Question

Doy, Son and Ann are partners who share residual profits in the ratio of 3:2:1. The partnership agreement provides for 8% interest on capital and a salary for Son of P80,000 per annum. Profit for 2020 was P840,000 and the partners' year-end capital balances are as follows: Doy, P200,000; Son, P150,000; Ann, P120,000. What was Ann's share of the residual profits for 2020?

a. P120,400
b. P126,670
c. P130,000
d. P140,000

Answer 1

Ann's share of the residual profits for 2020 is a. P120,400, after accounting for interest on capital, Son's salary, and the profit-sharing ratio between the partners in the partnership.

Step-by-step explanation:

To calculate Ann's share of the residual profits for 2020, we need to consider interest on capital, Son's salary, and the profit-sharing ratio for the partnership of Doy, Son, and Ann. First, we calculate the interest on capital at 8% for each partner:
Doy: P200,000 x 8% = P16,000
Son: P150,000 x 8% = P12,000
Ann: P120,000 x 8% = P9,600

The salary for Son is given as P80,000 per annum. Thus, the total appropriations (interest on capital plus Son's salary) become P16,000 + P12,000 + P9,600 + P80,000 = P117,600. Subtract this from the total profit of P840,000 to get the residual profit: P840,000 - P117,600 = P722,400.

Now, we divide the residual profit according to the profit-sharing ratio of 3:2:1. The sum of the ratio parts is 3 + 2 + 1 = 6. Ann's share is 1/6 of the residual profit: 1/6 x P722,400 = P120,400.

Therefore, Ann's share of the residual profit for 2020 is P120,400.