Question

The following is an example of partnership income allocation:

Each partner receives 7% interest on his or her beginning capital account balances. Partner A receives a $20,000 salary and 30% of the profit or loss. Partner B receives a 15% bonus on distributable income after interest and salaries and shares in 25% of the profit and loss. Partner C has a profit and loss ratio of 45%. The partners beginning capital balances are as follows:

A = $25,000

B = $35,000

C = $40,000

Assuming the partnership net income is $65,000, the following distribution schedule would be prepared:

Answer 1

Distribution Schedule

Particulars	Profit	A	B	c
Total Distributable Profit(Note) Less: 15% Bonus to B(15% of 38000)	38000 (5700)	- -	- 5700	- -
Balance A's Share 30% B's Share 25% C's Share 45%	32300 (9690) (8075) (14535)	9690 - -	5700 - 8075 -	- - 14535
Total Profit Share	-	9690	13775	14535

Note: Calculation of Distributable Profit

Particulars	Amount($)
Net Income Less: Interest on capital - A(7% of $25000) - B(7% of $35000) - C(7% of $40000) Less: Salary of A	65000 (1750) (2450) (2800) (20000)
Net Distributable Profit	38000