Appropriation of losses

RyanW
RyanW Registered Posts: 19 Dedicated contributor ? ? ?
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?

Comments

  • mge
    mge Registered Posts: 94 ? ? ?
    I believe that is correct, unless the Partnership Agreement states otherwise.

    However, it would be great if someone more experienced could confirm this.
  • sdv
    sdv Registered Posts: 585
    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
    RyanW Registered Posts: 19 Dedicated contributor ? ? ?
    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
    mge Registered Posts: 94 ? ? ?
    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
    sdv Registered Posts: 585
    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
    RyanW Registered Posts: 19 Dedicated contributor ? ? ?
    Yep, thanks both. Cleared the confusion. Sorry, i didn't realise that the proforma went all 'wonky'. I fully understand now, tah! :)
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