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The net income of A and B Partnership for 20x4 was 504,000. The partners agreed to allocate the net income as follows: a 20% bonus, salaries of 48,000 to A and 72,000 to B, interest of 14,400 to A and 9,600 to B, with the residual balance allocated in a 2:1 ratio between A and B. There are two possible ways to calculate the bonus amount based on whether it is calculated before or after deducting salaries and interest from the net income.

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Philip Jhon Bayo
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143 views

Problem With Solution

The net income of A and B Partnership for 20x4 was 504,000. The partners agreed to allocate the net income as follows: a 20% bonus, salaries of 48,000 to A and 72,000 to B, interest of 14,400 to A and 9,600 to B, with the residual balance allocated in a 2:1 ratio between A and B. There are two possible ways to calculate the bonus amount based on whether it is calculated before or after deducting salaries and interest from the net income.

Uploaded by

Philip Jhon Bayo
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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The net income of A and B Partnership for 20x4 amounted to 504,000. A, is the managing partner.

Assume that the partners agreed on the allocation of net income as follows:

 Bonus of 20%
 Salaries to A, 48,000 and B, 72,000
 Interest on average capital balances – A, 14,400 and B, 9,600
 Residual balance in net income be allocated to A and B in the ratio of 2:1 ratio.

Required: Prepare a schedule to allocate net income, assuming:

1. Bonus is based on net income before bonus, salaries and interest

2. Bonus is based on net income after bonus but before salaries and interest.

Solution:

1. Bonus is based on net income before bonus, salaries and interest

Computation of Bonus:

Net income 504,000


Bonus percentage 20%
Bonus 100,800

The schedule showing the allocation of net income is presented as follows:

A B TOTAL
Salaries Allowances 48,000 72,000 120,000
Interest Allowances 14,400 9,600 24,000
Bonus 100,800 -- 100,800
Balance, (2:1) 172,800 86,400 259,000
Total 336,000 168,000 504,000

2. Bonus is based on net income after bonus but before salaries and interest.

Computation of Bonus:

Net Income before salaries, interest and bonus 504,000 = 120%


Net Income after bonus (504,000/120%) 420,000 = 100%
Bonus 84,000 = 20%
The schedule showing the allocation of net income is presented as follows:

A B TOTAL
Salaries Allowances 48,000 72,000 120,000
Interest Allowances 14,400 9,600 24,000
Bonus 84,000 -- 100,800
Balance, (2:1) 184,000 92,000 276,000
Total 330,400 173,600 504,000

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