Question 3 (10 Marks)

Terry and Jasmine decide to form a partnership. Terry will contribute RM300,000 to the partnership, while Jasmine will contribute only RM30,000. However, Jasmine will be responsible for running day to day operations of the partnership, which are anticipated to require about 45 hours per week. In contrast, Terry will only work five hours per week for the partnership. The two partners are attempting to determine a formula for dividing partnership net income. Terry believes the partners should divide income in the ratio of 7:3 favoring Terry, since Terry provides the majority of the capital. Jasmine believes the income should be divided 7:3 favoring Jasmine, since Jasmine provides the majority of effort in running the partnership business.

Required:

Recommend with proper arguments to the partners in developing a method for dividing income.

Question 3 (10 Marks) Terry and Jasmine decide to form a partnership. Terry will contribute RM300,000 to the partnership, while Jasmine will contribute only RM30,000. However, Jasmine will be responsible for running day to day operations of the partnership, which are anticipated to require about 45 hours per week. In contrast, Terry will only work five hours per week for the partnership. The two partners are attempting to determine a formula for dividing partnership net income. Terry believes the partners should divide income in the ratio of 7:3 favoring Terry, since Terry provides the majority of the capital. Jasmine believes the income should be divided 7:3 favoring Jasmine, since Jasmine provides the majority of effort in running the partnership business. Required: Recommend with proper arguments to the partners in developing a method for dividing income