Question

Joumana and Hala share profits and losses in a ratio of 5:3 respectively. Joumana and Hala receive salary allowances of $10,000 and $20,000 respectively, and both partners receive 5% interest based upon the balance in their capital accounts on January 1. Partners’ drawings are not used in determining the average capital balances. Total net income for 2019 is $80,000. If net income after deducting the interest and salary allocations is greater than $20,000, Hala receives a bonus of 7% of the original amount of net income.

                                                                                    Joumana                      Hala

            January 1 capital balance $ 200,000 $ 300,000

            Yearly drawings ($1,500 / month) $ 18,000 $ 18,000

What is the amount of net income allocated to Hala?

Answer 1

Statement of distribution of Net Income

	Joumana	Hala
Salary allowance	$10,000	$20000
Interest on Capital 5% on beginning Capital	$15000 ($300000*5%)	$10000 ($200000*5%)
Bonus to Hala @7% of $80000 (See working note :-1)		$5600
Distribution of Remaining income ($19400)after salary,interest and Bonus in their profit sharing ratio 5:3 See working Note 2	$12125 ($19400/8*5)	$7275 ($19400/8*3)
Total Allocated Amount	$37,125	$42,875

Working Note:-

1:&Remaining Net Income after Interest and salary = $80000-10000-$20000-15000-$10000=$25000

Because Remaining net income is greater than $20000 therefore bonus will be provided to Hala.

2:-Net income after Salary ,Interest and Bonus = $25000-5600 = $19,400

The amount of Net income allocated to Hala = $42,875