1 80000.00 80000.00 160000.00
125000.0 115000.0
total profit 0 0 240000.00
175000.0 155000.0
c. salary 0 0 330000.00
interest 10% 45000.00 35000.00 80000.00
-
remainder 1:1 -85000.00 -85000.00 170000.00
135000.0 105000.0
total profit 0 0 240000.00

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