Nancy and Betty enter into a partnership agreement whereby they undertake to share profits according to the following rules: (a)Nancy and Betty will receive a salary of $1400 and $11,500 respectively.
(b)The next allocation is based on 10% of the partner's capital balances.
(c)Any remaining profit or loss is to be borne completely by Betty.
The partnership's profit for the first year is $40,000.Nancy's capital balance is $88,000 and Betty's capital balance is $12,000 as at the end of the year.Calculate the share of profit/loss to be borne by Betty.

Question

Quizplus · Accepted Answer

Nancy and Betty's total salaries amount to $15,900 ($1400 + $11,500), which is deducted from the total profit of $40,000. This leaves $24,100 to be allocated between the partners.

Next, 10% of Nancy's capital balance is $8,800 ($88,000 x 10%), and 10% of Betty's capital balance is $1,200 ($12,000 x 10%). The total amount to be allocated based on capital balances is $10,000 ($8,800 + $1,200). This $10,000 is then added to the partners' salaries, giving a total allocation of $25,900 ($15,900 + $10,000).

Therefore, the remaining profit to be borne completely by Betty is $14,100 ($40,000 - $25,900). This was the amount leftover after the salaries and capital balances were allocated. Therefore, Betty's share of profit/loss to be borne completely by her is $14,100.

Nancy and Betty Enter into a Partnership Agreement Whereby They