Gaaniru and Lotechukwu contribute ₦700,000 and ₦400,000 respectively to commence a partnership business in April 2018. The partnership business is based on the business idea of Lotechukwu. Lotechukwu makes leather bags, shoes and other accessories. Gaaniru is to ensure that the goods are sold at a profit. Based on the partnership agreement, the profits or losses of the business are to be allocated based on the ratio 2:1. The accounting records are to be prepared to 31 March every year. Gaaniru is entitled to a sales commission of 3 percent. The revenue for the year ended 31 March 2019 is ₦3,500,000.
Lotechukwu is entitled to monthly salary of ₦30,000.
Required: How should the performance bonus and salary be treated in the accounting records of the partnership?
A suggested solution to practice activity 11.8
Calculation of performance bonus
Performance bonus paid to Gaaniru
= ₦3,500,000 x 3% = ₦105,000
Salaries paid to Lotechuwkwu for the year ended 31 March 2019
= ₦30,000 x 12 months = ₦360,000
The performance bonus and salary should be deducted from the revenue generated by the partnership before sharing the profits between Gaaniru and Lotechukwu.
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