This document discusses various methods for sharing profits and losses among partners in a partnership. It outlines that the partnership agreement should state the basis for sharing net income or net loss, and provides examples such as using fixed ratios based on capital contributions, salaries, or interest paid on partners' capital. The objective is to equitably reflect partners' investments and contributions to the partnership. In the absence of an agreement, applicable partnership acts specify equal profit/loss sharing and restrictions on salaries or interest payments.

1. Use various methods to
share profit/loss
among partners
Section 8 Objective 6

2. Methods to share profit/loss among partners
• The partnership agreement should state the basis for
sharing net income or net loss
• Examples of the methods are as follows:
– Fixed ratio expressed as a percentage, as a
proportion or a fraction
– Ratio based either on capital balances at the
beginning of the year or on average balances
– Salaries paid to partners and the remainder on a
fixed ratio
– Interest on partner’s capital balances and the
remainder on a fixed ratio
– Salaries to partners, interest on partners’ capital
and the remainder on a fixe ratio

3. Methods to share profit/loss among partners
• The objective of the choice of ratio is to settle on a
basis that will equitably reflect the partner’s capital
investment and service to the partnership

4. • When there is no written agreement on how to share
the profits or losses, it is advisable to apply the terms of
the partnership act of 1890. The terms are
• Profits and losses are to be shared equally
• There can be no provision for a partnership salary,
interest on capitals or interest on drawings
• If a partner gave a loan to the partnership company he
or she should receive an interest of 5% per annum
Methods to share profit/loss among partners

5. Sample journal and ledger entry to show a
ratio on capital balances

6. Sample of income ratios – salaries to
partners, interest on partners’ capital, and
the remainder on a fixed ratio