Appropriation-Account Igcse Cie

Students can get confused when trying to remember whether to add or subtract interest on drawings. Remember that this statement is from the point of view of the business. Therefore the interest on drawings is added as the business is owed more money from the partners.

Also remember partner’s loan interest is charged to the income statement not the appropriation account.

Jetlin & Leander are in partnership, their year end is 31^st December 2023. 

The following information was taken from their books: 

The partnership agreement provides for the following:

• interest on capital of 5% per annum

• interest on drawings of 10%

• a salary to Leander of $6 000 per annum

• residual profits and losses shared 75% to Jetlin and 25% to Leander.

Prepare the appropriation account for Jetlin and Leander for the year ended 31 December 2023.

Answer

Calculate the interest on capital by multiplying each partner’s capital by 5%.

• Jetlin: 5% × $50 000 = $2 500

• Leander: 5% × $35 000 = $1 750

Calculate the interest on drawings by multiplying each partner’s drawings by 10%.

• Jetlin: 10% × $7 500 = $750

• Leander: 10% × $1 000 = $100

Calculate the residual profit. This is usually done in the appropriation account.

• Start with the profit for the year $30 000

• Add the interest on drawings: + $750 + $100

• Subtract the interest on capital: – $2 500 – $1 750

• Subtract the salary: – $6 000

• Residual profit: $20 600

Calculate the share of profit for each partner by multiplying the residual profit by the given percentages.

• Jetlin: 75% × $20 600 = $15 450

• Leander: 25% × $20 600 = $5 150

Complete the appropriation account using the required format.