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Partnership losses

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA TX-UK Exams › Partnership losses

  • This topic has 2 replies, 2 voices, and was last updated 3 months ago by tabasumze.
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  • March 2, 2022 at 11:17 am #649638
    tabasumze
    • Topics: 33
    • Replies: 47
    • ☆☆

    James and Keith are partners since 1 Sept 2002, sharing profits and losses in the ratio 3:2, after allocating a salry of £6000 to James.

    In y/e 31 Aug 2020, the partnership makes a loss of £30,000.

    My doubt is, if the partnership makes a loss in the accounting period, then how is salary allocated to James when there is no profit?

    March 4, 2022 at 10:56 am #649800
    Tax Tutor
    • Topics: 2
    • Replies: 3929
    • ☆☆☆☆☆

    The profit sharing agreement (PSA) is simply a way by which either the profits OR losses of a partnership are divided between the partners – there are no actual salaries or interest paid to the partners.
    If therefore the partnership has made a loss and either salaries or interest on capital form a part of the PSA then these amounts would be credited to each partner which would then INCREASE the amount of loss to be split in the PSR.

    March 4, 2022 at 3:19 pm #649827
    tabasumze
    • Topics: 33
    • Replies: 47
    • ☆☆

    Got it, thanks.

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