Distribution of Profits or

Losses Based on Partners’

Agreement
 Problem # 11
Parale, Demafelis, and Lopez each receive a P70000 salary, as
well as 15% interest on their respective average investment of
P200000, P100000, and P400000. If they share remaining profits
and losses in a 4:3:2 ratio, respectively, by how much would
Lopez account increase or decrease (indicate a decrease by
placing parentheses), assuming: (a) profit of P405000, (b) profit
of P270000, and (c) loss of P315000. In addition, calculate (d)
Lopez share of a P350000 profits if profit and loss distribution
were based instead solely on the ratio of average capital
investments.
Parale, Demafelis, and Lopez each receive a P70000 salary,
as well as 15% interest on their respective average
investment of P200000, P100000, and P400000. If they
share remaining profits and losses in a 4:3:2 ratio,
respectively
By how much would Lopez account increase or decrease (indicate a
decrease by placing parenthesis), assuming:
• (a) profit of P405,000
• (b) profit of P270,000
• (c) loss of P315,000
• In addition, calculate (d Lopez share of a P350,000 profit if profit or loss
distributions were based instead solely on the ratio of average capital
investments
A. PROFIT OF ₱ 405,000.00
average capital:
Parale ₱ 200,000.00
Demafels ₱ 100,000.00
Lopez ₱ 400,000.00
salaries:
Parale ₱ 70,000.00
Demafele ₱ 70,000.00
Lopez ₱ 70,000.00

Computation Parale Demafelis Lopez Total

Salaries ₱ 70,000.00 ₱ 70,000.00 ₱ 70,000.00 ₱ 210,000.00
Interest on Average Capital balances: @ 15% ₱ 30,000.00 ₱ 15,000.00 ₱ 60,000.00 ₱ 105,000.00
Balance Distribution 4:3:2 ₱ 40,000.00
₱ 30,000.00
₱ 20,000.00 ₱ 90,000.00
Total net income ₱ 140,000.00 ₱ 115,000.00 ₱ 150,000.00 ₱ 405,000.00

a) the account balance of lopez increases by P150,000

Journal entry
debit credit
income summary ₱ 405,000.00
Parale, drawing ₱ 140,000.00
Demafels, drawing ₱ 115,000.00
Lopez, drawing ₱ 150,000.00
₱ 405,000.00 ₱ 405,000.00
B. PROFIT OF ₱ 270,000.00
average capital:
Parale ₱ 200,000.00
Demafels ₱ 100,000.00
Lopez ₱ 400,000.00
salaries:
Parale ₱ 70,000.00
Demafele ₱ 70,000.00
Lopez ₱ 70,000.00

Computation Parale Demafelis Lopez Total

Salaries ₱ 70,000.00 ₱ 70,000.00 ₱ 70,000.00 ₱ 210,000.00
Interest on Average Capital balances: @ 15% ₱ 30,000.00 ₱ 15,000.00 ₱ 60,000.00 ₱ 105,000.00
Balance Distribution 4:3:2 ₱ (20,000.00)
₱ (15,000.00)
₱ (10,000.00) ₱ (45,000.00)
Total net income ₱ 80,000.00 ₱ 70,000.00 ₱ 120,000.00 ₱ 270,000.00

b) the account balance of lopez increases by P120,000

Journal entry
debit credit
income summary ₱ 270,000.00
Parale, drawing ₱ 80,000.00
Demafels, drawing ₱ 70,000.00
Lopez, drawing ₱ 120,000.00
₱ 270,000.00 ₱ 270,000.00
c. loss of ₱ (315,000.00)
average capital:
Parale ₱ 200,000.00
Demafels ₱ 100,000.00
Lopez ₱ 400,000.00
salaries:
Parale ₱ 70,000.00
Demafele ₱ 70,000.00
Lopez ₱ 70,000.00

Computation Parale Demafelis Lopez Total

Salaries ₱ 70,000.00 ₱ 70,000.00 ₱ 70,000.00 ₱ 210,000.00
Interest on Average Capital balances: @ 15% ₱ 30,000.00 ₱ 15,000.00 ₱ 60,000.00 ₱ 105,000.00
Balance Distribution 4:3:2 ₱ (280,000.00)
₱ (210,000.00)
₱ (140,000.00) ₱ (630,000.00)
Total Net loss ₱ (180,000.00) ₱ (125,000.00) ₱ (10,000.00) ₱ (315,000.00)

c, the balance of lopez decreases by P10,000

Journal entry
debit credit
Parale, drawing ₱ 180,000.00
Demafels, drawing ₱ 125,000.00
Lopez, drawing ₱ 10,000.00
income summary ₱ 315,000.00
₱ 315,000.00 ₱ 315,000.00
d. PROFIT OF ₱ 350,000.00
average capital:
Parale ₱ 200,000.00
Demafels ₱ 100,000.00 ₱ 700,000.00
Lopez ₱ 400,000.00
salaries:
Parale ₱ 70,000.00
Demafele ₱ 70,000.00
Lopez ₱ 70,000.00

Computation Parale Demafelis Lopez Total

Salaries ₱ 70,000.00 ₱ 70,000.00 ₱ 70,000.00 ₱ 210,000.00
Interest on Average Capital balances: @ 15% ₱ 30,000.00 ₱ 15,000.00 ₱ 60,000.00 ₱ 105,000.00
ratio on average capital 0.29, 0.14, 0.57 ₱ 10,150.00
₱ 4,900.00
₱ 19,950.00 ₱ 35,000.00
Total net income ₱ 110,150.00 ₱ 89,900.00 ₱ 149,950.00 ₱ 350,000.00

d) the balance of lopez increases by P149,950

Journal entry
debit credit
income summary ₱ 350,000.00
Parale, drawing ₱ 110,150.00
Demafels, drawing ₱ 89,900.00
Lopez, drawing ₱ 149,950.00
₱ 350,000.00 ₱ 350,000.00