Question

Discuss, in detail, what would happen if a new partnership of two people realized a loss in its first year. Assume that both partners had the same salary allowance, but Partner A had initially invested twice as much as Partner B (no interest allowance has been agreed upon).

Answer 1

Solution:

Partnership is the result of an agreement such an agreement may be oral or written in order to avoid misunderstanding and disputes between partners written agreement is made such an agreement is called partnership deed. The maximum number of partners allowed for a partnership business is 10 in the case of banking business and 20 in the case of other business

In this case A&B are the two partners of a partnership firm.In the first year they have faces a loss.A had invested twice than B in the business there for their profit sharing ratio will be 2:1.Both of them are getting the same salary.

How they distribute it ? We can understand more from the folliwing exampile:

Assume that partner A and B invested rupees 4lakh and 2 lakh respectively in to the business and they faced 1 lakh as loss in the first year and their salary is 35,000 each

Solution: Firstly share the loss between partners on the capital investment or profit sharing ratio in revaluation account and transfer the amounts to the partner's capital account. In addition to that credit salary equally to the partners account. Their capital account becomes lesser after this, may be partners can skip the current months salary for the growth of the business

From the upcoming year onwards try to concentrate on the following things

1) Try to reduce expense

2) To promote sales

3) To reduce the salary (if , possible)

4) Better relation with customers etc

A loss in the first year only reduce the capital balance. If the partners can consider the above factor's with top priority , They can maximize the profits in the upcoming periods.