Profit sharing ratio of Aby and Anu is 4:1. Net Profit = 1,00,000 As per this ratio Aby will get Rs. 80,000 (1,00,000 × 4/5) and Anu will get 20,000 (1,00,000 × 1/5) as their share of profit. But Anu has contributed Rs. 1,00,000 more than Aby’s capital. Now Anu is in a disadvantageous position. Conditions:
1. If there is a provision for interest on capital @10%.
Anu’s interest on capital = 5,00,000 ×\(\frac{10}{100}\)= 50,000
Her share of profit = (Net Profit – Interest on capital of Aby and Anu) × 1/5
=[1,00,000 – (40,000 + 50,000)] × \(\frac{1}{5}\)
= 1,00,000 – 90,000 × \(\frac{1}{5}\) =10,000 × = 2,000
Anu will get interest on capital = 50,000+ share of profit 2000 = 52,000.
2. Profit sharing ratio made equal:
Abu’s share of profit = 1,00,000 × \(\frac{1}{2}\) = 50,000
Anu’s share of profit = 1,00,000 × \(\frac{1}{2}\) = 50,000 So First condition is more advantageous to Anu.