2, Alex and blen began a partnership (AB partnership)by investing birr 78,000 and birr 52,000 cash respectively .During its first year of operation the partnership earned net income of birr 60,000.
Required
A, prepare computations that show how the income should be allocated to the partners under each of the following income sharing plans.
i, The partnership agreement remained silent concerning income sharing method .
ii, The partner agree to share income in the ratio of orginal capital investments.
iii, The partner agree to share income by allowing first yearly salary of birr 12,000 to blen and birr 18,000 to alex then 10% interest on capital balance of each partner and finally their remender equally.
B, assume that AB partnership incurred birr 20,000 loss during its second year of operation determine the participation of Alex and Blen in this loss according to each of the three income-sharing assumptions listed in a above.
solve this Question and answer of the explain ?
A. i) The partnership agreement remained silent concerning income sharing method:
In this case, the income will be allocated equally between the two partners since no specific allocation method is mentioned. Therefore, each partner will receive birr 30,000 (birr 60,000 / 2) of the net income.
ii) The partners agree to share income in the ratio of original capital investments:
The total capital of the partnership is birr 78,000 + birr 52,000 = birr 130,000.
Alex's capital investment is birr 78,000 and Blen's capital investment is birr 52,000.
The ratio of their original capital investments is:
Alex: birr 78,000 / birr 130,000 = 3/5
Blen: birr 52,000 / birr 130,000 = 2/5
Therefore, Alex will receive (3/5) * birr 60,000 = birr 36,000 of the net income, and Blen will receive (2/5) * birr 60,000 = birr 24,000 of the net income.
iii) The partners agree to share income by allowing first yearly salary and then interest on capital balance:
The first-year salary for Blen is birr 12,000 and for Alex is birr 18,000.
After deducting these salaries from the net income, the remaining income is birr 60,000 - (birr 12,000 + birr 18,000) = birr 30,000.
Next, we calculate the interest on the capital balances:
Alex's capital balance is birr 78,000, and Blen's capital balance is birr 52,000.
The interest on capital is 10% of the capital balance.
Interest on Alex's capital = 10% * birr 78,000 = birr 7,800
Interest on Blen's capital = 10% * birr 52,000 = birr 5,200
Finally, the remaining income (birr 30,000) is divided equally between the partners:
Alex's share = (30,000 + 7,800) / 2 = birr 18,900
Blen's share = (30,000 + 5,200) / 2 = birr 17,600
B. To determine the participation of Alex and Blen in the loss of birr 20,000 during the second year, we can use the same income sharing assumptions as mentioned above.
i) Since the income sharing method is not mentioned, the loss will be shared equally between the partners.
Therefore, both Alex and Blen will bear birr 10,000 (birr 20,000 / 2) of the loss.
ii) According to the ratio of their original capital investments, the loss will be shared as follows:
Alex: (3/5) * birr 20,000 = birr 12,000
Blen: (2/5) * birr 20,000 = birr 8,000
iii) According to the income sharing method of first yearly salary and then interest on capital balance, the loss will not be allocated. The partners' capital balances will remain the same.
Note: It is important to note that the above calculations are based on the given information and assumptions provided. The actual income sharing and loss participation may vary depending on the partnership agreement.