🗺️ Chapter Roadmap
1 Profit Sharing Concept
A Partnership is a business relationship where two or more people invest their money (Capital) to earn a profit. In any fair business, the profit is shared based on two main factors:
The person who invests more money deserves a larger share of the profit.
The person whose money stays in the business for a longer time deserves more profit.
2 Types of Partnerships
Examiners often distinguish between these two scenarios:
A. Simple Partnership
When all partners invest their money for the exact same amount of time. In this case, profit is shared simply according to the ratio of their investments.
B. Compound Partnership
When partners invest different amounts for different time periods. This is more common in competitive exams like NTS or CSS.
3 The Golden Rule
To find how much profit each person gets, we calculate the "Equivalent Capital" by multiplying their investment by their time.
The Profit Ratio Formula
P1 : P2 = (C1 × T1) : (C2 × T2)
4 Step-by-Step Solved Example
"Ali started a business with $50,000. After 6 months, Asad joined him with $100,000. At the end of 1 year, the total profit was $40,000. Find Asad's share."
Investment: $50,000 | Time: 12 months
Value = 50,000 × 12 = 600,000
Investment: $100,000 | Time: 6 months (Joined late)
Value = 100,000 × 6 = 600,000
Ali : Asad → 600,000 : 600,000
Simplified Ratio = 1 : 1
Since the ratio is 1:1, they share equally.
$40,000 ÷ 2 = $20,000
💡 Pro Exam Tip:
If three people invest in a ratio and no time is mentioned, just treat the "Time" as 1 for everyone. The profit ratio will be exactly the same as the investment ratio!