Two methods of solving this problem are presented, the first of which is to be preferred. The advantage of the first method is, that if the investments have been correctly determined the last amount shown will always be the balance standing at the credit of the' capital account. Moreover, the addition of the months or days should always total 12 or 365 respec tively, thus allowing the calculator to verify his re sults. The solution is as follows: 12. Division of profits on the basis of the amount of capital originally contributed by each partner.— Under this method of distribution each partner will receive the ratio of the profits that his capital ratio bears to the aggregate capital. Thus, if X contrib utes $1,000, Y $2,000, and Z $3,000, the aggregate capital will be $6,000; if the total profits amount to $1,200, X will receive one-sixth, or $200, Y will receive two-sixths or $400, and Z will receive one-half or $600.
13. Division of profits on the basis of capital orig inally contributed and accumulated by each partner.
—The agreement between the partners may provide that the profits shall be divided on the basis of the capital originally contributed and accumulated by each partner. In the foregoing illustration, the capi tal at the end of the first year of business would be $1,200, $2,400, $3,600 .for X, Y and Z, respectively. Let us assume that after the profits were stated each partner withdrew $200. The capital account would then be as follows: X, $1,000; Y, $2,200; Z, $3,400. In the following year, if profits of $3,300 had been made, the distribution between X, Y and Z would be in the ratio of 10, 22 and 34, instead of 10, 20 and 30 as in the preceding year. Thus, out of the total
profits of $3,300, X would receive $500; Y would re ceive $1,100; Z would receive $1,700.
14. Distribution of profits on a ratio different from that of the capital ratio.—Profits may be divided with out difficulty upon the basis other than the individual capital accounts. After the net profits have been stated, they will be divided among the partners on a ratio previously decided by the partners. It will usually be found that this method has been employed to adjust inequalities between the partners. For ex ample, two men may engage in business, one with more capital than the other. The partner having the lesser capital may, however, be possessed of more skill or ability in the particular business engaged in. The skill and ability of this partner may more than out weigh his disadvantage on the score of capital. Skill and ability are known as non-ledger assets because we do not keep accounts with them in the ledger, but nevertheless they are often the most valuable assets which a business firm possesses. In such a case, the inequalities between the partners may be adjusted by allowing the partner who possessed the greater skill a larger share of the profits. One man may devote more time to the business than his partner. Inequali ties between the partners on this score are frequently adjusted by allowing the partner who spends his en tire time in the business a larger salary than that al lowed to the partner who devotes only a portion of his time to the business of the firm.