Chapter 2

Partnership – Part 2

PROBLEM 2-1: TRUE OR FALSE

6. TRUE (20 x 10%) + (20 x
1. FALSE 90% x 50%) = 11
2. TRUE 7. FALSE (20 X 50%) = 10
8. FALSE [50 + (100 – 50 –
3. TRUE 30) x 50%]
4. TRUE 9. FALSE
5. FALSE (10 – 2) x 50% = 4 10. TRUE

PROBLEM 2-2: THEORY & COMPUTATIONAL

1. C

2. C

3. D

4. D

5. D

6. Solutions:

Case #1:
A B C Total
Amount being allocated 100,000
Allocation:
1. Salaries 12,000 8,000 20,000
2. Bonus (100K - 20K) x 10% 8,000 8,000
3. Interest on cap.
(100K x 10%);(60K x 10%);(120K x 10%) 10,000 6,000 12,000 28,000
4. Allocation of remainder:
(100K - 20K - 8K - 28K) = 44K;
(44K x 40%); (44K x 30%); (44K x 30%) 17,600 13,200 13,200 44,000
As allocated 47,600 19,200 33,200 100,000

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Case #2:
A B C Total
Amount being allocated 10,000
Allocation:
1. Salaries 12,000 8,000 20,000
2. Bonus (N/A) - -
2. Interest on cap.
(100K x 10%);(60K x 10%);(120K x 10%) 10,000 6,000 12,000 28,000
3. Allocation of remainder
(10K - 20K - 28K) = -38K
(-38K x 40%); (-38K x 30%); (-38K x 30%) (15,200) (11,400) (11,400) (38,000)
As allocated 6,800 (5,400) 8,600 10,000

Case #3:
A B C Total
Amount being allocated (20,000)
Allocation:
1. Salaries 12,000 8,000 20,000
2. Bonus (N/A) - -
2. Interest on cap.
(100K x 10%);(60K x 10%);(120K x 10%) 10,000 6,000 12,000 28,000
3. Allocation of remainder
(-20K - 20K - 28K) = -68K
(-68K x 40%); (-68K x 30%); (-68K x 30%) (27,200) (20,400) (20,400) (68,000)
As allocated (5,200) (14,400) (400) (20,000)

7. Solution:
Balance, Jan. 1, 20x1 252,000 12/12 252,000
Additional investment, July 1 72,000 6/12 36,000
Withdrawal, August 1 (27,000) 5/12 (11,250)
Weighted average capital 276,750
Multiply by: 10%
Interest 27,675

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PROBLEM 2-3: EXERCISES – COMPUTATIONAL

1. Solutions:

Case #1:
A B C Total
Amount being allocated 100,000
Allocation:
1. Bonus (10% x 100,000) 10,000 10,000
2. Interest on cap.
(80K x 6%); (50K x 6%); (30K x 6%) 4,800 3,000 1,800 9,600
3. Allocation of remainder
(100K - 10K - 9.6K) = 80.4K ÷ 3 26,800 26,800 26,800 80,400
As allocated 41,600 29,800 28,600 100,000

Case #2:
A B C Total
Amount being allocated (20,000)
Allocation:
1. Bonus (none) - -
2. Interest on cap.
(80K x 6%); (50K x 6%); (30K x 6%) 4,800 3,000 1,800 9,600
3. Allocation of remainder
(-20K - 9.6K) = -29.6K ÷ 3 (9,867) (9,867) (9,867) (29,600)
As allocated (5,067) (6,867) (8,067) (20,000)

2. Solution:
Balance, Mar. 1, 20x1 50,000 10/12 41,666.67
Additional investment, June 1 20,000 7/12 11,666.67
Withdrawal, Sept. 1 (15K - 10K) (5,000) 4/12 (1,666.67)
Weighted average capital 51,667
Multiply by: 12%
Interest on capital 6,200

3. Solutions:
Case #1:

Partner A:
Balance, Jan. 1, 20x1 120,000 12/12 120,000
Withdrawal, May 1 (20,000) 8/12 (13,333)
Additional investment, Aug. 1 10,000 5/12 4,167
Withdrawal, Oct. 1 (10,000) 3/12 (2,500)

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Weighted Ave. Capital 108,333

Partner B:
Balance, Jan. 1, 20x1 80,000 12/12 80,000
Withdrawal, May 1 (10,000) 8/12 (6,667)
Additional investment, July 1 20,000 6/12 10,000
Withdrawal, Oct. 1 (5,000) 3/12 (1,250)
Weighted Ave. Capital 82,083

Partners Wtd. Ave. Cap.

A 108,333
B 82,083
Total 190,417

A B Total
Amount being allocated 240,000
Allocation:
(240K x 108,333/190,417);
136,543 103,457 240,000
(240K x 82,083/190,417)
As allocated 136,543 103,457 240,000

Case #2:
A B Total
Amount being allocated 240,000
Allocation:
1. Interest on cap. (see computations below) 20,000 17,000 37,000
2. Allocation of remainder
101,500 101,500 203,000
(240K - 37K) = 203K ÷ 2
As allocated 121,500 118,500 240,000

Partner A Partner B
Balance, Jan. 1, 20x1 120,000 80,000
Withdrawal, May 1 (20,000) (10,000)
Additional investment, July 1 20,000
Additional investment, Aug. 1 10,000
Withdrawal, Oct. 1 (10,000) (5,000)
Ending balances 100,000 85,000
Multiply by: 0 0
Interest on ending balance 20,000 17,000

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4. Solutions:

Case #1:
A B Total
Amount being allocated 480,000
Allocation:
1. Salary 60,000 60,000 120,000
2. Bonus (see computation below) 60,000 60,000
3. Allocation of remainder
(480K – 120K - 60K) = 300K ÷ 2 150,000 150,000 300,000
As allocated 270,000 210,000 480,000

The bonus is computed as follows:

Profit before salaries and before bonus 480,000

Salaries (60K x 2) (120,000)
Profit after salaries but before bonus 360,000
P
B = P -
1 + Br
Where: B = bonus
P = profit before bonus and tax but after salaries
Br = bonus rate or bonus percentage

360,000
B = 360,000 -
1 + 20%
B = 360,000 - 300,000
B = 60,000

Case #2:
A B Total
Amount being allocated 480,000(a)
Allocation:
1. Salary 60,000 60,000 120,000
2. Bonus 60,000(b) 60,000
3. Allocation of remainder
(480K – 120K - 60K) = 300K ÷ 2 150,000 150,000 300,000
As allocated 270,000 210,000 360,000

(a)
Profit before salaries and bonus is computed as follows:
Profit after salaries but before bonus 360,000
Salaries (60K x 2) 120,000
Profit before salaries and bonus 480,000

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(b)
The bonus is computed as follows:
P
B = P -
1 + Br
Where: B = bonus
P = profit before bonus and tax but after salaries
Br = bonus rate or bonus percentage

360,000
B = 360,000(c) -
1 + 20%
B = 360,000 - 300,000
B = 60,000
(c)
This is amount of profit given in the problem.

Case #3:
A B Total
Amount being allocated 480,000(a)
Allocation:
1. Salary 60,000 60,000 120,000
2. Bonus 60,000(b) 60,000
3. Allocation of remainder
(480K – 120K - 60K) = 300K ÷ 2 150,000 150,000 300,000
As allocated 270,000 210,000 360,000

(a)
Profit before salaries and bonus 480,000 (squeeze)
Salaries (60K x 2) (120,000)
Bonus (see computation below) (60,000)
Profit after salaries and bonus 300,000 (start)

(b)
The bonus is computed as follows:
 The problem states that the bonus is computed based on “Profit after
salaries and after bonus.” The “Profit after salaries and after bonus” is
actually the ₱300,000 amount given in the problem. Thus, to compute for
the bonus, the ₱300,000 amount is simply multiplied by the 20% bonus
percentage, i.e., (300,000 x 20%) = ₱60,000.

5. Answer: 0

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PROBLEM 2-4: CLASSROOM ACTIVITY
The answers vary depending on the assumptions made by the students.

PROBLEM 2-5: THEORY

1. A
2. D
3. D
4. A
5. A

PROBLEM 2-6: MULTIPLE CHOICE – COMPUTATIONAL

1. B
Solution:
Red White Total
Amount being allocated 80,000
Allocation:
1. Salaries 55,000 45,000 100,000
2. Allocation of remaining profit
(80K profit – 100K salaries) = -20K
(-20 x 60%); (-20K x 40%) (12,000) (8,000) (20,000)
As allocated 43,000 37,000 80,000

2. A
Solution:
Fox Greg Howe Total
Amount being allocated (33,000)
Allocation:
1. Salaries 30,000 - 20,000 50,000
2. Interest on capital 12,000 6,000 4,000 22,000
3. Allocation of balance
(-33K – 50K - 22K) = -105K / 3 (35,000) (35,000) (35,000) (105,000)
As allocated 7,000 (29,000) (11,000) (33,000)

3. C
Solution:
Axel Berg Cobb Total
Amount being allocated 250,000
Allocation:

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 1. Bonus to A
First 100K (100K x 10%) 10,000 10,000
Over 100K [(250K - 100K) x 20%] 30,000 30,000
2. Bonus to Berg and Cobb
(250K - 10K - 30K - 150K) x 5% 3,000 3,000 6,000
3. Allocation of bal. (204K / 3) 68,000 68,000 68,000 204,000
As allocated 108,000 71,000 71,000 250,000

4. B [140K + (40K x 6/12) – (15K x 5/12) = 153.75K x 10% = 15,375

5. B
Solution:
Let: X = profit after salaries and bonus
10%X = bonus after bonus

Choice #1 Choice #2
40,000 salary = 25,000 salary + 10%X

X is computed from the equation above:

40,000 = 25,000 + 10%X
10%X = 40,000 – 25,000
X = 15,000 / 10%
X = 150,000

Profit after salaries and bonus (X) 150,000

Multiply by: Bonus rate 10%
Bonus 15,000

Profit after salaries and bonus 150,000

Add back: Salaries (25K to Mr. A + 100K to other partners) 125,000
Add back: Bonus 15,000
Profit before salaries and bonus 290,000

6. B

7. C
Solution:
Profit (given) 46,750
Add back: Annual salary (1,000 x 12 mos.) 12,000
Add back: Interest on capital (25K x 5%) 1,250
Profit before annual salary and interest but after bonus 60,000

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Profit before salary and interest but after bonus 60,000
Divide by: (100% less 20% bonus rate) 80%
Profit before salary, interest and bonus 75,000
Multiply by: Bonus rate 20%
Bonus (bonus before bonus scheme) 15,000