Question

Cho had a capital balance of P500,000 for eight months, and a P650,000 balance for four months. Gas had a capital balance of P380,000 for five months and a P500,000 balance for seven months. How much of the year's P800,000 profit should Cho receive if profits and losses are distributed in the ratio of average capital balances?

a. P360,000
b. P387,500
c. P440,000
d. P453,200

Answer 1

To determine how much of the year's profit Cho should receive, we calculate the average capital balance for each partner and use the ratio to determine Cho's share. Cho should receive P387,500 of the year's profit.

Step-by-step explanation:

To determine how much of the year's profit Cho should receive, we need to calculate the average capital balance for each partner. The average capital balance for Cho can be calculated as follows:

Average capital balance for Cho = [(500,000 * 8) + (650,000 * 4)] / 12 = 550,000

Similarly, the average capital balance for Gas can be calculated as:

Average capital balance for Gas = [(380,000 * 5) + (500,000 * 7)] / 12 = 473,333.33

The ratio of average capital balances is 550,000 : 473,333.33. To calculate the amount Cho should receive:

Cho's share of profit = (550,000 / (550,000 + 473,333.33)) * 800,000 = 387,500

Therefore, Cho should receive P387,500 of the year's profit.