Rene, Michael and Kevin are partners in an accounting firm. Their capital account balance at year-end were Rene, P90,000; Michael, P110,000; and Kevin, P50,000. They share profit and losses on a 4:4:2 ratio after considering the following terms:Kevin is to receive a bonus of 10% of net income after deducting bonusInterest of 10% shall be paid on that portion of a partner’s capital in excess of P100,000Salaries of P10,000 and P12,000 shall be paid to partners Rene and Kevin respectively.Assuming a net income of P44,000 for the year, what is the total profit share of Kevin?
Question
Rene, Michael and Kevin are partners in an accounting firm. Their capital account balance at year-end were Rene, P90,000; Michael, P110,000; and Kevin, P50,000. They share profit and losses on a 4:4:2 ratio after considering the following terms:Kevin is to receive a bonus of 10% of net income after deducting bonusInterest of 10% shall be paid on that portion of a partner’s capital in excess of P100,000Salaries of P10,000 and P12,000 shall be paid to partners Rene and Kevin respectively.Assuming a net income of P44,000 for the year, what is the total profit share of Kevin?
Solution 1
To calculate Kevin's total profit share, we need to consider his bonus, interest on capital, salary, and profit share.
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Bonus: Kevin is to receive a bonus of 10% of net income after deducting bonus. However, the problem does not specify who the bonus is deducted from, so we will assume it is deducted from the total net income. Therefore, the bonus is 10% of P44,000, which is P4,400.
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Interest on Capital: Kevin's capital is P50,000, which is not in excess of P100,000. Therefore, he does not receive any interest on capital.
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Salary: Kevin's salary is P12,000.
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Profit Share: The remaining net income after deducting bonus and salaries is P44,000 - P4,400 - P10,000 - P12,000 = P17,600. Kevin's share of the profit is 2 parts of a 4:4:2 ratio, which is 2/10 or 20%. Therefore, his profit share is 20% of P17,600, which is P3,520.
Adding up all these amounts, Kevin's total profit share is P4,400 (bonus) + P0 (interest on capital) + P12,000 (salary) + P3,520 (profit share) = P19,920.
Solution 2
To calculate Kevin's total profit share, we need to consider his bonus, interest on capital, salary, and profit share.
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Bonus: Kevin is to receive a bonus of 10% of net income after deducting bonus. However, the bonus is not specified in the problem, so we will assume it to be 0. Therefore, Kevin's bonus is 10% of P44,000 = P4,400.
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Interest on Capital: Interest of 10% shall be paid on that portion of a partner’s capital in excess of P100,000. Kevin's capital is P50,000, which is less than P100,000. Therefore, he does not receive any interest on capital.
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Salary: Kevin's salary is P12,000.
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Profit Share: The partners share profit and losses on a 4:4:2 ratio. To calculate Kevin's profit share, we first need to calculate the total profit available for distribution. This is the net income minus the total bonus, interest on capital, and salaries. The total bonus is P4,400, the total interest on capital is 0 (since none of the partners have capital in excess of P100,000), and the total salaries are P10,000 (for Rene) + P12,000 (for Kevin) = P22,000. Therefore, the total profit available for distribution is P44,000 - P4,400 - P0 - P22,000 = P17,600. Kevin's share of this is 2/10 * P17,600 = P3,520.
Therefore, Kevin's total profit share is his bonus + interest on capital + salary + profit share = P4,400 + P0 + P12,000 + P3,520 = P19,920.
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