Appropriation of partnership profit
Appropriation of partnership profit allocates the business’s profit or loss to its partners under their agreement. Partner salaries and interest on capital are normally allocations of profit, while interest on drawings increases the amount available for allocation and is charged to the relevant partner. The residual is shared in the agreed ratio. These allocations do not change the partnership’s profit earned before appropriation.
Worked example
Profit is $50,000. Add $1,000 interest on drawings, deduct $10,000 partner salary and $5,000 interest on capital: residual profit is $36,000 for sharing.
Common mistake
Do not deduct partner salary appropriations as staff expenses when calculating the partnership’s operating profit.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | K1 | Direct | July 2027–August 2028 |
Related terms
Also called: Profit appropriation