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Discussion Rules of Profit and Loss Sharing

- Partners A, B, and C formed a partnership, with A contributing $600,000 capital, B contributing $200,000 capital and skills, and C contributing skills only. The partnership earned $600,000 over one year. - Under the agreed profit sharing ratio of 60% for A, 30% for B, and 10% for C, A's profit is $360,000, B's is $180,000, and C's is $60,000, divided according to their agreed ratios rather than capital contributions. - In a separate partnership of X, Y, and Z where there was no profit sharing agreement, and they lost $100,000, losses are divided based on capital

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349 views2 pages

Discussion Rules of Profit and Loss Sharing

- Partners A, B, and C formed a partnership, with A contributing $600,000 capital, B contributing $200,000 capital and skills, and C contributing skills only. The partnership earned $600,000 over one year. - Under the agreed profit sharing ratio of 60% for A, 30% for B, and 10% for C, A's profit is $360,000, B's is $180,000, and C's is $60,000, divided according to their agreed ratios rather than capital contributions. - In a separate partnership of X, Y, and Z where there was no profit sharing agreement, and they lost $100,000, losses are divided based on capital

Uploaded by

Krizchan Deyb De Leon
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We take content rights seriously. If you suspect this is your content, claim it here.
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Problem 1: Profit Sharing

A, B, and C formed a partnership with the following information


A, a capitalist partner, is to contribute P600,000
B, a capitalist and industrial partner is to contribute P200,000
C, an industrial partner, is to contribute his skill
ABC Partnership's has a P600,000 credit balance of income summary account during a
one-year operation
Case 1: A, B, C's profit and loss sharing is 60%, 30% and 10%, respectively
SOLUTION:

 Partner AP600,000 x 60% = P360,000


 Partner BP600,000 x 30% = P180,000
 Partner CP600,000 x 10% = P60,000
EXPLANATION:
According to the above-mentioned case, Partners A, B, and C agreed to share
both profits and losses for 60%, 30%, and 10%, respectively. In accordance to the first
rule of profit sharing, the partners shall divide their profits pursuant to their profit-sharing
ratio. The partners are not to divide the profit in conformity with their initial contributions
since an agreement was made on the portion of profits each partner shall receive.
 
Problem 2: Loss Sharing
X, Y and Z formed a partnership with the following information:
X, a capitalist partner, is to contribute P300,000
Y, a capitalist and industrial partner, is to contribute P100,000
Z, industrial partner, is to contribute his skill
XYZ Partnership’s has a P100,000 debit balance of income summary account during a
one-year operation
Case 2: There was no agreement made regarding the partnership profit
distribution
SOLUTION:

 Partner A – P100,000 x 75% = P75,000


 Partner B – P100,000 x 25% = P25,000
EXPLANATION:
As seen from my solution, the industrial partner, Partner C, was not included in
the sharing of the said losses. With accordance to the rule of losses sharing, if no
agreement was made in sharing the losses, it shall be based on the partners’ capital
contribution. As an industrial Partner with no capital contribution, he is not to share the
losses or in other words, he is exempted from it. This is due to the fact that Partner C
already rendered his services in vain. On the other hand, Partners A and B both
contributed capitals. Hence, their losses sharing ratio would be based on the
percentage of the capital they contributed. In this case, Partners A and B's losses
sharing is 75% and 25% respectively.

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