The first part is easy in that it is simply 5+3 then 5 8ths to Nicole and 3 8ths to Tim.
When the new partner is admitted you may have a mid year split so you need to calculate the split of profits up to the point of the new member joining and then after the new member joining.
In this example we will assume a £12000 profit to be split, a 31/12/12 year end and the new partner admitted on the 31/06/12.
so firstly, £12000/12 *6 to give the period split is £6000 / 8 (5+3 as above) = £750.
Nichole 5 * £750 = £3750 Tim 3 * £750 = £2250
Simple enough so far.
Now a new partner is admitted. This partner has a 1/3rd share of the business (not sure what you mean by 1/4(1/3)? My answer may change if you change your phrasing of that bit)
Anyway, assuming that we are talking about 1/3 for Kim, that leaves 2/3 of the partnership still split 5:3 so if 2/3 of the pie is 8 then 3/3 is 12
therefore the remaining £6000 (from June to December) / 12 = 500
Nichole 5 * 500 = £2500 Tim 3 * 500 = £1500 Kim 4 * 500 = £2000
Add to that the first part of the year where there were only two partners and the final figures for the year come out as :
Nichole = £3750 + £2500 = £6250 Tim = £2250 + £1500 = £3750 Kim = £2000
Total £12,000. Ta dah
kind regards,
Shaun.
p.s. there are other ways to calculate this out but I tried to make the above self explanatory.
-- Edited by Shamus on Tuesday 13th of November 2012 09:26:45 AM
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Hi There, How do i go about working out partnership ratio's For example if Nichole and Tim are in a partnership and share profits 5:3. They then admit Kim into the partnership with a quarter (1/3 Share). How do I recorded the new profit sharing ratio. Any help on partnership ratios's is much appreciated. Thanks
Hi There, Thanks for the reply and all the time you took. I hope their is some more patience out there for me . In your example based on using the 1/3 (as I had an error in my question), I am not sure how you are arriving at 12.
My question, however should have been a 1/4 share.
So Current 2 partners share profits 5:3 and the third partner (Kim) is admitted into the parntership for a quarter share.(1/4)
If you can help me an example above that will be great.
Also - if you can help with another 2 examples, it would be really appreciated. I am so confused with this, and it is probably not that hard if I get to grips with it
Example 2
A&B are in a partnership sharing profits three-quarters to one quarter. C is admitted into the partnership for one-third (1/3) share of profits. A&B will continue to share profits as between themselves in the same ratio.
Example 3 - with 3 partners
P,H, F are in a partnership sharing profits of 4:3:2. The admit M into the partnership for one eighth share of the profits. How would we calculate the new profit sharing ratio's assuming the old partners continue to the share profits as between themselves in the same ratios.
-- Edited by Debbiesap on Tuesday 13th of November 2012 07:49:13 PM
-- Edited by Debbiesap on Tuesday 13th of November 2012 07:55:09 PM
I'm adverse to helping too much with all of the scenarios as that's not going to do you any favours in the long run. The main thing is that you just need to understand the principle of whats happening and then apply it forwards.
The answer above took the situation of adding another partner and them having a third share wich unfortunately didn't prove to be the question. Lts use exactly the same figures but this time add the new partner with a quarter share of the partnership rather than a third.
The 12 that I use is the number of months in the year. I'm taking a case of 2 partners for 6 months and then 3 partners for the remaining 6 months. It adds a slight layer of complication but this is the scenario that you will be hot with most often in questions so better to practice them all that way.
Right, back to the question. We'll do it in exactly the same way but this time with a 25% share for the new partner rather than a third.
this time lets call it £32,000 rather than £12000 profit to be split, a 31/12/12 year end and the new partner admitted on the 31/06/12.
so firstly, £32000/12 months * 6 months to give the period split of £16000.
Next add the two shares together 5+3 giving us 8 shares.
£16000 for the first six months divided by 8 shares is £2000.
Nichole has 5 of the 8 shares so 5 * £2000 = £10000 Tim has 3 of the 8 shares so 3 * £2000 = £6000
Simple enough so far.
Now a new partner is admitted. This partner has a 1/4 (25%) share of the business.
That leaves 3/4 (75%) of the partnership still split 5:3 between the existing partners.
16,000 * 25% is £4000 which is Kims share
£16,000 - £4000 (already allocated to kim) leaves £12,000
There are still 8 shares so each share is worth £1500 (12,000 / 8 shares)
Nichole has 5 of the 8 shares so 5 * £1500 = £7500 Tim has 3 of the 8 shares so 3 * £1500 = £4500
Add to that the first part of the year where there were only two partners and the final figures for the year come out as :
Nichole = £10000 + £7500 = £17500 Tim = £6000 + £4500 = £10500 Kim = £4000
£17500 + £10500 + £4000 = £32000 Tah da.
Once you have the basic knowledge which I hope that this has given you the remainder is just applied maths. The way questions are phrased differs from situation to situation but accross the board you need to be thinking in two dimensions. The period of the split and the percentage of the split.
I was going to let you have a go at the others but lets take another example (the last one) in order to show you how to recalculate the split
The last question asks for 4:3:2 and admit a new partner for 1/8th share.
That means that 7/8ths remain with the existing partners (P,H and F)
I think that it's one of those things that it looks harder than it really is.
kind regards,
Shaun.
p.s. which body are you studying with Debbie?
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Perfect Shaun and thank you so much for your time and effort. Hopefully you did not think I was trying to get you to do my homework, rather I was hoping you could help me with things that I could not understand, and now I do.
I am actually studying in Australia, but found your website from when I used to work in Camberley in the UK. They are not explaining the calculation of ratio's to us which makes it hard to get the correct results!.
Thanks again, all I was trying to get was the context and that I know have. Let me know when you come visit in Australia
-- Edited by Debbiesap on Wednesday 14th of November 2012 09:06:07 AM
I think that there is an issue out there in that training in this field is big business and whilst there are some excellent tutors and training providers there are a lot more that do not really love and understand the subject matter that they are attempting to teach and the students suffer because of that.
Any time that you have issues with the training provided just post on here and myself or one of the other regulars would be more than happy to help out.
kindest regards,
Shaun.
p.s. I suspect that if I came visiting Australia now I would find myself stood in front of your class with your current tutor bound and gagged up one corner, lol.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Thanks again, for the most part this has been a good course that I have done, and I have got in the 90% range. This unit, I think is so close to the end of the year that i think he simply wants out (so therefore maybe get to Australia really soon)
I have struggled with everything we have done namely Cash Flows, Not for Profit Organisations and now Partnerships, and it sometimes hard do it alone.. so once again thanks for your help and I will practice more on the examples they have given us to ensure that I understand all you assisted with.
Nice sunny day in Australia - hope it is the same in the UK (Lol - I used to live in the UK, know all about this time of the year!)
. In your example based on using the 1/3 (as I had an error in my question), I am not sure how you are arriving at 12.
