Prepare two tables to show the profit distribution under two option plans if profits at the end of the year is P450,000. b. Comparing the total profit share of each partner in each option, which one will give a fairer sharing of profit?
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The JR Asia Consultancy Firm is owned and managed by two CPAS, Joffre and Ric. Initial investments of the partners are: Joffre P800,000 and Ric P400,000. Two options on how to distribute the profit are being considered by the partners:
Option 1: Distribute profit based on capital contributions after a 20% bonus is given to Ric based on profit for distribution.
Option 2: Distribute profit by giving them a 10% interest on contributions, a salary allowance of P100,000 to Ric as managing partner, and the remaining profit to be divided equally between them.
Due to the disparity in the contributions, the partners want to find out if it will be better to use option 2. The objective is to find a way of compensating fairly the partners considering not only asset contribution but als0 contribution in the form of time and expertise.
a. Prepare two tables to show the profit distribution under two option plans if profits at the end of the year is P450,000.
b. Comparing the total profit share of each partner in each option, which one will give a fairer sharing of profit?
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