Appropriation of losses

RyanW

Hi all, just wondering when a partneship has a loss, appropriating the salary and intrest at a positive rate i.e like they have made a profit, does it leave a further loss to be appropriated?

E.g

Loss for year: 20,000

Appropriation of salary: 6,000

interest: 2,000

therefore the salary and intrest is cr to current a/c and the loss is now split at 28,000 between the partners?

mge

I believe that is correct, unless the Partnership Agreement states otherwise.

However, it would be great if someone more experienced could confirm this.

sdv

Agreed

Profit is only shared after taking into account the
partnership salary
interest on capital
and interest on drawings

In this case it is not a profit but a loss

therefore the share of loss will be £28,000 (£20,000 + £6,000 + £2,000)

RyanW

Okay thanks guys, that great. One other thing though! Say we wanted to show this in a ledger t account. The loss should appear as a dr in the appropriation a/c.

Appropriation
DR CR
Loss (p/l) 300
Salary 200
Interest cap 100

---

---

Partner A 300
Partner B 300

say 1:1 p/share

mge

Absolutely correct.

If a company makes a net loss then there is a debit balance in the Profit and Loss Account. This is transferred to the Appropriation Account where it is also a debit entry.

We now effectively increase the size of the loss because we have to pay partner salaries and interest on capital (expenses, so also debit entries).

This loss now has to be transferred to the partners in the profit sharing ratio (credit entries).

sdv

RyanW wrote: »

Okay thanks guys, that great. One other thing though! Say we wanted to show this in a ledger t account. The loss should appear as a dr in the appropriation a/c.

Appropriation
DR CR
Loss (p/l) 300
Salary 200
Interest cap 100

---

---

Partner A 300
Partner B 300

say 1:1 p/share

The above figures doesn't make any sense in the way they are presented/appearing.

RyanW wrote: »

Hi all, just wondering when a partneship has a loss, appropriating the salary and intrest at a positive rate i.e like they have made a profit, does it leave a further loss to be appropriated?

E.g

Loss for year: 20,000

Appropriation of salary: 6,000

interest: 2,000

therefore the salary and intrest is cr to current a/c and the loss is now split at 28,000 between the partners?

Going to the opening post

Profit and Loss Apprpriation a/c

..................................................DR.....................CR

Net profit from P&L a/c (loss).............20,000

Interest
Current account partner A................1,000
Current a/c partner B.......................1,000

Salary Partner A..............................6,000

Share of Loss (equally)
Partner A..........................................................14,000
Paryner B..........................................................14,000

Total..........................................28,000............28.000


Current Account Partner A
Interest P&L appropriation a/c..............................1000
Salary P&L appropriation a/c.................................6000
Share of profit P&L appropriation a/c.14,000


Current Account Partner B
Interest P&L appropriation a/c..............................1000
Share of profit P&L appropriation a/c.14,000

RyanW

Yep, thanks both. Cleared the confusion. Sorry, i didn't realise that the proforma went all 'wonky'. I fully understand now, tah!