5.4 Partnership With a Working Partner

Sometimes one partner also manages the business and is paid a fixed monthly salary or a fixed percentage of profit before the remaining profit is split in the investment ratio. This is a small but important variant.

Example 35A: A and B invest ₹60,000 and ₹40,000 in a business. A also manages the business and draws a monthly salary of ₹500. If the total annual profit is ₹25,000, find each partner’s total earning for the year (salary + profit share, where salary is paid first and the remainder is split in the investment ratio). A’s total salary for the year = 500 × 12 = ₹6000. Remaining profit to be shared = 25000 − 6000 = ₹19,000. Investment ratio A:B = 60000:40000 = 3:2, total parts = 5. A’s profit share = 19000 × 3/5 = ₹11,400. B’s profit share = 19000 × 2/5 = ₹7,600. A’s total earning = 6000 + 11400 = ₹17,400. B’s total earning = ₹7,600.