Question

When Raymond and Lyle orally agreed to become general partners in a construction business, nothing was said about profits and losses. Raymond invested $100,000 in working capital. Lyle's contribution was $25,000 and his talent as an architect, draftsperson, and business manager. After the first year, a profit of $120,000 was earned; how should it be divided?

Answer 1

The profit is shared among the partners according to the ratio given in the partnership deed.

This can be agreed in two ways according to the agreement deed:

1) The profits could be shared according to the partnership deed equally or whatever ratio is given in the deed.

2) As Lyle provides services as an architect, draftsperson, and business manager he can be paid separately for his services . Suppose he is paid $ 50,000 then the profit can be shared after deduction of the salary in the profit sharing ratio, which would be $ 120,000 - $ 50,000 = $ 70,000

in the ration of 3:1 then Raymond would get $ 52,500 and Lyle $ 17,500 Plus Salary $ 50,000.