Partnership
Partnership is a business relationship between two or more people. These people agree to share the profits and losses of a business they run together. In competitive exams like UPSC, partnership questions test your understanding of ratios and basic multiplication. The most important rule to remember is that profit depends on two things: how much money you invest and how long you keep that money in the business.
Concepts (3)
An active partner works for the business, while a sleeping partner only invests money. Usually, the active partner receives a fixed percentage of the total profit as a 'salary' or 'management fee'.
An active partner works for the business, while a sleeping partner only invests money. Usually, the active partner receives a fixed percentage of the total profit as a 'salary' or 'management fee'. The remaining profit is then divided among all partners using the standard investment-time ratio. Always subtract the salary first before dividing the rest.
In a simple partnership, the time period for all partners is the same. Because time is equal for everyone, it cancels out in the ratio. Therefore, the profit is divided solely based on the ratio of the money invested.
In a simple partnership, the time period for all partners is the same. Because time is equal for everyone, it cancels out in the ratio. Therefore, the profit is divided solely based on the ratio of the money invested. For example, if A invests ₹5,000 and B invests ₹7,000 for one year, their profit ratio is simply 5:7.
In a compound partnership, partners invest different amounts of money for different lengths of time. To find the profit ratio, you must multiply each person's investment by their specific time.
In a compound partnership, partners invest different amounts of money for different lengths of time. To find the profit ratio, you must multiply each person's investment by their specific time. For example, if A invests ₹100 for 5 months and B invests ₹200 for 3 months, the profit ratio is (100 × 5) : (200 × 3), which simplifies to 5:6.
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Start Lesson: Active vs. Sleeping Partner