The partners profit shares for management accounts are entered in the same way as the shares for annual accounts.
When creating a posting entry 2 options are available "pro rata" and "set by period". If pro rata is selected profit ratios applied time apportion the profit over the period you are calculating. If the partners profit share changes during the year this may result in anomalies when the profit calculation is made.
For example the Pickwick Partnership has two partners and the profit sharing ratio was changed during the year.
|
|
1 Jan to 31 May |
1 June to 31 December |
|
|
(151 days) |
(214 days) |
|
Partner 1 |
60% |
50% |
|
Partner 2 |
40% |
50% |
The partners prepared management accounts for each quarter. In the first quarter they made £9,000 but in the later quarters they only managed to break even.
At the end of the first quarter the profit is split as follows:
|
Partner 1 |
5400 |
|
Partner 2 |
3600 |
At the end of the year the profit share changes even though no further profit has been made. This is because the profit for the first period is time apportioned over the year to date. The calculation is as follows:
|
Partner 1 |
9000 x 151/365 x 60% = |
2234 |
|
|
9000 x 214/365 x 50 % = |
2638 |
|
|
|
------- |
|
|
|
4872 |
|
|
|
|
|
Partner 2 |
9000 x 151/365 x 40% = |
1490 |
|
|
9000 x 214/365 x 50 % = |
2638 |
|
|
|
------- |
|
|
|
4128 |
Alternatively, if "set by period" is selected the reports will calculate the profit per period and will reflect any changes during the period more accurately.
If you do not want the profit ratio to be calculated in this way then you can specify the amount you want to be allocated to each partner in the Posting screen.