Profit Share Calculation for Co-Founders with Different Investment Durations

Profit sharing is a fundamental concept in the business world that ensures fair distribution among partners based on their contributions. This article will illustrate a specific case where two individuals, Riyas and Sneha, start a business with varying capital investments and durations. We will calculate the share of profit for Riyas based on their respective investments and holding periods.

Riya's Initial Investment

Riya started her business with an initial investment of Rs. 25,000. She remained invested for the entire year, which is 12 months. To determine the profit share for Riyas, we need to calculate their contributions considering the investment duration.

Calculation of Riyas Shares

Riyas Investment:

Capital: Rs. 25,000 Time: 12 months

Riyas Contribution Over Time:

text{Riyas Contribution} 25,000 times 12 300,000 Remonths

Sneha's Investment

Sneha joined the business after 3 months with an investment of Rs. 30,000. She was invested for 9 months.

Capital: Rs. 30,000 Time: 9 months

Snehas Contribution Over Time:

text{Snehas Contribution} 30,000 times 9 270,000 Remonths

Total Contribution and Profit Sharing

Total Contribution:

text{Total Contribution} text{Riyas Contribution} text{Snehas Contribution} 300,000 270,000 570,000 Remonths

Profit Sharing Ratio:

Riyas share frac{300,000}{570,000} frac{30}{57} frac{10}{19}

Snehas share frac{270,000}{570,000} frac{27}{57} frac{9}{19}

Total Profit and Riyas Share

Total Profit:

text{Total Profit} Rs. 19,000

Riyas share of profit text{Total Profit} times text{Riyas Share} 19,000 times frac{10}{19} Rs. 10,000

Conclusion and Further Examples

From the above calculations, we can see that Riyas share in the total profit is Rs. 10,000. This method can be applied to different scenarios where co-founders or partners invest varying amounts and for different durations.

Other Examples for Further Understanding

Karan and Shirish Scenario:

Karan invests Rs. 60,000 for 12 months, and Shirish invests Rs. 100,000 for 6 months.

Karan's investment/months Rs. 60,000 times 12 Rs. 720,000 Remonths Shirish's investment/months Rs. 100,000 times 6 Rs. 600,000 Remonths Total investment/months 720,000 600,000 Rs. 1,320,000 Remonths Awarded annual profit Rs. 151,800

Shirish's share in the profit 151,800 timesfrac{600,000}{1,320,000} Rs. 69,000

Mathematical Formula

Let profit shares of Riya and Sneha be x and y respectively. Given that 25,000 remains 12 months and 30,000 for 9 months:

x/25,000 times 12 y/30,000 times 9

x/20 y/18 xy/2018 19,000/38 500

x 20 times 500 Rs. 10,000

y 18 times 500 Rs. 9,000

Hence, Riya's share is Rs. 10,000 and Sneha's share is Rs. 9,000.

Keywords: profit sharing, investment duration, business profit distribution