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Simple partnership defines an arrangement between two or among more parties so that it could help to operate a business and share profits among the parties. In general, a simple partnership shares both liabilities as well as profits. This study is going to discuss the concept of a simple partnership and its significance in mathematics. Additionally, the simple partnership formula will be stated in this discussion. Examples related to the simple partnership will be demonstrated by the end of this study.
What is a simple partnership?
In a partnership, the amount that two or more partners invested in a business to run it properly is a part of the capital. The foundation of the simple partnership lies in certain principles that are discussed below:
(I) Capital: The partners can invest an equal or different amount of money as a part of the capital. The simple share ratio among the partners will be based on the amount that they invested in the business.
(II) Share of Profit: A mutual agreement among the parties is placed before initiating a partnership business. In India, the losses or profits will be shared among the partners based on the terms and conditions mentioned in the mutual agreement. However, when nothing is properly mentioned in the mutual agreement then the losses or profits will be distributed among the partners according to the capital that they invested in the business.
In a simple partnership, the capital from all the partners will be invested in a business for the same period.
Simple Partnership Formula
Assuming that partner X contributes ‘A’ amount of money in the business and partner Y contributes ‘B’ amount of money in the business in terms of investment of capital. Therefore, the simple partnership can be calculated as:
(Profit of X) / (Profit of Y) = A/B
This is the simple partnership formula. Hence, by using this formula the profit or loss of one partner can be calculated if the profit or loss of another partner is given.
Examples of Simple Partnership
- Example 1:
Three partners invested an amount of Rs. 100000, Rs. 200000 and Rs. 400000 respectively to start a business. In what ratio the profit will be distributed among the partners?
This is an example of simple interest.
Given,
Investment of 1st partner = Rs. 100000
Investment of 2nd partner = Rs. 200000
Investment of 3rd partner = Rs. 400000
Concept used,
(Profit of X) / (Profit of Y) = A/B
Solution,
The ratio of profit,
Profit of first partner: Profit of Second partner: Profit of third partner = 100000: 200000: 400000
=> Profit of first partner: Profit of Second partner: Profit of third partner = 1: 2: 4.
Therefore, in a 1: 2: 4 ratio the profit will be distributed among the partners.
- Example 2:
Suppose, partner P invested an amount of Rs. 100000 and Q invested an amount of Rs. 150000 respectively to start a business. If the total profit earned at the end of the year is, Rs. 24000 then what will be the share of P and Q ?
Given,
Investment of P = Rs. 100000
Investment of Q = Rs. 150000
Total profit = Rs. 24000
Concept used:
Investment ratio,
=> (Amount of X) / (Amount of Y) = A/B
=> Share of X = total profit * (parts of amount of X/total capital investment)
=> Share of Y = total profit * (parts of amount of Y/total capital investment)
Solution:
Total capital investment = (100000 + 150000) Rs. = 250000 Rs.
The investment ratio of P and Q = 100000: 150000 = 2: 3
Share of P = 24000 * (2/5) i.e., Rs. 9600
And, Share of Q = 24000 * (3/5) i.e., Rs. 14400
Therefore, Share of P and Q is Rs. 9600 and Rs. 14400 respectively.
Conclusion
After the above discussion, it can be concluded that a simple partnership is a useful mathematical approach that is used to calculate the liabilities and profits among the partners. Most business organisations in India use this approach to distribute shares among the partners that are contributing certain amounts in terms of capital to run the business. In addition, a simple partnership formula would help to calculate the investment ratio among the partners. Besides, the losses among the partners can also be calculated by using this formula.
