Question

Adam, Bert and Charlie started in partnership as second hand car dealers on 6^th April 2009, sharing profits in the ratio of 2:2:1. They contributed £50,000, £30,000 and £20,000 respectively.

The loss of the firm for the year ending 31^st December 2015 was £40,000 and the profit for the year ended 31^st December 2016 was £25,000. There were no interest on Capital and salary to any partner during the 2 previous years. For the year ending 31^st December 2017 the net profit was £128,200 , interest on capital £5,000 which is considered as 5% per annum interest paid for all the 3 partners for their capital contribution and salary paid out £10,000 to all of 3 partners.

Required:

1. Allocate the Profit to Adam, Bert and Charlie after distributing their salary and interest on capital for all the 3 years?

2. Find out the basis of assessment for the 3 partners

3. Explain how to adjust the share of loss of Adam and show the adjustment in the computation?

Answer 1

Statement for Dec'17
Ratio for sharing	2	2	1
Particular	Adam	Bert	Charlie
Capital	44000	24000	17000
Interest on Capital	2500	1500	1000
Salary	10000	10000	10000
Profit*	37280	37280	18640
Note*	Assume £10,000 is paid to each partner
	Dec'17
Profit	128200
Salary	-30000
Interest on Capital	-5000
Balance profit	93200
	18640
Statement for Dec'16
Ratio for sharing	2	2	1
Particular	Adam	Bert	Charlie
Capital	34000	14000	12000
Profit	10000	10000	5000
Total	44000	24000	17000
	Dec'16
Profit	25000
	5000
Statement for Dec'15
Ratio for sharing	2	2	1
Particular	Adam	Bert	Charlie
Capital	50000	30000	20000
Profit	-16000	-16000	-8000
Total	34000	14000	12000
	Dec'15
Profit	25000
Profit/5	-40000
	-8000