When appropriations are more than Available Profit in partnership Class 12

Ask Your doubt on Whatsapp

Are you looking for the accounting treatment and rules when appropriations are more than available profit in partnership as per the syllabus of class 12 Accountancy CBSE Board.

See, appropriations mean the distribution of net profit among partners in different heads.

Such as profit is distributed as

  1. Interest on capital
  2. Partners salary
  3. Partners commission

Once above items are treated remaining profit is distributed among partners in their profit sharing ratio.

But, what to do when appropriations get more than the net profit available.

For example:- The total Interest on capital of partners comes to ₹ 1800 and net profit is only ₹ 1200.

What to do When appropriations are more than the available profit in partnership class 12

If the profit is less than appropriations. appropriations can not be more than the available profit. Such profit would be distributed as among partners in their appropriations amount ratio.

Lets understand the different situations one by one.

Lets have an example to Understand this concept.

A and B are two partners sharing profits equally. A and B capitals as on 1st April 2020 are ₹ 120000 and ₹ 60000. Interest on capital has to be allowed @ 10% p.a. At the end of the year net profit is ₹ 1500. Show the distribution of the profit among partners.

Solution:-

A’s Interest on Capital = ₹ 1200

B’s Interest on Capital = ₹ 600

Total Interest on Capital is ₹ 1800

Interest on capital would be considered as appropriation in this question as partnership deed is silent whether interest on capital is to be considered as appropriation of charge.

So total appropriation is ₹ 1800 that is greater than available profit ₹ 1500.

In this case Interest on capital would be allowed to the extent of available profit. Hence only ₹ 1500 would be allowed as interest on capital to both of the partners.

But how?

As I told you, first we have calculate the ratio of appropriate amount of the partners.

Here only interest on capital is being given as the appropriation hence we would calculate the ratio of interest on capital of the both the partners.

Ration of the interest on capital of both the partners

1200 : 600

It would become 2 : 1.

Hence ₹ 1500 profit would be divided in 2 : 1 as interest on capital to both of the partners as shown below.

A’s Interest on Capital = ₹ 1500 * 2/3 = ₹ 1000

B’s Interest on Capital = ₹ 1500 * 1/3 = ₹ 500

I hope you must have understood this concept.

Share your love
Default image
Anurag Pathak
Anurag Pathak is an academic teacher. He has been teaching Accountancy and Economics for CBSE students for the last 18 years. In his guidance, thousands of students have secured good marks in their board exams and legacy is still going on. You can subscribe his youtube channel and can download the Android & ios app for free lectures.
Articles: 659

Leave a Reply

close
error: Content is protected !!