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What if net profit is less than appropriation

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what if net profit is less than appropriation like interest on capital , salary/commission to partner
Replies (8)
Elaborate in details

Sales is lower than expenses

Suppose if net profit is 100000 rs and interest on capital to partner A is 80000 rs and B is 60000 and salary to B is 20000 p.a so what its treatment ??

I never worked on partnerships, but I guess you got a loss

net Profit minus all interest on capital = loss and this is debited to appropriation accounts. 

Nothing to get surprised about if you get a loss.

 

I meant, interest on capital is debited.
But in t.s grewal book they are distributed the net profit of 1 lac in the ratio of interest on capital and other appropriation

i.e a = 80k
b = 60k+20k
ratio of appropriation is 1:1 so the profit is distributed in the ratio of 1:1

if You can attach a screenshot. Interest on capital is calculated at the rate of interest irrespective of whose capital it is. 

Accounting for partnerships | FA2 Maintaining Financial Records | Foundations in Accountancy | Students | ACCA | ACCA Global

The profit sharing ratio is defined here. the profit sharing ratio is used to calculate on residual profits. Simple.  


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