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
- Interest on capital
- Partners salary
- 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.
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.
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.