Income Ratios - Income Ratios As noted earlier, the...

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Income Ratios As noted earlier, the partnership agreement should specify the basis for sharing net income or net loss. The following are typical income ratios. 1. A fixed ratio, expressed as a proportion (6 :4), a percentage (70% and 30%), or a fraction (2 _ 3 and 1 _ 3). 2. A ratio based either on capital balances at the beginning of the year or on average capital balances during the year. 3. Salaries to partners and the remainder on a fixed ratio. 4. Interest on partners’ capital balances and the remainder on a fixed ratio. 5. Salaries to partners, interest on partners’ capital, and the remainder on a fixed ratio. The objective is to settle on a basis that will equitably reflect the partners’ capital investment and service to the partnership. A fixed ratio is easy to apply, and it may be an equitable basis in some circumstances. A ratio based on capital balances may be appropriate when the funds invested in the partnership are considered the critical factor. Capital ratios may also be equitable when a manager is hired to run the business and the partners
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Income Ratios - Income Ratios As noted earlier, the...

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