It is agreed in the partnership agreement of R and B that profit and loss sharing arrangements will be based on the ratio of the partner's capital balances. R and B have capital balances of $75 000 and $50 000 respectively at the end of the accounting period. If profit is $38 000 the profit allocations of each of the partners is:
A) R $19 000; B $19 000.
B) R $22 800; B $15 200.
C) R $20 000; B $18 000.
D) unable to be calculated from the information provided.

Question

Quizplus · Accepted Answer

The total capital balance is $125 000 ($75 000 + $50 000). 
So, R's capital ratio is $75 000/$125 000 = 0.6, while B's is $50 000/$125 000 = 0.4. 
The profit allocation for each partner is then calculated as follows: 
R's share = $38 000 x 0.6 = $22 800
B's share = $38 000 x 0.4 = $15 200
Therefore, the correct option is B.

It Is Agreed in the Partnership Agreement of R and B