Peace, Progress and Unity are partners in Peace Progress Unity & Co., sharing profits or losses based on the ratio of 3:2:1, respectively. The capital account balances are fixed at ₦300,000, ₦220,000 and ₦110,000 for Peace, Progress and Unit, respectively.
Based on the partnership agreement, the following must be applied in the accounting records, namely:
i. Interest on capital is 5 percent annually.
ii. Only Unity is entitled to a monthly salary of ₦3,500.
iii. Only Peace and Progress can withdraw from the partnership. Drawings by partners attract interest of 5 percent per annum.
iv. Peace withdrew ₦4,560 on 1 January 2018.
The profit for the year ended 31 December 2018 is ₦569,000. This amount was calculated before the interest on capital, salary and interest on drawings was accounted for.
Required: Prepare the appropriation account of the partnership business.
Suggested answer to practice activity 11.11
Peace Progress Unity & Co.
Partnership Appropriation Account for the year ended 31 December 2018
Note ₦ ₦
Profit 569,000
Add:
Interest on drawings 1 228
569,228
Less:
Salary: Unity 2 42,000
Interest on capital:
Peace 3 15,000
Progress 3 11,000
Unity 3 5,500
31,500
Balance of profits 537,728
Shared between:
Peace 4 268,864
Progress 4 179,243
Unity 4 89,621
537,728
Notes:
1. Interest on drawings
Peace: 5% x ₦4,560 = ₦228
2. Salary
Unity: ₦3,500 x 12 months = ₦42,000
3. Interest on capital
Peace: 5% x ₦300,000 = ₦15,000
Progress: 5% x ₦220,000 = ₦11,000
Unity: 5% x ₦110,000 = ₦5,500
4. Share of profits:
Peace: 3/6 x ₦537,728 = ₦268,864
Progress: 2/6 x ₦537,728 = ₦179,243
Unity: 1/6 x ₦537,728 = ₦89,621
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