Section 2Division of Income and Loss What You’ll Learn  How to divide profits and losses equally.  How to divide profits and losses based on a fractional.

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Presentation transcript:

Section 2Division of Income and Loss What You’ll Learn  How to divide profits and losses equally.  How to divide profits and losses based on a fractional share.  How to divide profits and losses based on partners’ investments. What You’ll Learn  How to divide profits and losses equally.  How to divide profits and losses based on a fractional share.  How to divide profits and losses based on partners’ investments.

Why It’s Important Partnership profits and losses are divided among the partners according to the partnership agreement. Why It’s Important Partnership profits and losses are divided among the partners according to the partnership agreement. Section 2Division of Income and Loss (cont'd.)

Dividing Profits and Losses  There are many ways for partners to divide profits and losses.  The division is generally based on the services and capital contributed by the partners to the partnership.  There are many ways for partners to divide profits and losses.  The division is generally based on the services and capital contributed by the partners to the partnership. Section 2Division of Income and Loss (cont'd.)

Dividing Profits and Losses Equally During the first year of operation, the partnership earned a net income of $24,000. Each partner’s share is $12,000 ($24,000  2). Dividing Profits and Losses Equally During the first year of operation, the partnership earned a net income of $24,000. Each partner’s share is $12,000 ($24,000  2). Section 2Division of Income and Loss (cont'd.)

 Profits or losses are to be divided between the two partners on the following basis: Gill, two-thirds and Putman, one-third. Dividing Profits and Losses on a Fractional Share Basis Section 2Division of Income and Loss (cont'd.)

 The division of the $24,000 net income based on a 2:1 ratio is calculated as follows: Dividing Profits and Losses on a Fractional Share Basis (cont'd.) Section 2Division of Income and Loss (cont'd.) Gill’s share:$24,000  2/3 = $16,000 Gill’s share:$24,000  2/3 = $16,000 Putman’s share:$24,000  1/3 = $8,000 Putman’s share:$24,000  1/3 = $8,000

Dividing Profits and Losses Based on Capital Investments Section 2Division of Income and Loss (cont'd.) = Partner’s Percentage = Partner’s Percentage Individual Partner’s Investment Total Partnership Investment

Dividing Profits and Losses Based on Capital Investments (cont'd.) Section 2Division of Income and Loss (cont'd.) Molly Gill$50,000 Don Putman$30,000 Total investment$80,000 Molly Gill$50,000 Don Putman$30,000 Total investment$80,000 Gill’s Percentage: 50,000 Gill’s Percentage: 50,000 = 62.5% = 37.5% = 37.5% Gill’s share$24,000 .625 = $15,000 Putman’s share$24,000 .375 = $9,000 Gill’s share$24,000 .625 = $15,000 Putman’s share$24,000 .375 = $9,000 Putman’s Percentage: 30,000 Putman’s Percentage: 30,000 80,000

Dividing Profits and Losses Based on Capital Investments (cont'd.) Section 2Division of Income and Loss (cont'd.)

Check Your Understanding Describe how to divide net income or net loss to each partner based on a fractional share basis. Section 2Division of Income and Loss (cont'd.)