Question

Which of the following could be used as a basis to allocate profits among partners who are active in the management of the partnership? 1) Allocation of salaries. 2) The number of years with the partnership. 3) The amount of time each partner works. 4) The average capital invested.

Answer 1

Answer:

1, 2, 3 & 4

Explanation:

All of the given options could be used as a basis to allocate the profit among partners. Allocation of salaries is also a basis for profit allocation. Salaries of partner is deducted from the net profit on the basis of predetermined ratio or amounts.

The numbers of years can also be a base for the profit allocation. The partner from the long time could have more share than a new partner but it depends on the agreement of all the partners.

The profit can also be based on the the amount of work work done or time spent by each partner. Some associations and firms use this method to allocate the profit.

The most common method of profit allocation is the capital invested in the business. partners are paid on the basis of what they invested in the business.