Question

A and B are partners sharing profits in the ratio of 3 : 2 with capitals of ` 50,000 and ` 30,000 respectively. Interest on capital is agreed @ 6% p.a. B is to be allowed an annual salary of ` 2,500. A provision of 5% of net profit is to be made in respect of Manager’s Commission and rent of ` 24,000 is to be accounted being payable to A. Profit for the year before manager’s commission and rent to A was ` 39,000.

Answer 1

A and B are partners sharing profits in the ratio of 3 : 2 with capitals of ` 50,000 and ` 30,000 respectively. Interest on capital is agreed @ 6% p.a. B is to be allowed an annual salary of ` 2,500. A provision of 5% of net profit is to be made in respect of Manager’s Commission and rent of ` 24,000 is to be accounted being payable to A. Profit for the year before manager’s commission and rent to A was ` 39,000.

Explanation:

The Manager's Commission is found by:

Manager's Commission = 5% on Net Profit (before Salary)

12,500+ 2,500 = 15,000

Profit before Salary = Profit after Salary + Salary =

Thus Manager's Commission :

15,000* 5/100 =  750

Interest on Capital

The Interest on A's Capital =   50,000 *  6/100  = 3,000

Interest on B's Capital =    30,000 * 6/100 = 1,800

share of profit of each Partner

Profit available for distribution to the partners is:

12,500 - 750 - 3,000 - 1,800 = 6,950

Profit sharing ratio 3: 2

A's Profit Share

6,950 *  3/5 = 4,170

B's Profit Share

6,950 * 2/5 = 2,780

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