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The partners made a profit of K50 000. According to the partnership deed, profit should be distributed in proportion to capital contributions. How much would each partner receive? Show working out and answer below

Accounting

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Step-by-step solution

3 steps

  1. Calculate the total capital contributed by all partners.

    Total Capital=Partner A’s Capital+Partner B’s Capital+Partner C’s Capital\text{Total Capital} = \text{Partner A's Capital} + \text{Partner B's Capital} + \text{Partner C's Capital} Total Capital=K40 000+K35 000+K25 000\text{Total Capital} = \text{K40 000} + \text{K35 000} + \text{K25 000} Total Capital=K100 000\text{Total Capital} = \text{K100 000}

  2. Determine the proportion of each partner's capital to the total capital.

    For Partner A:

    Proportion A=Partner A’s CapitalTotal Capital=K40 000K100 000=0.4\text{Proportion A} = \frac{\text{Partner A's Capital}}{\text{Total Capital}} = \frac{\text{K40 000}}{\text{K100 000}} = 0.4

    For Partner B:

    Proportion B=Partner B’s CapitalTotal Capital=K35 000K100 000=0.35\text{Proportion B} = \frac{\text{Partner B's Capital}}{\text{Total Capital}} = \frac{\text{K35 000}}{\text{K100 000}} = 0.35

    For Partner C:

    Proportion C=Partner C’s CapitalTotal Capital=K25 000K100 000=0.25\text{Proportion C} = \frac{\text{Partner C's Capital}}{\text{Total Capital}} = \frac{\text{K25 000}}{\text{K100 000}} = 0.25

  3. Calculate each partner's share of the profit (K50 000) based on their capital proportion.

    A) Partner A:

    Partner A’s Share=Proportion A×Total Profit\text{Partner A's Share} = \text{Proportion A} \times \text{Total Profit} Partner A’s Share=0.4×K50 000\text{Partner A's Share} = 0.4 \times \text{K50 000} Partner A’s Share=K20 000\text{Partner A's Share} = \boxed{\text{K20 000}}

    B) Partner B:

    Partner B’s Share=Proportion B×Total Profit\text{Partner B's Share} = \text{Proportion B} \times \text{Total Profit} Partner B’s Share=0.35×K50 000\text{Partner B's Share} = 0.35 \times \text{K50 000} Partner B’s Share=K17 500\text{Partner B's Share} = \boxed{\text{K17 500}}

    For completeness, Partner C's share would be:

    Partner C’s Share=Proportion C×Total Profit\text{Partner C's Share} = \text{Proportion C} \times \text{Total Profit} Partner C’s Share=0.25×K50 000\text{Partner C's Share} = 0.25 \times \text{K50 000} Partner C’s Share=K12 500\text{Partner C's Share} = \text{K12 500}
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