Nkem and Obi contribute ₦700,000 and ₦400,000 respectively to commence a partnership business in April 2018. Based on the partnership agreement, profits or losses are shared on the basis of 3:2. The compensation for the unequal amount of capital is 5 percent per annum. For any amount of withdrawals made from the partnership by a partner, the interest is 3 percent. The profit prior to deductions of interest and other payments to partners is ₦1,200,000 for the year ended 31 March 2019.
On 1 August 2018, Nkem and Obi made drawings amounting to ₦25,000 and ₦30,000 respectively.
Required: Calculate the profit or loss to be allocated between the partners.
A suggested solution to practice activity 11.9
Computation of the profit or loss to be allocated between the partners
₦ ₦
Profit for the year 1,200,000
Add: Interest on drawings:
Nkem (W1) 500
Obi (W1) 600 1,100
1,201,100
Less: Interest on capital:
Nkem (W2) 35,000
Obi (W2) 20,000
55,000
Profits available for sharing 1,146,100
Nkem (3/5) 687,660
Obi (2/5) 458,440
Workings
1. Interest on drawings:
Nkem 3% x 25,000 x 8/12 = ₦500 Obi 3% x 30,000 x 8/12 = ₦600
2. Interest on capital:
Nkem 5% x 700,000 = ₦35,000 Obi 5% x 400,000 = ₦20,000
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