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What if net profit is less than appropriation

Atharv Sankliya (273 Points)

23 October 2021  
what if net profit is less than appropriation like interest on capital , salary/commission to partner

 8 Replies

Sourav (Student) (23860 Points)
Replied 24 October 2021

Elaborate in details

yasaswi gomes (My grammar is 💯 good I)   (6591 Points)
Replied 24 October 2021

Sales is lower than expenses

Atharv Sankliya (273 Points)
Replied 24 October 2021

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 ??

yasaswi gomes (My grammar is 💯 good I)   (6591 Points)
Replied 24 October 2021

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.

 

yasaswi gomes (My grammar is 💯 good I)   (6591 Points)
Replied 24 October 2021

I meant, interest on capital is debited.

Atharv Sankliya (273 Points)
Replied 24 October 2021

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

yasaswi gomes (My grammar is 💯 good I)   (6591 Points)
Replied 24 October 2021

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

yasaswi gomes (My grammar is 💯 good I)   (6591 Points)
Replied 24 October 2021

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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