Practice Activity 11.2 Estimation of the profit or loss attributable to each partner

Ada, Biakenechukwu, Chukwuka, Dimoma commenced a partnership business in January 2017. Assume that the profit or loss sharing ratio in a partnership agreement is 4:3:2:1. The profits made by the partnership are as follows:

Year ended 31 December 2017 ₦5,900,000

Year ended 31 December 2018 ₦6,500,000

Year ended 31 December 2019 ₦6,900,000

Required: Calculate the amount of profit attributable to each partner for the accounting year ended 31 December 2019.

A suggested solution to practice activity 11.2

Since there are four partners in the partnership firm, the profit shall be shared as follows:

For the year ended 31 December 2019, the profit is: ₦6,900,000

The profit or loss sharing ratio is 4:3:2:1

This implies that 4 + 3 + 2 + 1 = 10

Thus, the profit of ₦6,900,000 for the accounting year ending on 31 December 2019 is allocated to each partner as follows:

Ada: 4/10 * ₦6,900,000 = ₦2,760,000

Biakenechukwu: 3/10 * ₦6,900,000 = ₦2,070,000

Chukwuka: 2/10 * ₦6,900,000 = ₦1,380,000

Dimoma: 1/10 * ₦6,900,000 = ₦690,000

Prove the correctness of the profit attributable to each partner by summing up all the profits shared to Ada, Biakenechukwu, Chukwuka and Dimoma. The sum of the profits add up to ₦6,900,000.