3 Methods to allocate the remaining profit (page 529/759)

1. Stated Fractional Basis Example: 2 partners: 3:2, thus 3/5th and 2/5th times profit (net income) or loss
Example: Partner 1 invests $10,000 and Partner 2 invests $20,000, thus 10/30
2. Ratio of Capital Investments (partner 1) and 20/30 (partner 2) times profit (net income) or loss
3. Using Salaries, Interest Allowance, and a Fixed Ratio Allocate salary allowances, then interest allowances and remaining balance of profit or loss

Different scenarios when allocating profit:

p.530 Exhibit 11.4 Profit > Allowances (salaries and interest) (Results in an allocation of a positive balance, after allocation of the allowances.
p. 531 Exhibit 11.6 Allowances > Profit (Results in an allocation of a negative balance, after allocation of the allowances.
p. 532 Exhibit 11.7 No profit, but a loss which reduced partner's capital (Results in an allocation of a negative balance, after allocation of the allowances.
Under each scenario, make sure Dent holds 25% of the total capital!
The new partner's admission could result in no bonus (cash = 25% equity) or bonus to the other partners or bonus to the new
ners or bonus to the new partner.
Given Data:
Premium Pool and Spa
Balance Sheet
June 30, 2023

Assets Liabilities
Cash $ 68,750 Accounts payable $ 130,375
Machine $ 588,750 Equity
Less: Accumulated depreciation 137,500 451,250 Jim Lui, Capital $ 76,250
Total assets $ 520,000 Kent Montavo, Capital 200,875
Dave Johnson, Capital 112,500
Total equity 389,625
Total liabilities and equity $ 520,000

Profit and loss sharing ratio: 1:4:5

Lui 1 to
Montavo 4 to
Johnson 5

Cash received for sale of Machine:

Part a $ 488,130
Part b $ 375,000
Part c $ 212,500
(partners pay in amounts of any deficits)
Part d $ 187,500
(partners have no personal assets to make up for deficits)
Excel Templates Problem 11-9A
Part 1a

Calculations:
Gain (Loss) on sale of machinery:
Proceeds $ -0-
Cost $ -0-
Less accum. deprec. -0- -0-
Gain (Loss) on sale of machinery $ -0-
Excel Templates Problem 11-9A
Part 1b

Calculations:
Gain (Loss) on sale of machinery:
Proceeds $ 375,000
Cost
Less accum. deprec.
Gain (Loss) on sale of machinery

Kent Dave
Accounts Jim Lui, Montavo, Johnson,
Cash Machine Accum. Dep. payable Capital Capital Capital
Part 1c

Calculations:
Gain (Loss) on sale of machinery:
Proceeds $ 212,500
less: NBV
Gain (Loss) on sale of machinery

Kent Dave
Accounts Jim Lui, Montavo, Johnson,
Cash Machinery Accum. Dep. payable Capital Capital Capital

Account balances June 30, 2023

Sale of machinery and allocation
of gain/(loss)
Balance
Payment of creditors
Balance Partner with deficit has ca
Allocation of deficiency
Balance
Distribution of cash to partners
Balance
Partner with deficit has cash to cover deficiency
Part 1d

Calculations:
Gain (Loss) on sale of machinery:
Proceeds $ 187,500
less: NBV
Gain (Loss) on sale of machinery

Kent Dave
Accounts Jim Lui, Montavo, Johnson,
Cash Machinery Accum. Dep. payable Capital Capital Capital

Account balances June 30, 2023

Sale of machinery and allocation
of gain/(loss)
Balance
Payment of creditors
Balance Partner with deficit does n
Allocation of deficiency
Balance
Distribution of cash to partners
Balance
Partner with deficit does not have cash to cover deficiency