V $-$ Multiple Bases: Allocation of Net Income

Durand, Price and Russell are partners in a business which manufactures garden tools. Their profit and loss

agreement has the following provisions:

Salaries of $P40,000,P20,000,$ and P$45,000$ for Durand, Price, and Russell, respectively.

Price will receive a bonus equal to $5\%$ of sales in excess of $P1,000,000.$

All partners will receive a bonus of $10\%$ of net income in excess of $P150,000$ after the total of all such

bonuses.

Partners will be allocated interest on their weighted$-$average capital balance. Drawings in excess of

annual salaries will be considered reduction in capital. Interest is computed at the rate of $10\%.$

Remaining profits and losses will be allocated $35\%,25\%,$ and $40\%$ to Durand, Price, and Russell,

respectively.

Gains and losses from the sale of depreciable assets will be excluded from the above provisions and

will be equally allocated among the partners.

Activity in the partners' capital and drawing accounts during the year was as follows:

Required: Determine how annual net income of P$200,000($including a gain on the sale of equipment of

P$15,000)$ should be allocated among partners. Annual sales revenue was $P1,100,000.$