Appropriation solution

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:30AM in AAT student discussion
Hello everyone<BR>For anyone who's still wondering about how the appropration account should have been done, have a look at http://www.osbornebooks.co.uk/pdf/changes_in_partnerships.pdf.<BR>Scroll down to page 14 of 28 on the acrobat reader or page 99 of the actual text. It sets out how to do split year partnerships and gives an example of the appropriation account.<BR>It shoes that we had to split out the net profit first(prorated to the first 8mths then the last 4) before subtractting salaries etc.<BR>So we can ease our minds on that one.<BR>Hooray, we've finished!!<BR><BR>

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Appropriation solution

    In previous exam papers they have done this the other way around by subtracting the salaries first before working out the profit for each period.<BR><BR>
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Appropriation solution

    I know I saw that as well on the speciman paper which we were given before they set Dec 2003, because I saw this I did it the same way as on the past paper.<BR><BR>Would be interested to get an tutor feedback on this, my costing tutor is going to go through his thoughts on ECR later today.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Appropriation solution

    Yeah this also caught me out! Why did they tell us he received a salary of 30k if he only got 20k? Why tell us he has a capital account at the end of the year when he does not? What are they trying to test us for?<BR><BR>I was quite confident on this section yesterday but now i'm confused........
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Appropriation solution

    Maybe just ,maybe he did... fingers crossed co's i used the 30k and the full years capital.<BR><BR>Why would you put it otherwise?? I know to confuse us which it obviously has but it just doesn't make any sense to me.<BR><BR>Why would you tell us that he earnt 30k but only rev'd 20k , it's not like you need to know the full years to work out his salary over the 4 months co's they have told you it's 20k. !!! makes no sense.<BR><BR>The capital account, i thought they couldn't pay that's why it was a loan. And it was @ the year end, so surely the capital was in till the end?<BR><BR>Any suggestions?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Appropriation solution

    Does anyone know what was right for Dan's interest on capital - 500 or 750???
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Appropriation solution

    I used the full years capital as it stated to use only the balance at the beginning of the year, and I also used the £20k for his salary as this was until november....he did not receive the other £10k as he no longer had nothing to do with the business....this was just put so that people didn't try and pro-rata the £30k.<BR><BR>I mean, would you pay some1 their wages for 3 months even though they don't work there?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Appropriation solution

    I deducted Salaries and interest on capital before the split of profit, however regarding the interest on capital, the narrative at the beginning of the excercise stated that interest was payable on the amount of capital held at the beginning of the year so i gave them all £750 as the retiring partners capital account was in effect still sitting there at the end of the year and no provision was made for any accrual on Partners Loan account. i gave the retiring partner £20k as the salary stated was for a whole year and he retired part way through. i remember the profit after interest and salaries was about £19k first divided by 2/3 between three partners and 1/3 between two partners. Hope this helps
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Appropriation solution

    Foxy Lady, I think you have nailed it on the head, that is exactly what I got
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Appropriation solution

    I see think I have just managed to get my head around it! Think a fair few of us appear to have made a slight miss calculation on this then. Hopefully it is just a lost of 1 mark and not a complete fail.........<BR><BR>Thanks
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Appropriation solution

    Ashy and Foxy lady, I got the same as both of you......fingers crossed its correct!<BR><BR>
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Appropriation solution

    Surely, when a partner leaves, it is normal to produce accounts and value goodwill at the time they leave. (The business might have increased or decreased in value a few months later). Thus the dates for goodwill created would have been 30/11 and would have been written off on 01/12. Thus the loan account would have been set up on 01/12. If no repayments had been made by the end of the year, then the full amount of the loan would remain owing on the balance sheet (if there was one) as a long-term liability. Thus, Dan-the-man's capital would effectively have been withdrawn on the day he left and he would only have been owed interest for 8/12 of the year?<BR><BR>I did think the way it was worded was very unclear.<BR>What dates did you all put on your goodwill account then?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Appropriation solution

    I get the same as Foxyladay too!!<BR><BR>Just a note - if you pro-rota 30K for 8 mths it is 20k.<BR><BR>I used 20k for Dan<BR>Then deducted 750 each (we was doing the accounts just after the year end and Dan the man's money hadnt been transfered to a loan account - therefore why shouldnt he get the full wack!! Its his money stook there as there isnt enough cash for him to draw it out)<BR>Then split the profit out!!<BR><BR>A passpaper and Study books have 2 different methods of doing this - Surely it would all ome doing to the Company policies!!!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Appropriation solution

    you're probably right - I don't think there was any sign of them paying him back!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Appropriation solution

    Bit worried about that now Brybee19!<BR>We were taught salary is appropriation of profit and so comes off profit figure before profit share is calculated - same in textbook - but i used BPP's! <BR>Oh, and i also gave £20k to retiring partner and £750 each to interest on capital - cos it was on balance at beginning of year

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