Question

Dividing Partnership Income

Desmond Drury and Ty Wilkins have decided to form a partnership. They have agreed that Drury is to invest $57,600 and that Wilkins is to invest $14,400. Drury is to devote full time to the business, and Wilkins is to devote one-half time. The following plans for the division of income are being considered:

Equal division.

In the ratio of original investments.

In the ratio of time devoted to the business.

Interest of 10% on original investments and the remainder in the ratio of 3:2.

Interest of 10% on original investments, salary allowances of $49,000 to Drury and $24,500 to Wilkins, and the remainder equally.

Plan (e), except that Wilkins is also to be allowed a bonus equal to 20% of the amount by which net income exceeds the total salary allowances.

Required:

For each plan, determine the division of the net income under each of the following assumptions: (1) net income of $216,000 and (2) net income of $95,100.

Answer 1

Solution:

Division of Income		$216,000		$95,100
S. No	Particulars	Drury	Wilkins	Drury	Wilkins
a	Equal Division (1:1)	$108,000.00	$108,000.00	$47,550	$47,550
b	In the ratio of original investment (4:1)	$172,800.00	$43,200.00	$76,080	$19,020
c	In the ratio of time devoted (2:1)	$144,000.00	$72,000.00	$63,400	$31,700
d	Interest of 10% on original investment and remainder in the ratio of 3:2
	Interest Amount (Opening Capital * 10%) Drury (57600*10%) Wilkins (14400*10%)	$5,760.00	$1,440.00	$5,760.00	$1,440.00
	Distribution of remaining income (3:2) Remainder income ($216,000) - ($216,000 - $5,760 - $1,440) = $208,800 Remainder income ($95,100) - ($95,100 - $5,760 - $1,440) = $87,900	$125,280.00	$83,520.00	$52,740.00	$35,160.00
	Total Share of Income (Interest + Remaining Distribution)	$131,040	$84,960	$58,500	$36,600
e	Interest of 10% on original investment, Salary Allowances and remainder in the ratio of 1:1
	Interest Amount (Opening Capital * 10%) Drury (57600*10%) Wilkins (14400*10%)	$5,760.00	$1,440.00	$5,760.00	$1,440.00
	Salary Allowance	$49,000.00	$24,500.00	$49,000.00	$24,500.00
	Distribution of remaining income (1:1) Drury - [($216,000 - $5,760 - $1,440 - $49,000 - $24500)*1/2], [($95,100 - $5,760 - $1,440 - $49,000 - $24500)*1/2] Wilikns - [($216,000 - $5,760 - $1,440 - $49,000 - $24500)*1/2], [($95,100 - $5,760 - $1,440 - $49,000 - $24500)*1/2]	$67,650.00	$67,650.00	$7,200.00	$7,200.00
	Total Share of Income (Interest + Salary + Remaining Distribution)	$122,410.00	$93,590.00	$61,960.00	$33,140.00
f	Interest of 10% on original investment, Salary Allowances, Bonus and remainder equally:
	Interest Amount (Opening Capital * 10%) Drury (57600*10%) Wilkins (14400*10%)	$5,760.00	$1,440.00	$5,760.00	$1,440.00
	Salary Allowance	$49,000.00	$24,500.00	$49,000.00	$24,500.00
	Bonus to Wilkins [20% of (Net Income - Salary Allowance) [216000 - 73500)*20%, (95100-73500)*20%	$0.00	$28,500.00	$0.00	$4,320.00
	Distribution of remaining income (1:1) Drury - [($216,000 - $5,760 - $1,440 - $49,000 - $24500 - $28,500)*1/2], [($95,100 - $5,760 - $1,440 - $49,000 - $24500 - $4,320)*1/2] Wilikns - [($216,000 - $5,760 - $1,440 - $49,000 - $24500 - $28,500)*1/2], [($95,100 - $5,760 - $1,440 - $49,000 - $24500 - $4,320)*1/2]	$53,400.00	$53,400.00	$5,040.00	$5,040.00
	Total Share of Income (Interest + Salary + Bonus + Remaining Distribution)	$108,160.00	$107,840.00	$59,800.00	$35,300.00