Note: Salaries and interest allowances are provided no matter what (even in net loss or insufficient profit), and salaries, interest, and bonus are not treated as an expense unless otherwise stated.
T or F 1. In certain cases when the distribution of profits or loss involves salary and interest allowances, some partners may receive an increase in equity, and others may suffer a decrease.
2. In the absence of stipulation, the share of each partner in profits or losses shall be in the same proportion to what he may have contributed, but the industrial partner may not be liable for losses.
3. The interest on partners' capital can be considered as expenses depending on the partners' agreement.
4. Interest on loans from partners is recognized as partnership income.
5. If a partnership agreement does not specify how profits or losses are to be distributed, they should be allocated based on relative capital account balances.
6. The drawing account of a partner may have a debit or credit balance.
7. To compensate for the difference in their capital contributions, partners are allowed this item.
a. Capital Ratio
b. Interest on Investment
c. Distribution of Profit
3. The capital contributions of the partners are as follows: Besa - P 150,000; B0 - P 75,000; Bu - P 75,000; and Baduel - P 80,000. The partnership agreement stipulates that each partner shall receive a 5% interest on the capital contributed, and that Besa and Bar shall receive salaries (chargeable as expenses of the business) of P 15,000 and P 9,000, respectively. The agreement further provides that Bu shall receive a minimum of P 7,500 per annum and Baduela minimum of P 18,000, which is inclusive of salaries, in order that Besa may receive an aggregate of P 37,500 including interest, salary, and share of profits.
9. Partner Quito had a beginning capital balance of P 35,000 and made additional investments of P 27,000 during the year. In the same year, Quito made drawings of P 5,000 per month. The post-closing capital balance of Quito is P 72,000. What is his share in partnership profit?
