Asha, Nangila and Cherop contributed shilling 60,000,shilling 85,000 and shilling 105 000 respectively. They agreed to put 25% of the profit back into business each year. They also agreed to put aside 40% of the remaining profit to cater for taxes and insurance. The rest of the profit would then be shared among the partners in the ratio of their contributions. At the end of the first year, the business realized a gross profit of shilling 225 000.
(a) Calculate the amount of money Cherop received more than Asha at the end of the first year.
(b) Nangila further invested shilling 25,000 into the business at the beginning of the second year. Given that the gross profit at the end of the second year increased in the ratio 10: 9, calculate Nangila's share of the profit at the end of the second year
To solve this problem, we need to follow these steps:
Step 1: Calculate the total amount of money contributed by all partners.
The total contribution is the sum of the individual contributions:
Total contribution = Asha's contribution + Nangila's contribution + Cherop's contribution
Step 2: Calculate the amount of profit reinvested into the business.
The reinvestment amount is 25% of the gross profit:
Reinvestment amount = 0.25 x Gross profit
Step 3: Calculate the remaining profit after reinvestment.
Remaining profit = Gross profit - Reinvestment amount
Step 4: Calculate the amount reserved for taxes and insurance.
Taxes and insurance amount is 40% of the remaining profit:
Taxes and insurance amount = 0.4 x Remaining profit
Step 5: Calculate the net profit available for distribution among partners.
Net profit = Remaining profit - Taxes and insurance amount
Step 6: Calculate the ratio of the partners' contributions.
Ratio = Asha's contribution : Nangila's contribution : Cherop's contribution
Step 7: Calculate the share of each partner using the ratio.
Asha's share = (Net profit * Asha's contribution) / Total contribution
Nangila's share = (Net profit * Nangila's contribution) / Total contribution
Cherop's share = (Net profit * Cherop's contribution) / Total contribution
(a) To calculate the amount of money Cherop received more than Asha at the end of the first year,
Cherop's amount received more than Asha = Cherop's share - Asha's share
(b) To calculate Nangila's share of the profit at the end of the second year,
Calculate the new total contribution:
New total contribution = Total contribution + Nangila's additional investment
Calculate the new net profit using the increased ratio:
New net profit = Net profit * (10 / 9)
Calculate Nangila's share using the new total contribution:
Nangila's share = (New net profit * Nangila's contribution) / New total contribution
(a) To calculate the amount of money Cherop received more than Asha at the end of the first year, we need to calculate the profit distribution for each partner.
First, let's calculate the amount of profit to be put back into the business:
Profit for the first year = shilling 225,000
25% of the profit to be put back into the business = 0.25 * 225,000 = shilling 56,250
Next, let's calculate the remaining profit after putting 25% back into the business:
Remaining profit = Profit for the first year - Profit put back into the business
Remaining profit = 225,000 - 56,250 = shilling 168,750
Now, let's calculate the amount of profit to be set aside for taxes and insurance:
40% of the remaining profit to be set aside for taxes and insurance = 0.40 * 168,750 = shilling 67,500
Next, let's calculate the final profit after setting aside 40% for taxes and insurance:
Final profit = Remaining profit - Profit set aside for taxes and insurance
Final profit = 168,750 - 67,500 = shilling 101,250
Now, let's calculate the share of profit for each partner based on their contributions:
Total contribution = Asha's contribution + Nangila's contribution + Cherop's contribution
Total contribution = 60,000 + 85,000 + 105,000 = shilling 250,000
Asha's share of the profit = (Asha's contribution / Total contribution) * Final profit
Asha's share of the profit = (60,000 / 250,000) * 101,250 = shilling 24,300
Cherop's share of the profit = (Cherop's contribution / Total contribution) * Final profit
Cherop's share of the profit = (105,000 / 250,000) * 101,250 = shilling 42,840
Now, let's calculate the difference in the amount of money Cherop received compared to Asha:
Difference = Cherop's share of the profit - Asha's share of the profit
Difference = 42,840 - 24,300 = shilling 18,540
Therefore, Cherop received shilling 18,540 more than Asha at the end of the first year.
(b) At the beginning of the second year, Nangila further invested shilling 25,000 into the business.
Now, let's calculate the new total contribution after Nangila's additional investment:
Total contribution = Total contribution + Nangila's additional investment
Total contribution = 250,000 + 25,000 = shilling 275,000
Given that the gross profit at the end of the second year increased in the ratio 10:9, we can calculate Nangila's share of the profit using the new total contribution.
Nangila's share of the profit = (Nangila's contribution / Total contribution) * Second year profit
Nangila's share of the profit = (85,000 / 275,000) * Second year profit
Since we don't know the specific value of the second year profit, we cannot calculate Nangila's share without that information.