Q:Amber and kieran are in partnership.Amber is entitled to a salary of $19,000 per annum according to the partnership agreement.
The net profit of the partnership for the year ended 31 may 2015 was $108,255.
The figures for interest on capital and interest drawings for the year were as follows:
Interest on capital(Amber $10,200,Kieran$9300)
Interest on drawings(Amber $21,00,Kieran $3,300)
What was the residual profit for the year to 31 may 2015?
Now what is this residual profit?Never heard about this residual profit thing in the whole FA2 syllabus.
Residual profit is what’s left after ‘salaries’ to partners and ‘interest’ on their capital (these salaries and interest payments are really appropriations of profits). ‘Interest’ on drawings would be added back. Drawings themselves are irrelevant as they do not affect profits.
108,255 – 19,000 – 10,200 – 9,300 + 2,100 (?) + 3,300 = 75,155
The $75,155 is then divided in the agreed profit sharing ratio.
Show the appropriation of the pro?ts to the two partners with allitle explanation.
Q: A partnership makes pro?ts of $118,000. The partnership agreement stipulates that:
– Partner A receives a salary of £30,000 and interest on capital account of 10% pa
– Partner B receives a salary of $20,000 and interest on capital account of 10% pa
– Capital accounts: Partner A = $200,000; Partner B = £120,000
Pro?t sharing ratio A:B = 3:2
Here’s the answer….
Interest on Capital A—————-20,000
Interest on Capital B—————-12,000
Distribution of Profit: (Ratio 3:2)
Partner A: 36,000 x 3/5 = 21,600
Partner B: 36,000 x 2/5 = 14,400
You must be logged in to reply to this topic.