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Calculating profit sharing ratios in partnerships :-/

  • Fellow
  • 86 posts
  • # 81816

Hey!

Hope someone can help,

I'm doing a practice question and it says that 'Jack and Jill are in partnerhsip sharing profits in the ratio 3:2. After Jill is admitted she is entitled to a 1/6th share of the profits.


In the answer page, it says that the news profit sharing ratios are Jack 10:18 Jill 5:18 and Jean 8:18.


How on Earth did they arrive at that figure?! Maths has never been my strongest point but I can't figure it out! xxx         
  • Lifetime Member
  • 19 posts
  • # 81819

They deducted a 1/6th of each partner's share and then allocated it to the new partner.

So Jack who had 2/3 now has 1/6 less than she originally did.  1/6 x 2/3 = 2/18 less (basically a 'x' replaces the word of)

Jill who had 1/3 now has 1/6 less.  1/6 x 1/3 = 1/18 less.

The new partner therefore has 1/18 of Jill's share, 2/18 of jack's share which is a total of 3/18.

Jack has 2/3 (or 12/18)  less 2/18 which becomes 10/18.

Jill has 1/3 (6/18) less 1/18 which becomes 5/18.

Hope that makes sense.
  • Fellow
  • 86 posts
  • # 81829

I understand it from where you're explaining, but how did you work out that Jack has 2/3rds and Jill has 1 3rd?! Sorry, ratios battle me completely! xx
  • Lifetime Member
  • 19 posts
  • # 81887

Karasaid:

“I understand it from where you're explaining, but how did you work out that Jack has 2/3rds and Jill has 1 3rd?! Sorry, ratios battle me completely! xx”
I think you mis-read the question.  I only know because I've recently done it myself.

At the very beginning of the question it says that Jack and Jill were sharing profits in the ratio 2:1.  That means that Jack got 2/3 and Jill got 1/3.   So you take that as your starting figure to do the calculation.  Go back and check.  If I'm wrong then I'm not sure where they get those figures from either!

I wouldn't get too twitched about it. This is the only question I've ever seen that asks you to do this.  Normally we just get told the new profit sharing ratio.

xx



Edited at 14 Apr 2012 09:41 AM GMT
Peasie
  • Member PM.Dip
  • Practice Licence
  • 481 posts
  • # 81889

Shirley Robinsonsaid:

I wouldn't get too twitched about it. This is the only question I've ever seen that asks you to do this.  Normally we just get told the new profit sharing ratio.
The questions in that Kaplan Revision book are a lot more difficult than you will get in the exam.
  • 30 posts
  • # 82153

Hi Kara

If it helps, an easy way to deal with profit sharing ratios is to ADD together all the raio figures you are given and the result of this figure is your denominator (the figure which goes on the bottom of the fraction); the individual partner shares will then be the figure on top of the fraction.


For example:  Three partners in business have profit sharing ratios of 5:3:2;  so the bottom figure on the fractions will be (5 + 3 + 2) = 10

Therefore, the first partners' share will be 5 tenths of the profit, the second partners' share will be 3 tenths of the profit and the third partners' share will be 2 tenths of the profit.

When you calculate your final profit after appropriations, you would then divide that figure by 10 to get ONE share of the profit and multiply that result by the individual partners' shares:  So 5 times the figure for ONE share goes to the first partner, 3 times the figure to the second partner and 2 times the figure to the third partner.

I hope this helps to make it a bit easier for you.

Caz     
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