Partnership Operations
Partnership Operations
Partnership Operations
In this topic, we are going to deal on how profit and loss will be distributed depending on the
agreement or allocation tool agreed by all of the partners. Given below the rules on how profits
or loss will be divided among the partners.
Changes in Capital
Drawings
Partnership Operation 1
Illustration Problem 1
Partners A and B share in profits and losses equally after salaries of P100,000 for A and
P60,000 for B. The business earned profit of P200,000 before deduction for the salaries.
Requirements:
a. Compute for the partners' respective shares in the profit.
b. Provide the journal entries (the salaries are withdrawn periodically).
Solution:
Requirement (a):
A B Total
Amount being allocated 200,000
Allocation:
1. Salaries 100,000 60,000 160,000
2. Allocation of remaining profit
(200K profit – 160K salaries) = 40K
(40K x 50%); (40K x 50%) 20,000 20,000 40,000
As allocated 120,000 80,000 200,000
Requirement (b):
Monthl A, Drawings 100,000
y
B, Drawings 60,000
entries
Cash 160,000
to record the withdrawal of salary allowances
Year- Income summary 200,000
end
A, Capital 120,000
entry
B, Capital 80,000
to record the distribution of profit
Year- A, Capital 100,000
end B, Capital 60,000
entry
A, Drawings 100,000
B, Drawings 60,000
to close the drawings accounts
Illustration Problem 2
A and B's partnership agreement provides for annual salary allowances of P160,000 for A and
P80,000 for B. Profits are shared equally, while losses on a 60:40 ratio. The partnership earned
profit of P200,000.
Requirement: Compute for the respective shares of the partners in the profit.