Methods of Dividing Profit and Loss

1. Arbitrary Ratio (any agreed ratio)

2. Capital Ratio Based on any of the following:
a) Initial or original capital
b) Beginning yearly capital
c) Ending yearly capital
d) Average Capital
3. Interest on investments, balance in an agreed ratio

METHODS OF DIVIDING PROFIT AND LOSS

4. Salaries to partners, balance in an agreed ratio

5. Interest on investments, salaries to partners, balance in an
agreed ratio
6. Interest on investments, salaries to partners, bonus to
managing partner, balance in an agreed ratio. Where bonus
is expressed as:
1. A distribution of profit (certain percentage of
income)
2. An expense (a certain percent of net income after
bonus)

GIVEN: A, Capital
B, Capital
C, Capital
Net Income

P300,000
200,000
100,000

P90,000.000

1) Arbitrary Ratio ( 3:2:1)

A, Drawing
B, Drawing
C, Drawing

(3/6 x 90,000)
(2/6 x 90,000)
(1/6 x 90,000)

P45,000
30,000
15,000

GIVEN:
A,CAPITAL
300,000

Jan 1
Apr 1
Jun 30
Oct 1

250,000
(200,000)
Net Income

P300,000

B,CAPITAL
200,000
50,000

1.a) Initial or Beginning Capital

Income & Expense Summary
P300,000.00
A,Drawing (300/500 x P300,000)
B, Drawing (200/500 x P300,000)

P180,000.00
120,000.00

b) Ending Ratio
Income & Expense Summary
300,000.00
A, Drawing (350/600 x P300,000)
B,Drawing (250/600 x P300,000

P175,000.00
125,000.00

c) Average Capital
A,Capital

1/1 300,000.00 x 6mos

6/30 550,000.00 x 3mos
10/1 350,000.00 x 3 mos
Total
Dividend by 12 months

1,800,000
1,650,000
1,050,000
4,500,000
375,000

B, Capital

1/1
4/1

200,000 x
3 mos
250,000 x
9 mos
Total
Divided by 12 mos

600,000
2,250,000
2,850,000
237,500

INTEREST ON PARTNERS CONTRIBUTION

BALANCE DISTRIBUTED IN AN AGREED RATIO
GIVEN: A, CAPITAL
350,000
B,CAPITAL
NET INCOME : P300,000.00 INTEREST 12% RATIO 2:1

250,000

A,DRAWING
12% interest on capital
(12% x 350,000)
(12% x 250,000)
Balance at 2:1
(2/3 x 228,000)
(1/3 x 228,000)
TOTAL
Income and Expense Summary
A, Drawing
B, Drawing

B,DRAWING

42,000
30,000

152,000
76,000
106,000

194,000
300,000
194,000
106,000

Case 2 Net Income is P60,000

A, Drawing
12% interest on Contribution
(12% x 350,000)
(12% x 250,000)
Balance based ib 2:1
(2/3 x 12,000)
(1/3 x 12,000)
TOTAL

B,Drawing

42,000
30,000
( 8,000)
34,000

( 4,000)
26,000

ENTRY :
Income and Expense Summary
72,000
A, Drawing
42,000
B, Drawing
30,000
To distribute interest to partners.
A,Drawing
8,000
B, Drawing
4,000
Income and Expense Summary
12,000
To distribute the remaining profit based on arbitrary ratio.

COMBINATION OF INTEREST AND SALARIES, BALANCE IN AN AGREED RATIO

Case 3 : A, Capital
P500,000
B, Capital P300,000
P&L ratio agreement : 12% Interest on Capital balances,
Salary of 15,000 per month to B
Balance to be divided equally
NET LOSS
P24,000

12% Interest on capital

Salary to B 15,000 per month
Balance equally
(P300,000/2)
Total
Entries:

A, Drawing
60,000

(150,000)
(90,000)

Income and Expense Summary

A, Drawing
B,Drawing

B,Drawing
36,000
180,000

Total
96,000
180,000

(150,000)
P66,000

96,000
60,000
36,000

(300,000)
P 24,000

Income and Expense Summary

B, Drawing

180,000

A,Drawing
150,000
B,Drawing
150,000
Income and Expense Summary

180,000

300,000