What am I doing wrong on this question?!?

Shelby111

The question is:

1. Oggodon Associates is a partnership consisting of two people, Bill and Ben. They made a profit of £30,300 for the year ended 30 September 20-8, before the following:

 5% interest on the partners’ capital acct balances of £40,000 (Bill) and £50,000 (Ben).
 5% interest on drawings in the year. Bill and Ben each drew £12,000 in drawings from the business.

Bill and Ben shared the adjusted profits in the ratio of their Capital balances.
How much of the partnership’s profit for the year of £30,300 will be allocated to Ben?

How do they come up with £16,900? It's driving me mad!

As far as I'm aware, I have 30,300 less the int on cap (4500) add the int on drawings (1200) which gives the profit to be shared between them as 27000, assuming I'm right about that, how do they get Bens share to £16,900?

Any advice/help gratefully received

Gocer

Hey just a quick question, do you think this question will come up in the exam ?

Krisso

The devil is in the detail if you work out the percentage of total capital that each hold you will get the correct split for profit shared for ben

He holds 56% of the capital and will share the same of the £27000 giving him £15000 of the profit. When you add his interest of £2500 and deduct the interest on drawings £600 you come back to the figure of £16,900

Shelby111

Krisso said:

The devil is in the detail if you work out the percentage of total capital that each hold you will get the correct split for profit shared for ben

He holds 56% of the capital and will share the same of the £27000 giving him £15000 of the profit. When you add his interest of £2500 and deduct the interest on drawings £600 you come back to the figure of £16,900

Thank you for your explanation, I didn't realise we had to add capital interest back in and deduct the interest on drawings, that's where I was falling short I had made it to £15000.

I have another question from your answer though, regarding how to calculate the percentage/ratio of their capital balances, you said he he holds 56% of the share, but I make that £15,120, unless you calculate it literally at 55.55555556% to get £15000.

Is it wrong to calculate it as I did, as a ratio 4:5 ? Are we always supposed to make it a percentage? I just found that the ratio calculated it straight to £15000, but I'm not clear on what the 'proper' way to calculate it is.

Shelby111

Gocer said:

Hey just a quick question, do you think this question will come up in the exam ?

I really hope not, but knowing my luck...

Krisso

I am assuming it is the profit appropriation account you are doing?

Krisso

My apologies yes you should use the ratio.

Do it the way you have been taught obviously but you could do your split as £27000/£90000/£50000 to get the same result. I did a quick calc in excel to get the % but it was only to 2dp.

Shelby111

Krisso said:

My apologies yes you should use the ratio.

Do it the way you have been taught obviously but you could do your split as £27000/£90000/£50000 to get the same result. I did a quick calc in excel to get the % but it was only to 2dp.

Thank you, its such a relief when everything clicks into place. I have been shown both ways to calculate it, percentage and ratio, so wasn't sure if one was supposed to be used over the other.

Thanks again

Krisso

Just seen that should be £27000/£90000x£50000 ?‍♂️