PFAST - Sample Assessment 1, Q4 Appropriation accounts

lindsk87

Can anyone help.

I have been looking at the appropriation account question and am struggling to understand the split of total profit for appropriation. The total profit is £80,000 to be split between 01 apr - 30 jun and 01 jul -31 mar.

I would take the total and divide by 12 to get a single month to then x by the amount of months, or divide by 1/4 etc.

I have seen the answer of 16,000 for 01 apr - 30 jun and 84,000 for 01 jul -31 mar.
80,000/125% gives me the 84,000 but i dont really understand how as for other questions dividing by 1/4 etc would get me the correct answer.

Am i doing something wrong?

Thank you

rakeshsuwal

If you could copy paste the question here would be great so we can help. Thanks

lindsk87

The partners at the beginning of the year were Asma and Ben

Chris was admitted to the partnership on jul 1 20x6, when the partnership agreement changed

summary of agreements

partnership agreement effect until 30 jun
profit share: Asma 60%, Ben 40%
salary per annum: Asma £22000, Ben £18000

partnership agreement effect from 1 jul
profit share: Asma 50%, Ben 25%, Chris 25%
salary per annum: Asma £22000, Ben £18000

under both agreements partners are allowed interest on capital, calculated as follows
Asma: £1600 for the 12 months ended 31 mar 20x7
Ben: £1200 for the 12 months ended 31 mar 20x7
Chris: £800 for the 9 months ended 31 mar 20x7

you may assume interest for asma and ben accrued evenly across the year

profit for the year ended 31 mar x7 was £80,000

you need to prepare the appropriation account for the business for the year ended 31 mar

Thank you for your help

Loopster

At the very end of the question/information you are given (Or what you think is the end of the information given) ending: "profit for the year ended 31 mar x7 was £80,000." There is actually more information underneath which you need to scroll down to see which says:

"80% of the profit earned was after Chris joined the partnership." Which would mean £80,000/100 x 80 or £80,000 x 80% = £64000 for the 9 months Jul-Mar.

The scroll down bar on the left is all the way down to the bottom of the info, but the one on the right isn't. Pretty poor layout to be fair.

It confused me for about 15 minutes, until I saw the scroll down bar wasn't all the way to the bottom. If profits were even throughout the year the answer would have been £20,000 for the first 3 months and £60,000 for the next 9 months. So this extra info changes your answer dramatically.

lindsk87

Thank you for that. It makes perfect sense, I could work out how to get the 64000, just didn't know the logic behind it. Fortunately this didn't come up on the exam. It pays to read the question properly