Summary
Summary Methods of Dividing Profit or Loss
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Explain the detailed process of the following bases for division of profit: • Arbitrary Ratio • Capital Contribution Ratio • Salaries, Interest and Bonus
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Question:Explain the detailed process of the following bases for division of profit:
• Arbitrary Ratio
• Capital Contribution Ratio
• Salaries, Interest and Bonus
Example: Arbitrary Ratio is simply multiplying the agreed ratio with the...
Answer:
Arbitrary ratio is simply multiplying the agreed ratio with the net profit or net loss.
Capital Contribution Ratio from the following basis:
• Beginning Capital - To get the ratio from the beginning capital, the beginning
capital of each partner will be divided by the total beginning capital. The
quotient will then be multiplied by 100 to get the percentage of each partner.
• Initial Contribution - To get the ratio from the initial contribution, the initial
contribution of each partner will be divided by the total initial contribution. The
quotient will then be multiplied by 100 to get the percentage of each partner.
• Ending Balance - To get the ratio from the ending balance, the ending balances
of each partner will be divided by the total ending balances. The quotient will
then be multiplied by 100 to get the percentage of each partner.
• Average Capital - To get the ratio from the average capital, the average capital
of each partner will be divided by the total average capital. The quotient will
then be multiplied by 100 to get the percentage of each partner.
Salary, interest and bonus are computed by the following:
• Salary - To get the salary, multiply the salary per month by 12 (number of
months in a year) to get the annual salary.
• Interest - To get the interest, multiply either the beginning capital, initial
contribution, average capital, or ending balance with the interest ratio.
• Bonus - To get the bonus, use either NIBSIB, NIASIB, NIBSIAB, or NIASIBB.
o NIBSIB - To get the bonus from the net income before salary,
interest and bonus, the bonus rate will simply be multiplied with the
net income. The formula will be:
x-bonus B%-bonus rate NI-net income
x = B%(NI)
o NIASIB - To get the bonus from the the net income after salary,
interest and bonus, the net income will be subtracted by the salary,
interest, and bonus. The difference will then be multiplied with the
bonus rate. The formula will be:
x-bonus. B%-bonus rate NI-net income S-salary I-interest
x=B%(NI-S-I-x)
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