Untalan, Shaira Coleen DC.

November 11, 2020

BSA 3A

PROBLEM 6

Division of profits and losses

Case 1: Sufficient Profit
Solution:
  A B C Total
Amount being allocated 100,000
Allocation:
12,00
1. Salaries
0 - 8,000 20,000
2. Bonus (100K - 20K) x 10% 8,000 - - 8,000
3. Interest on cap. 10,00
(100K x 10%);(60K x 10%);(120K x 10%) 0 6,000 12,000 28,000
4. Allocation of remainder:
(100K - 20K - 8K - 28K) = 44K; 17,60
(44K x 40%); (44K x 30%); (44K x 30%) 0 13,200 13,200 44,000
47,60 100,00
As allocated
0 19,200 33,200 0

Case 2: Insufficient profit

Solution:
  A B C Total
Amount being allocated 10,000
Allocation:
1. Salaries 12,000 - 8,000 20,000
2. Bonus - - - -
3. Interest on cap. 10,000 6,000 12,000 28,000
(100K x 10%);(60K x 10%);(120K x 10%)
4. Allocation of remainder:
(10K - 20K - 28K) = (38K); (15,200
(38K x 40%); (38K x 30%); (38K x 30%) ) (11,400) (11,400) (38,000)
As allocated 6,800 (5,400) 8,600 10,000

Case 3: Loss
Solution:
  A B C Total
Amount being allocated (20,000)
Allocation:
1. Salaries 12,000 - 8,000 20,000
2. Bonus - - - -
3. Interest on cap.
(100K x 10%);(60K x 10%);(120K x 10%) 10,000 6,000 12,000 28,000
4. Allocation of remainder:
(-20K - 20K - 28K) = (68K); (27,200
(68K x 40%); (68K x 30%); (68K x 30%) ) (20,400) (20,400) (68,000)
(20,000
As allocated
(5,200) (14,400) (400) )

Interest on Weighted average capital

Case 1: Full year
Solution:
  A B Total
Amount being allocated 90,000
Allocation:
1. Salary 48,000 - 48,000
2. Bonus (a) 7,000 - 7,000
3. Interest on cap.
( 34,500(b)x12%) 4,140 4,140
4. Allocation of remainder:
(90K - 48K – 7K - 4.14K) = 30,860;
(30,860x 50%); (30,860x 50%) 15,430 15,430 15,300
70,43
As allocated
0 19,570 90,000

(a)
Profit before salary and bonus 90,000
Salary (48,000)
Profit after salary but before bonus 42,000

P
B=P−
1+ Br
42,000
B=42,000−
1+20 %
B=42,000−35,000
B=7,000

(b)

Months outstanding / total Weighted

  Balances
months in a year Average Capital

Beg. balance 30,000 12/12 30,000

July 1 additional
investment 10,000 6/12 5,000
Oct. 1 withdrawal (4,000) 3/12 (1,000)
Nov. 30 additional
investment 6,000 1/12 500
Weighted average
capital 34,500

Requirement:
Income summary 90,000
A, Capital 70,430
B, Capital 16,570

Case 2: Partial year

 Solution:
  A B Total
Amount being allocated 90,000
Allocation:
1. Salary (4,000 x 8) 32,000 - 32,000
2. Bonus (a) 9,667 - 9,667
3. Interest on cap.
( 24,500(b)x12%x8/12) 1,960 1,960
4. Allocation of remainder:
(90K - 32K – 9.667 - 1.96K) = 46,373; 23,186.5
(46,373x50%); (46,373x50%) 0 23,186.50 46,373
64,853.5
As allocated
0 25,146.50 90,000

(a)
Profit before salary and bonus 90,000
Salary (32,000)
Profit after salary but before bonus 58,000

P
B=P−
1+ Br
58 ,000
B=58 , 000−
1+20 %
B=58 , 000−48,333
B=9,667

(b)

Months outstanding / total Weighted

  Balances
months in a year Average Capital

Beg. balance 30,000 8/12 20,000

July 1 additional
investment 10,000 6/12 5,000
Oct. 1 withdrawal (4,000) 3/12 (1,000)
Nov. 30 additional
investment 6,000 1/12 500
Weighted average
capital 24,500

Requirement:
Income summary 90,000
A, Capital 64,853.50
B, Capital 25,146.50

Reconstruction of information
Requirement:

  A B Total
Amount being allocated 108,000
Allocation:
1. Salary 20,000 - 20,000
2. Bonus (80,000 x 10%) 8,000 - 9,000
3. Allocation of remainder:
(90K - 48K – 7K - 1.96K) = 80,000;
(2) (1)
(80,000x60%); (80,000x40%) 48,000 32,000 80,000
As allocated 76,000 32,000 108,000

(1)
32,000/40% = 80,000
(2)
80,000 – 32,000 = 48,000