A partnership is whenever at least two individuals hold hands with a shared objective to achieve benefits. Each accomplice contributes either time, cash or licenses to enable the association firm to harvest benefits. A partner who only invests money is called a Sleeping Partner and a partner who invests money and mainly manages the business is called the working partner. Some other important points associated with partnership are given below.
These points are better understood by knowing the types of partnerships. The detailed explanations of the different types of partnerships are given below:
There are mainly two types of partnership i.e. simple and compound partnerships. The details of both of them are given below.
1. Simple Partnership
In such partnerships, the resources are invested for the same time period by all the investors i.e. the capital (or other resources) stays in the business for the same duration. In this kind of partnership, the profit is distributed in proportion to their contributed resources.
Rule 1: Simple Partnership Formula
⇒ P’s benefit (or misfortune) : Q’s profit(or misfortune) = a : b
2. Compound Partnership
In a compound partnership, the money is invested for different periods of time by different investors. In this, the benefitsharing proportion is ascertained by duplicating the capital contributed with the unit of time (generally months).
Rule 2: Compound Partnership Formula
⇒ P1 : P2 = C1 × T1 : C2 × T2
Here,
P1 = Partner 1’s Profit.
C1 = Partner 1’s Capital.
T1 = Time period for which Partner 1 contributed his capital.
P2 = Partner 2’s Profit.
C2 = Partner 2’s Capital.
T2 = Time period for which Partner 2 contributed his capital.
Q1: Anmol and Bhuvesh invested Rs.1500 and Rs.2000 respectively in a firm. After 4 months, they admit Suresh who contributed Rs.2250. Bhuvesh withdraws his contribution after 9 months. What would be Bhuvesh’s share if the profit at the end of the year was Rs. 900?
Sol: To solve this, it is important to calculate the ratio of their contribution first. It is given that Anmol invested his capital for 12 months while Suresh invested his capital for (12 – 4=) 8 months and Bhuvesh invested for 9 months.
So, Anmol : Bhuvesh : Suresh = 1500 × 12: 2000 × 9: 2250 × 8 = 180 : 180 : 180
=> Anmol : Bhuvesh : Suresh = 1 : 1 : 1.
Now, Bhuvesh’s share will be = {1 / (1 + 1 + 1)} = 1/3rd of profits = (1/3) × 900 = Rs. 300.
Q2: Rakesh contributes onefourth of capital for onefourth of the time. Raju contributes onefifth of capital for half of the time and Ramu contributes the remaining capital for the whole time. Calculate their profitsharing ratio.
Sol: Part of Capital by
Rakesh = 1/4 ;
Raju = 1/5 ;
Ramu gave remaining ⇒ Ramu’s share in capital = 1 – (1/4 + 1/5) = 11/20
Time investment by: Rakesh = 1/4; Raju = 1/2; Ramu = 1 (whole time means full one 1 year)
Using, P1: P2 = C1×T1: C2×T2
⇒ A: B : C = 5: 8: 44.
Now we’ll take LCM of 16, 10 and 20 which is 80 and divide it by each denominator and multiply the number thus obtained by each of the respective denominators.
⇒ A: B: C = 5: 8: 44.
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Basic Concept: Profit, Loss & Discount Doc  8 pages 
Profit and Loss Video  54:02 min 
Test: Profit & Loss 1 Test  10 ques 
1. What is the formula to calculate the share of profit in a partnership? 
2. How do you calculate the ratio of profits in a partnership? 
3. What is the difference between a general partnership and a limited partnership? 
4. How do you calculate the time duration for which a person invests in a partnership? 
5. What is the importance of a partnership agreement in a business partnership? 
Basic Concept: Profit, Loss & Discount Doc  8 pages 
Profit and Loss Video  54:02 min 
Test: Profit & Loss 1 Test  10 ques 

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