Question

The partnership agreement of Ahmad, Fatima, and Ali provides for annual distribution of profit and loss in the following sequence: • Fatima, the managing partner, receives a bonus of 10% of net income. • Each partner receives 5% interest on average capital investment. • Residual profit or loss is to be divided 4:2:4. • Average capital investments for 2019 were: Ahmad $270,000 Fatima $180,000 Ali $120,000 At the end of 2019, the partnership reported net loss before interest, salaries, and bonus of $30,000.

Answer 1

Your question is not clear about the requirements needed in questions.

So, I try my best that all your queries on the basis of the given information are solved

Here, we have two assumptions regarding the bonus to Managing Partner which is not clearly mentioned in Question

Assumption 1: Managing Partner is only entitled to 10% bonus in case of profit as the word mentioned in the question is Net Income

Based on that,

Particulars	Calculations	Ahmad	Fatima	Ali	Total
Loss					$ (30,000.00)
Bonus	$                          -		$                   -		$                   -
Interest	$270,000x5%	$ (13,500.00)			$ (13,500.00)
	$180,000x5%		$   (9,000.00)		$   (9,000.00)
	$120,000x5%			$   (6,000.00)	$   (6,000.00)
Loss to be Distributed					$ (58,500.00)
Loss Sharing	$61,500 x 4/10	$ (23,400.00)			$ (23,400.00)
	$61,500 x 2/10		$ (11,700.00)		$ (11,700.00)
	$61,500 x 4/10			$ (23,400.00)	$ (23,400.00)

Assumption 2: Managing Partner is entitled to a 10% bonus in case of loss also. In that case, the total loss will increase to $33,000. It seems to be not correct but as per the question, I am just giving the solution.

As per me, The first assumption is more practical.

Although in the case of Partnership Firm, Partnership Agreement is more superior.

So

Solution on basis of Assumption 2

Particulars	Calculations	Ahmad	Fatima	Ali	Total
Loss					$ (30,000.00)
Bonus	($30,000)x10%		$   (3,000.00)		$   (3,000.00)
Interest	$270,000x5%	$ (13,500.00)			$ (13,500.00)
	$180,000x5%		$   (9,000.00)		$   (9,000.00)
	$120,000x5%			$   (6,000.00)	$   (6,000.00)
Loss to be Distributed					$ (61,500.00)
Loss Sharing	$61,500 x 4/10	$ (24,600.00)			$ (24,600.00)
	$61,500 x 2/10		$ (12,300.00)		$ (12,300.00)
	$61,500 x 4/10			$ (24,600.00)	$ (24,600.00)

I tried my best for your question. Hope it will help you in the study.

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