Concept Introduction:
People start their own business and select the form of organisation depend upon their need and kind of their business.
The comparison of two proposals given by partner.
Answer to Problem 6E
If there is
Explanation of Solution
As per Mr. Banyan and Mr. Schultz proposal:
Name | First year | Second year | Third year |
Mr. Banyan | | | |
Mr. Schultz | | | |
Mr. Witkowski | | | |
As per Mr. Witkowski’s proposal:
Name | First year | Second year | Third year |
Mr. Banyan | | | |
Mr. Schultz | | | |
Mr. Witkowski | | | |
In the first year:
The estimated profit of the company for the first year would be
It would be increase by
So, in the second year, the increased income is:
And, in the third year, income is:
Profit percentage of all the partners as follows:
Mr. Banyan
Mr. Schultz
Mr. Witkowski
Comparison for the first year where the income is
As per Mr. Banyan and Mr. Schultz proposal:
Profit will be distributed to all partners in the above profit-sharing ratio i.e.
Partners | Computation | Income |
Mr. Banyan | | |
Mr. Schultz | | |
Mr. Witkowski | | |
Total | |
As per Mr. Witkowski’s proposal:
(Amount in $)
Heads of distribution | | Mr. Schultz | Mr. Witkowski | Total |
Salaries | | | | |
Bonus (Note- | - | - | | |
Interest on capital (Note- | | | | |
Total | | | | |
Loss (Note- | | | | |
Total | | | | |
Note-
Calculation of bonus for Mr. Witkowski:
Bonus is
Excess Income is:
So, bonus payable to Mr. Witkowski is:
Note-
Calculation of Interest on capital account:
Interest on capital account to be paid to partners at the rate of
So, interest on capital is:
Note-
Calculation of balance profit and loss to be allocated to partners
Loss balance is
So, this loss to be distributed to each partner equally
Comparison for the second year where the income is
As per Mr. Banyan and Mr. Schultz proposal:
Profit will be distributed to all partners in the above profit-sharing ratio i.e.
Partners | Computation | Income |
Mr. Banyan | | |
Mr. Schultz | | |
Mr. Witkowski | | |
Total | |
As per Mr. Witkowski’s proposal:
(Amount in $)
Heads of distribution | | Mr. Schultz | Mr. Witkowski | Total |
Salaries | | | | |
Bonus (Note- | - | - | | |
Interest on capital (Note- | | | | |
Total | | | | |
Profit (Note- | | | | |
Total | | | | |
Note-
Calculation of bonus for Mr. Witkowski:
Bonus is
Second year income is
So, bonus on excess income up to
The bonus on excess income from
So, bonus payable to Mr. Witkowski is:
Note-
Calculation of Interest on capital account:
Interest on capital account to be paid to partners at the rate of
So, interest on capital is:
Note-
Calculation of balance profit and loss to be allocated to partners
Profit balance is:
So, this profit to be distributed to each partner equally
Comparison for the third year where the income is
As per Mr. Banyan and Mr. Schultz proposal:
Profit will be distributed to all partners in the above profit-sharing ratio i.e.
Partners | Computation | Income |
Mr. Banyan | | |
Mr. Schultz | | |
Mr. Witkowski | | |
Total | |
As per Mr. Witkowski’s proposal:
(Amount in $)
Heads of distribution | | Mr. Schultz | Mr. Witkowski | Total |
Salaries | | | | |
Bonus (Note- | - | - | | |
Interest on capital (Note- | | | | |
Total | | | | |
Profit (Note- | | | | |
Total | | | | |
Note-
Calculation of bonus for Mr. Witkowski:
Bonus is
Second year income is
So, bonus on excess income up to
The bonus on excess income from
So, bonus payable to Mr. Witkowski is:
Note-
Calculation of Interest on capital account:
Interest on capital account to be paid to partners at the rate of
So, interest on capital is:
Note-
Calculation of balance profit and loss to be allocated to partners
The profit balance is:
So, this profit to be distributed to each partner equally
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