FAR- Partnership

AC and BD formed a partnership on January 1, 2013. On this date, AC contributed capital of 600,000. On
the other hand, BD contributed no capital because he will manage the firm on full time basis. The
partnership agreement provides for the following:

A. Capital accounts are to be credited annually with interest at 5% of the beginning capital

B. BD is to be paid a salary of 20,000 per month

C. BD is to receive a bonus of 20% of profit computed before interest, salaries and bonus are deducted

D. Profits are to be divided between AC and BD in the ratio of 7:3

There are no withdrawals by either partner during the year. The partnership income statement contains
the following:

Revenues 1,720,000

Expenses (including salary, interest and bonus) 840,000

Net Profit 880,000

Questions:

1. How much is the bonus to BD?

2. What would be the equity balance of AC at year end?

Profit net of SIB = 880,000

Salaries= 20k x 12 = 240, 000

Interest= 600k x 5% = 30, 000

Unfortunately, bonus is not given so we have to compute for it.

Because bonus is based on profit before deduction of SIB, all amount of each allowance must be added
back

B= 20% (880+240+30+B)

B= 20% (1150 + B)

B= 230 + .2B

.8B = 230

B = 287.5

Remaining profit of 880 after the allowances will be divided into 7:3 ratio

AC= 30k + 616k = 646k

BD= 240k + 287.5 + 264k = 791.5k

2. Ending Equity of AC

600k beg cap

646k share in profit

= 1,246,000.

FAR

Leah Company acquired a welding machine with an invoice price of P3,360,000 subject to a cash
discount of 5% which was not taken. Trade Discount was 20%. Leah incurred freight and insurance
during shipment of P50,000 and testing and installation cost of P200,000. Leah also incurred cost of
P20,000 in removing the old welding machine prior to the installation of the new one. Welding supplies
were acquired at a cost of P100,000. The VAT on the acquisition is P360,000. What is the cost of the
welding machine?

3,100,000
3,360,000 - 360,000 x 95%= 2.85M

2.85M + 50K + 200K = 3,100,000

Merch

Calculate the difference between the payment date for those taking the early payment discount, and
the date when payment is normally due, and divide it into 360 days. For example, under 2/10 net 30
terms, you would divide 20 days into 360, to arrive at 18. You use this number to annualize the interest
rate calculated in the next step.

Subtract the discount percentage from 100% and divide the result into the discount percentage. For
example, under 2/10 net 30 terms, you would divide 2% by 98% to arrive at 0.0204. This is the interest
rate being offered through the credit terms.

Multiply the result of both calculations together to obtain the annualized interest rate. To conclude the
example, you would multiply 18 by 0.0204 to arrive at an effective annualized interest rate of 36.72%.