X and Y are partners with profit sharing ratio of 1:2 with capital of rs 400000 and rs 600000?

Question

Answer

Partnership and Profit Sharing Ratio

Introduction

In a partnership, two or more individuals come together to carry on a business with a view to earn profit. The partners contribute capital, share profits and losses, and jointly manage the affairs of the business. The profit sharing ratio is the proportion in which the partners share the profits of the business.

Given Information

X's capital = Rs 400,000

Y's capital = Rs 600,000

Profit sharing ratio = 1:2 (X:Y)

Calculation

The total capital invested by X and Y is :

Total capital = X's capital + Y's capital

Total capital = Rs 400,000 + Rs 600,000 = Rs 1,000,000

The profit sharing ratio is 1:2, which means that out of the total profit earned, X will get 1/3rd and Y will get 2/3rd.

Let the total profit earned be Rs P. Then,

X's share of profit = (1/3) x P

Y's share of profit = (2/3) x P

The profit sharing ratio can also be expressed in terms of capital. X's share of profit will be equal to the ratio of his capital to the total capital, multiplied by the total profit. Similarly, Y's share of profit will be equal to the ratio of his capital to the total capital, multiplied by the total profit. Therefore,

X's share of profit = (X's capital / Total capital) x Total profit

Y's share of profit = (Y's capital / Total capital) x Total profit

Substituting the values, we get:

X's share of profit = (400,000 / 1,000,000) x P = 0.4P

Y's share of profit = (600,000 / 1,000,000) x P = 0.6P

Conclusion

In conclusion, X and Y are partners in a business with a profit sharing ratio of 1:2. X has invested Rs 400,000 and Y has invested Rs 600,000. The total capital invested is Rs 1,000,000. The profit sharing ratio means that out of the total profit earned, X will get 1/3rd and Y will get 2/3rd. This can also be expressed in terms of capital, with X's share of profit being 0.4P and Y's share of profit being 0.6P.

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