partnership accounts session 3 appropriation accounts practice activities

Partnership AccountsSession 3

Appropriation AccountsPractice Activities

By the end of the session all learners will be able to :

1. Describe these key components of partnership accounts:

• Statement of profit or loss • Partnership appropriation account

2. Prepare the statement of profit or loss appropriation account for a partnership

3. Accurately determine the allocation of profit to partners after allowing for interest on capital, interest on drawings and any salary paid to partner(s)

4. Prepare the capital and current accounts for each partner

5. Calculate the closing balances on each partner’s capital and current accounts, including drawings

Partnership Accounts

Appropriation Account

Handout W2S3Question 1 - Paul & Gill

Paul & GillPaul and Gill have been in partnership for a number of years sharing the profits in a ratio of 3:2. On 1 July 20X8 they have decided to change the partnership agreement so that Gill will receive a salary of £10,000 per year and for the profits to be split in a ratio of 2:1. During the year ended 30 September 20X8 the partnership profits totalled £45,000. At 1 October 20X7 both partners had credit balance of £2,000 on their current accounts. Paul made drawings of £26,400 during the year to 30 September 20X8 and Gill’s drawings for the period totalled £18,700. Write up the partners’ current accounts for the year ending 30 September 20X8.


Financial Year Ending 30th September 20X8 £

Profit for appropriation 45,000

Salaries

Gill (July – September 20X8) £10,000 ÷ 12 x 3 2,500Profit available for distribution 42,500OLD Profit Share to 30/6/20X8 - 3:2 – 9 months 31,875Paul £31,875 ÷ 5 x 3 19,125Gill £31,875 ÷ 5 x 2 12,750NEW Profit Share to 30/9/20X8 – 2:1 – 3 months 10,626

Paul £10,626 ÷ 3 x 2 7,084

Gill £10,626 ÷ 3 x 1 3,542

Profit for appropriation £42,500 ÷ 12 monthsX 9 months October – June (9 months) = £31,875

3:2 SplitONE part = £6,375

Paul gets 3 x £6,375 = £19,125Gill gets 2 x £6,375 = £12,750

Profit for appropriation £42,500 ÷ 12 months = £3,542 p/mJuly – September ( months) = 3 x £3,542 = £10,6262:1 splitONE part = £3542

Paul gets 2 x £3,542 = £7,084Gill gets 1 x £3,542 = £3,542



Profit for appropriation 45,000

Salaries

Gill (July – September 20X8) £10,000 ÷ 12 x 3 2,500Profit available for distribution 42,500OLD Profit Share to 30/6/20X8 - 3:2 – 9 months 31,875Paul £31,875 ÷ 5 x 3 19,125Gill £31,875 ÷ 5 x 2 12,750NEW Profit Share to 30/9/20X8 – 2:1 – 3 months 10,625

Paul £10,625 ÷ 3 x 2 7,083

Gill £10,625 ÷ 3 x 1 3,542



Profit for appropriation

Salaries

Interest on Capital

Profit Share

Current Account

Paul Gill Paul Gill

Current Account

Paul Gill Paul Gill

Drawings 26,400 18,700 Bal b/d 2,000 2,000

Salary 2,500

Profit ShareOct – June

19,125 12,750

Profit ShareJuly - Sept

7,083 3,542

Balance c/d 1,808 2,092

28208 20792 28208 20792

Balance c/d 1,808 2,092

Question 2 – Able & Baker

Question 2Capital Account

Able Baker Able Baker

Bank 5,000 O/Bal 20,000 15,000

Balance c/d 15,000 20,000 Bank 5,000

20,000 20,000 20,000 20,000

Balance b/d 15,000 20,000

Question 2Current Account


Interest on Drawings

450 450 O/Bal 2400 200

Interest on Capital*

875 875

Salary 8000

Balance c/d 8450 14250 Profit share 5625 5625

8900 14700 8900 14700

Balance b/d 8450 14250

*See workings

Question 2Interest on Capital workings

Able 20,000 Apr – Sept 6 months 5% 500

15,000 Oct – March 6 months 5% 375

875

Baker 15,000 Apr – Sept 6 months 5% 375


875

Back to slide 17

Question 2Interest on Capital

Able 20,000 Apr – Sept 6 months % 500


875

Baker 15,000 Apr – Sept 6 months 5% 375


875

Question 2Current Account


Interest on Drawings

450 450 O/Bal 2400 200

Interest on Capital*

875 875

Salary 8000

Balance c/d 8450 14250 Profit share 5625 5625

8900 14700 8900 14700

Balance b/d 8450 14250

*See workings

Complete questions 3 onwards

partnership accounts session 3 appropriation accounts practice activities

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