Reference no: EM132626967

Question - PROFIT DISTRIBUTION

ABC partnership posted a net income before tax of P1,200,000. The partners agreed on the following:

1. Monthly salaries will be given to: A - P10,000; B- P6,000; C- P8,000

2. Interest of 6% per annum will be credited to each of the partners weighted average capital

3. Partner B will be given a bonus of 10% of net income, after salaries, interest and bonus.

4. Remaining profit will be distributed based on their simple average capital balance.

5. It was also agreed that temporary withdrawals will not be considered as deduction from their capital provided that these are settled within the year. Any unsettled temporary withdrawal will be treated as capital withdrawal from the date of the actual withdrawal. Advance withdrawals for salaries shall likewise not considered as capital withdrawals but will be deducted from their final distribution of profit

Additional information:

a. Jan 1, 2019 capital balances of the three partners are as follows: A - P200,000; B - P300,000; C-P450,000

b. On February 15, 2019, A made an additional investment of P40,000. Likewise on the same date, B made a temporary withdrawal of P30,000.

c. On June 1, 2019, C made an additional investment of P10,000.

d. On Sept 30, 2019, A, made a temporary withdrawal of P20,000, and on the same date, B partially return amount of P10,000 from his temporary withdrawal on Feb 15. and according to him, he will not be able to settle the remaining balance within the year

e. On November 1, 2019, partners made an advanced withdrawals for their salaries as follows : A- P60,000 ; B-P80,000; C- P40,000

Required -

1) Compute for the distribution of profit of P1,200,000.

2) How much will each partner received after deducting the advanced salaries

3) How much will be B's share in the net profit, if his bonus is based on net profit, after salaries, interest, bonus and tax. Assume a tax rate of 30%.

4) Assume that the salaries of the partners are treated and recorded as part of the partnership's operating expense. How much will be share of each partner's in the profit.