What is the profit sharing ratio if it’s based on capital contribution by Teechi and Co?

Use the information below to answer this question.

Timo and Chris are computer engineers who went into partnership as Teachi and Co. Timo brought cash of N12,000 furniture worth of N18,000 and vehicle worth of 70,000. Chris equally brought in cash of 10,000 his building valued at 105,000 and personal computers worth N35,000.

 

A. 2 : 3
B. 3 : 2
C. 6 : 5
D. 5 : 6

Correct Answer:

Option A – 2 : 3

Explanation

Divide the net assets contributed by each partner by the total partnership’s assets. This is the accountant ratio for income sharing. For instance, if the total assets of a company are $100,000 and the contribution of one partner is $10,000, the accounting ratio for this partner would be 0.1.

Timo = 100,000
chris = 150,000
Total = 250,000

Timo =100,000 / 250,000 = 0.4
chris = 150,000 / 250,000 = 0.6

This can be interpreted as 2:3 ratio