Partnership

When two or more than two persons run a business together, they are called partners and the deal is known ad partnership.

There are two kind of partnership:-

Simple Partnership
Compound Partnership

Simple Partnership :- All the partners invest their capital or investment for same period of time.In this case profit earned is divided into the ratio of capital. Lets Understand with example :-

Example :- A and B started a business by investing Rs. 2000 and 3000 respectively for 1 year. Find the share of both, out of an annual profit of Rs. 2500.

Solution :- Here both have invested for same period of time so partnership is simple hence profit is divided into the ratio of capital

A:B = 2000:3000 =2:3

total ratio = 5

Profit of A = (2/5)*2500 = 1000

Profit of B = (3/5)*2500 = 1500

Compound Partnership :- All partners invest their capital for different period of time. Here profit in divided into the ratio of time value of money.

Time value of money = capital * time

Example :- A and B started a business by investing Rs. 2000 and 3000 respectively in which A invested for 1 year and B for half year. Find the share of both, out of an annual profit of Rs 3500.

Solution :- Here both have invested for different period of time so partnership is compound hence profit is divided into the ratio of time value of money

A:B = 2000*12 : 3000*6 =24000 : 18000 = 4:3

total ratio = 7

Profit of A = (3500/7)*4 = 2000

Profit of A = (3500/7)*3 = 1500

Working and Sleeping Partners :- A partner who manages the business is known as working partner and the one who simply invest money is a sleeping partner.

Working partner will get profit as well as salary whereas sleeping partner will only get profit no salary.

Lets Understand with an example:-

Example :- A and B started business by investing Rs. 100 and Rs 200 for same period of time but A is a active partner and B is sleeping partner and it was decided that 10 % of salary would be given to A. Find the share of both, out of an annual profit of Rs 30.

Solution :-Annual profit = Rs 30

Salary of A = 10% of 30 = Rs 3.

Now profit = 30 -3 = Rs 27

Now profit is divided into the ratio of capital because both invested for same period of time.

A:B = 100 :200 = 1:2

total ratio = 3

Profit of A = [(1/3)*27 + 3] = 12

Profit of B = (2/3)*27 = 18

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