The profit/loss sharing ratio may not be equal despite of the fact that partners have contributed equal amount of capital, depending upon the partnership agreement. Take the following example: Two partners start a business and contribute equal capital and decide to share equal profits. But they also realize that in future the business may need further capital and at that time both partners may not be able to contribute equally. So, instead of revising the contract every time, they include a clause in the agreement, whereby, the partners are allowed an interest on the capital contributed. This interest can be on the whole amount of both partners or only of one partner on the amount contributed in excess of the other partner. This way a partner, who provides capital in excess of his profit sharing ratio, can be compensated. One may say that the same results can be achieved by saying that profit and loss sharing will be proportionate to the amount of capital invested. But, as we have said that in partnership everything depends on the Partnership Agreement. Source:http://in.docsity.com/en-docs/Capital_and_Drawings-Financial_Accounting-Lecture_Handout_
One might believe as Pastime upon Capital pays towards the lovers, therefore it ought to be treated since business expense in addition to Interest in Images is incurred from the partners, consequently, it must be tempered because cash flow.