AS-L18 — Appropriation Accounts
Understanding how partnership profits are distributed between partners using appropriation accounts.
Learning Objectives
By the end of this lesson students should be able to:
• understand the purpose of an appropriation account
• distinguish between profit for the year and residual profit
• calculate interest on capital and drawings
• calculate partners’ profit shares
• answer examination-style questions
Concept Framework
What is an Appropriation Account?
An appropriation account is prepared to show how the profit for the year of a partnership is distributed between partners.
Typical Appropriations
Partnership profits may be adjusted for:
• interest on capital
• interest on drawings
• partner salaries
• residual profit sharing
CORE RULES
| Item | Treatment |
|---|---|
| Interest on Capital | Add to partner |
| Partner Salary | Add to partner |
| Interest on Drawings | Deduct from partner |
| Residual Profit | Shared by ratio |
TRANSACTION LOGIC
Appropriation accounts do not calculate profit.
They distribute the already calculated profit for the year between partners according to the partnership agreement.
Interest on drawings reduces a partner’s entitlement, while salaries and interest on capital increase it.
Worked Examples
Example 1 — Interest on Capital
Ali’s capital = £20,000
Interest rate = 5%
Interest on Capital:
5% × £20,000
= £1,000
Example 2 — Partner Salary
Sara receives a partnership salary of £4,000.
This amount is credited to Sara before residual profit is shared.
Example 3 — Residual Profit Sharing
Profit for the year = £18,000
Less:
Interest on Capital £2,000
Partner Salaries £4,000
Residual Profit:
£12,000
Shared equally:
£6,000 each
📌 Additional questions are available in the 🎯 Lesson wise resources, Module wise resources, Guess Question Papers + YouTube Explanation section.
Students should practise explanation questions regularly to improve examination performance.
Enrolled students may submit questions from recognised textbooks, past examination papers, or other academic material for expert clarification through the Student Doubt Support facility.
Structured Practice
Level 1 – Concept Check
Define appropriation account
Define interest on capital
Level 2 – Application Practice
Explain why partner salaries are not treated as business expenses.
Level 3 – Examination Style Question
Profit for the year = £24,000
Interest on capital:
Ali £1,000
Hassan £2,000Residual profit shared equally.
Calculate each partner’s total share of profit.
(4 marks)
📌 Additional structured questions are available in the 🎯 Question Papers + YouTube Explanation section.
∗ Additional structured questions are available in the Question Papers and YouTube Explanation section. Students should practise regularly and review video explanations for procedural clarity.
Enrolled students may submit questions from recognised textbooks, past examination papers or other genuine academic material for expert clarification through the Student Doubt Support facility.
Proficiency Check
Learn → Unlearn → Relearn
1. Can you distinguish profit from appropriation?
2. Can you calculate residual profit accurately?
3. Can you distribute profits correctly between partners?
If unsure, revise the worked examples.
Detailed Activity Solutions
Solution to Level 3 question
Level 3 Answer:
Profit for the year:
£24,000
Less Interest on Capital:
£1,000 + £2,000
= £3,000
Residual Profit:
£21,000
Shared equally:
£10,500 each
Final Share:
Ali:
£10,500 + £1,000
= £11,500
Hassan:
£10,500 + £2,000
= £12,500
How This Topic Appears in the Examination
This topic commonly appears as:
• appropriation account preparation
• profit distribution calculations
• partnership adjustments
Examiners assess:
• correct calculations
• understanding of partnership agreements
• accurate profit allocation
Self-Assessment Checklist
I understand appropriation accounts
I can calculate interest on capital
I can calculate residual profit
I can distribute partnership profits accurately
I can answer exam questions confidently
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