Partners’ business account loss and profit

Partnership is a business where two or more partners invest a certain amount (capital) for a specific period to carry out the business. At the end of the period (one year or more), the business may generate profit or loss. This profit or loss is divided among the partners in the ratio of their investments.

The proportion in which the profit or loss would be distributed amongst the partners is given by the ratio of the joint product of the capital invested and the period of investment for each partner. If the time for which the various investments are in the business is different, find out the monthly equivalents of the investments, by multiplying the investments by the number of years for which they are in the business. Thus, if X and Y are in partnership, at the end of one year, the profit or loss would get distributed as:

Profit (or loss) = (capital invested) x (period of investment)

____________ __________________________________

Profit (or loss) = (capital invested) x (period of investment)

Minor variations in the above can take place as:

1) a partner retires during the one year period- in such case, only the period for which is capital was utilized, is taken into consideration.

2) A partner joins during the one year period- in such case, only the period for which his capital was utilized, is taken in to consideration.

One example

X and Y started a business in partner ship by investing Rupees 16,000 and Rupees 14,000 respectively. If at the end of a year, a profit of rupees 45,000 was earned, what is the share of X?

Ratio of amount invested by X and Y = 16000: 14000 = 16: 14

Profit made at the end of the year = Rupees 45000

Share of X = 16/30 x 45000/ = 16 x rupees 1500 = 24000/-