Partnership – The total amount of money required to start a business is called its capital. It is not always possible for a single person to invest huge amount of money. So, two or more persons come together and start business jointly. Such a business is called partnership. The people who jointly runs the business are called partners. The money invested by the partners in the business is called investment.

Types of Partnership

  1. In general partnership, the period of investment is the same and the partners divide profit or loss in the ratio of ther investments.
  2. In compound partnership, the investments and the periods of investment differ. Then their investements reduce to investments per month or year and the profit or loss is divided in the ratio of these converted investments.

How to calculate profit sharing ratio in partnership

Satish and Kranthi started a business with capitals of rs 12,000 and rs 18,000, respectively. The business made a profit of rs 3500. Find the share of Kranthi and Satish in the profit at the end of the year.
Investment made by satish = rs 12,000
Investment made by kranthi = rs 18,000
Ratio of the investments of satish and kranthi = 12,000 : 18,000 = 2 : 3.
As the period of investment is the same, profit is to be divided in the ratio of their investements.
=Ratio in which the profit is divided = 2 : 3
Profit = rs 3500
Satish share in the profit = 3500×2/5 = rs 1400.
Kranthi share in the profit = 3500×3/5 = rs 2100.

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