Basics of Partnership

Basics of Partnership

Partnership is an association of two or more persons who put in money together in order to carry on a certain business. Partnership is of two types.

1. Simple Partnership:

When all the partners start the business at the same point of time i.e. their capitals remain in the business for the same duration of time is called simple partnership. In this kind of partnership the profit is simply distributed in the ratio of their capitals.

2. Compound Partnership:

When the capitals of the partners are invested in the business for the different time periods the partnership is known as compound. In this kind the profit sharing ratio is calculated by multiplying the capital invested with the unit of time (mostly months). Here are a few examples to understand the concept in a better manner. 

Example 1:

Ram and Shyam are partners in a business. Ram invests Rs. 300 for 12 months and Shyam invested Rs.600 for 6 months. If they gain a profit of Rs. 700 at the end of one year, what is Ram’s share?

Solution:

Ram’s total capital = 300 × 12 = 3600. 
Shyam’s total capital = 600 × 6 = 3600.
Profit sharing ratio = 3600 : 3600 ⇒ 1 : 1.
The profit is given to be Rs. 700
⇒ The share of both Ram and Shyam will be = 700 × ½ = Rs. 350.

Example 2:

Raju invested Rs. 8000 for the whole year in a business. Sonu joins after 4 months. How much he should invest so that the profits are distributed in the ratio of 2 : 1?

Solution:

Raju’s total capital = 8000 × 12 = 96000. 

Let us take the capital of Sonu = S, he invested this capital after 4 months means it remains in the business for 8 months.
Their profit sharing ratio = 2 : 1.
So the equation will be 96000/8S = 2/1
⇒ 16 S = 96000 ⇒ S = 6000.
So Sonu should invest Rs.  6000.

Example 3:

P, Q and R invest Rs. 400, 500 and 600 in a business respectively. P gets one-fourth of the profits as remuneration for managing the business. P, Q and R distribute the rest of the profits in the ratio of their investments. If in a particular year, P gets Rs. 10 less than Q and R together, what was the total profit for that year?

Solution:

After giving one-fourth of the total profit amount to P for managing the business, the rest three-fourth of total profit is divided among P, Q and R in the ratio of their investments. The share of P, Q and R in the profit will be in the ratio of 4 : 5 : 6.

Three fourth of the total profits = 4x + 5x + 6x = 15x.
That implies the total profit will be 15x × 4/3 = 20x
Total share of P = 4x + 20x / 4 = 9x....(i)
Share of Q and R= 5x + 6x = 11x. ...(ii)
The difference in (i) and (ii) above is given to be Rs. 10
( 5x + 6x ) – 9x = 10 ⇒ 2x = 10 ⇒ x = 5.
Total profit = 5 × 20 = 100.

Example 4:

M, N and L hired a ground for Rs.  12000. M used this ground for 8 cows for 3 weeks, N used it for 6 cows for 8 weeks and L used it for 18 cows for 4 weeks. What amount of rent should L pay?

Solution:

M’s total use = 8 × 3 = 24.
N’s total use = 6 × 8 = 48.
L’s total use = 18 × 4 = 72.
Their expenditure ratio = 24 : 48 : 72
⇒ 1 : 2 : 3.
⇒ L should pay 3/6 of the rent
⇒ i.e. 12000 × 3/6 = Rs.  6000.