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Partnership Accounts Session 3 Appropriation Accounts Practice Activities.

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1 Partnership Accounts Session 3 Appropriation Accounts Practice Activities

2 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

3 Appropriation Account

4 Handout W2S3 Question 1 - Paul & Gill

5 Paul & Gill Paul 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.

6 Paul & Gill Paul 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.

7 Appropriation Account Financial Year Ending 30 th September 20X8£ Profit for appropriation45,000 Salaries Gill (July – September 20X8) £10,000 ÷ 12 x 32,500 Profit available for distribution42,500 OLD Profit Share to 30/6/20X8 - 3:2 – 9 months31,875 Paul £31,875 ÷ 5 x 319,125 Gill £31,875 ÷ 5 x 212,750 NEW Profit Share to 30/9/20X8 – 2:1 – 3 months10,626 Paul £10,626 ÷ 3 x 27,084 Gill £10,626 ÷ 3 x 13,542 Profit for appropriation £42,500 ÷ 12 months X 9 months October – June (9 months) = £31,875 3:2 Split ONE part = £6,375 Paul gets 3 x £6,375 = £19,125 Gill gets 2 x £6,375=£12,750 Profit for appropriation £42,500 ÷ 12 months = £3,542 p/m July – September ( months) = 3 x £3,542 = £10,626 2:1 split ONE part = £3542 Paul gets 2 x £3,542 = £7,084 Gill gets 1 x £3,542=£3,542

8 Appropriation Account Financial Year Ending 30 th September 20X8£ Profit for appropriation45,000 Salaries Gill (July – September 20X8) £10,000 ÷ 12 x 32,500 Profit available for distribution42,500 OLD Profit Share to 30/6/20X8 - 3:2 – 9 months31,875 Paul £31,875 ÷ 5 x 319,125 Gill £31,875 ÷ 5 x 212,750 NEW Profit Share to 30/9/20X8 – 2:1 – 3 months10,625 Paul £10,625 ÷ 3 x 27,083 Gill £10,625 ÷ 3 x 13,542

9 Appropriation Account Financial Year Ending 30 th September 20X8£ Profit for appropriation Salaries Interest on Capital Profit Share

10 Current Account PaulGillPaulGill

11 Current Account PaulGillPaulGill Drawings26,40018,700Bal b/d2,000 Salary2,500 Profit Share Oct – June 19,12512,750 Profit Share July - Sept 7,0833,542 Balance c/d1,8082,092 28208207922820820792 Balance c/d1,8082,092

12 Current Account PaulGillPaulGill Drawings26,40018,700Bal b/d2,000 Salary2,500 Profit Share Oct – June 19,12512,750 Profit Share July - Sept 7,0833,542 Balance c/d1,8082,092 28208207922820820792 Balance c/d1,8082,092

13 Question 2 – Able & Baker

14 Question 2 Capital Account AbleBakerAbleBaker Bank5,000O/Bal20,00015,000 Balance c/d15,00020,000Bank5,000 20,000 Balance b/d15,00020,000

15 Question 2 Capital Account AbleBakerAbleBaker Bank5,000O/Bal20,00015,000 Balance c/d15,00020,000Bank5,000 20,000 Balance b/d15,00020,000

16 Question 2 Current Account AbleBakerAbleBaker Interest on Drawings 450 O/Bal2400200 Interest on Capital* 875 Salary8000 Balance c/d845014250Profit share5625 890014700890014700 Balance b/d845014250 *See workings

17 Question 2 Interest on Capital workings Able20,000Apr – Sept6 months5%500 15,000Oct – March6 months5%375 875 Baker15,000Apr – Sept6 months5%375 20,000Oct – March6 months5%500 875 Back to slide 17

18 Question 2 Interest on Capital Able20,000Apr – Sept6 months%500 15,000Oct – March6 months5%375 875 Baker15,000Apr – Sept6 months5%375 20,000Oct – March6 months5%500 875

19 Question 2 Current Account AbleBakerAbleBaker Interest on Drawings 450 O/Bal2400200 Interest on Capital* 875 Salary8000 Balance c/d845014250Profit share5625 890014700890014700 Balance b/d845014250 *See workings

20 Complete questions 3 onwards

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