Question

Dividing Partnership Income

Desmond Drury and Ty Wilkins have decided to form a partnership. They have agreed that Drury is to invest $14,300 and that Wilkins is to invest $57,200. 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 $48,600 to Drury and $24,300 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 $214,500 and (2) net income of $94,500.

	(1)				(2)
	$214,500				$94,500
Plan		Drury		Wilkins		Drury		Wilkins
a.	$_____		$		$		$
b.	$		$		$		$
c.	$		$		$		$
d.	$		$		$		$
e.	$		$		$		$
f.	$		$		$		$

Answer 1

Solution:

Division of Income		$214,500		$94,500
S. No	Particulars	Drury	Wilkins	Drury	Wilkins
a	Equal Division (1:1)	$107,250.00	$107,250.00	$47,250	$47,250
b	In the ratio of original investment (1:4)	$42,900.00	$171,600.00	$18,900	$75,600
c	In the ratio of time devoted (2:1)	$143,000.00	$71,500.00	$63,000	$31,500
d	Interest of 10% on original investment and remainder in the ratio of 3:2
	Interest Amount (Opening Capital * 10%) Drury (14300*10%) Wilkins (57200*10%)	$1,430.00	$5,720.00	$1,430.00	$5,720.00
	Distribution of remaining income (3:2) Remainder income ($214,500) - ($214,500 - $1,430 - $5,720) = $207,350 Remainder income ($94,500) - ($94,500 - $1,430 - $5,720) = $87,350	$124,410.00	$82,940.00	$52,410.00	$34,940.00
	Total Share of Income (Interest + Remaining Distribution)	$125,840	$88,660	$53,840	$40,660
e	Interest of 10% on original investment, Salary Allowances and remainder in the ratio of 1:1
	Interest Amount (Opening Capital * 10%) Drury (14300*10%) Wilkins (57200*10%)	$1,430.00	$5,720.00	$1,430.00	$5,720.00
	Salary Allowance	$48,600.00	$24,300.00	$48,600.00	$24,300.00
	Distribution of remaining income (1:1) Drury - [($214,500 - $1,430 - $5,720 - $48,600 - $24300)*1/2], [($94,500 - $1,430 - $5,720 - $48,600 - $24300)*1/2] Wilikns - [($214,500 - $1,430 - $5,720 - $48,600 - $24300)*1/2], [($94,500 - $1,430 - $5,720 - $48,600 - $24300)*1/2]	$67,225.00	$67,225.00	$7,225.00	$7,225.00
	Total Share of Income (Interest + Salary + Remaining Distribution)	$117,255.00	$97,245.00	$57,255.00	$37,245.00
f	Interest of 10% on original investment, Salary Allowances, Bonus and remainder equally:
	Interest Amount (Opening Capital * 10%) Drury (57600*10%) Wilkins (14400*10%)	$1,430.00	$5,720.00	$1,430.00	$5,720.00
	Salary Allowance	$48,600.00	$24,300.00	$48,600.00	$24,300.00
	Bonus to Wilkins [20% of (Net Income - Salary Allowance) [214500 - 72900)*20%, (94500-72900)*20%	$0.00	$28,320.00	$0.00	$4,320.00
	Distribution of remaining income (1:1) Drury - [($214,500 - $1,430 - $5,720 - $48,600 - $24300 - $28,320)*1/2], [($94,500 - $1,430 - $5,720 - $48,600 - $24300 - $4,320)*1/2] Wilikns -[($214,500 - $1,430 - $5,720 - $48,600 - $24300 - $28,320)*1/2], [($94,500 - $1,430 - $5,720 - $48,600 - $24300 - $4,320)*1/2]	$53,065.00	$53,065.00	$5,065.00	$5,065.00
	Total Share of Income (Interest + Salary + Bonus + Remaining Distribution)	$103,095.00	$111,405.00	$55,095.00	$39,405.00