The FF and II partnership agreement provides for FF to receive a 20% bonus on profits before the bonus. Remaining profits and losses are divided between FF and II in the ratio of 2:3 respectively. Which partner has a greater advantage when the partnership has a profit? When it has a loss?

The FF and II partnership agreement provides for FF to receive a 20% bonus on profits before the bonus. Remaining profits and losses are divided between FF and II in the ratio of 2:3 respectively. Which partner has a greater advantage when the partnership has a profit? When it has a loss?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Partnership Accounting

A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings, admission of a new partner, etc.

Partner Admission and Withdrawal

A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings of a partner, etc.

Question

The FF and II partnership agreement provides for FF to receive a 20% bonus on profits before the
bonus. Remaining profits and losses are divided between FF and II in the ratio of 2:3 respectively.
Which partner has a greater advantage when the partnership has a profit? When it has a loss?

a. FF; II
b. FF; FF
c. II; FF
d. II; II

Definition Definition Amount earned or lost on the sale of one or more items is referred to as the profit or loss on that item

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