Reference no: EM132481380

Establishing the Profit Distribution Scheme

Tria and Resulta established a consultancy partnership in 2013. They will work full time in the firm. Tria will make an initial investment of P450,000 and Resulta, P350,000. They are considering the following independent schemes for the division of profits.

a. Division in the same ratio as the balances of their capital accounts.

b. 10% interest on their capital balances accounts at the beginning of the year and the remainder to be divided equally.

c. Salary allowances of P175,000 for Tria and P155,000 for Resulta, 10% interest on their capital balance at the beginning of the year, and the remainder to be divided equally.

Required:

Question 1: Prepare the profit distribution schedule for the above schemes assuming a:

a. profit of P500,000

b. profit of P240,000

Question 2:  Which profit distribution scheme is most advisable? Cite reasons.