Question

Jen, Raks, and Fred are partners with average capital balances during 2019 of P945,000, P477,300, and P324,700, respectively. The partners receive 10% interest on their average capital balances; after deducting salaries of P244,650 to Jen and P165,250 to Fred, the residual profits or loss is divided equally. In 2019, the partnership had a net loss of P251,248 before the interest and salaries to partners. By what amount should Jen’s and Fred’s capital account change – increase (decrease)?

Answer 1

An amount should Jen’s and Fred’s capital account change - increase (decrease) is calculated as follows:

A) The residual profits or loss is calculated as follows:

Net Loss		( P251,248)
Salaries to Jen		(P244,650 )
Salaries to Fred		(P165,250 )
Less: Interest In Capital (10%)
Jen's Capital (P945,000 *10%)	P94,500
Raks's Capital (P477,300 *10%)	P47,730
Fred's Capital (P324,700 *10%)	P32,470	( P174,700)
Residual loss divided equally		( P835,848)
Jen’s Capital (1/3 *( P835,848)	P278,616
Raks's Capital (1/3 *( P835,848)	P278,616
Fred's Capital (1/3 *( P835,848)	P278,616

B)An amount should Jen’s and Fred’s capital account change - increase (decrease) is calculated as follows:

Capital Account

	Jen's Capital	Raks's Capital	Fred's Capital		Jen's Capital	Raks's Capital	Fred's Capital
Residual loss	P278,616	P278,616	P278,616	Capital Balance(Begining)	P945,000	P477,300	P324,700
Capital Bal.	P1,005,534	P246,414	P243,804	Salaries to Partners	P244,650	-	P165,250
(Ending)				Interest to Partners	P94,500	P47,730	P32,470
Total	P1,284,150	P525,030	P522,420	Total	P1,284,150	P525,030	P522,420

1) Jen’s capital amount increased from P945,000 to P1,005,534

Increased Jen’s capital amount = P1,005,534 - P945,000

= P60,534

2)Fred's capital amount decreased from P324,700 to P243,804

Decreased Fred's capital amount = P324,700 - P243,804

= P80,896