Question

Since a partnership does not necessarily have to create equal distributions of profits and losses to each partner, determine the best means to select the most equitable distribution, and select the method that you would use to allocate the partnership interest before you would consider becoming a partner. If the partnership did not work out, what provisions would be necessary to ensure that you receive a return of your original investment?

New ideas

Answer 1

I.For distribution of profits

1.The partnership firm should allocate profits on the basis of the propotion of their capital investments in the partnership firm.

2. Profits can also be apportioned on the basis of how actively the partners participate in the day to day activities of the firm

II.For distribution of interest

The interest on capital to be given in the propotion of their capital and the interest on drawings is on 6% of the drawings

III. If partnership did not work out.

The partners must identify a suitable and appropriate investment option where return is higher and risk is comparitivrly lower than partnership agreement.The selection of appropriate investment requires the knowledge of the capital budgeting technique.