This topic is a part of the UNIT Fundamentals of Partnership Class 12 according to the CBSE curriculum.
Sometimes, it is possible that amount of appropriations are more than the available profit.
In such a situation, firstly, the amount that should have been appropriated is determined for each partner. Then, the amount of appropriations so determined for each partner becomes the ratio for distribution of available profits among the partners.
Here is a problem to better illustrate the text in action:
Q. On 1st April, 2020m Brij and Nandan entered into partnership to construct toilets in government girls schools in the remote areas of Uttrakhand. Brij contributed capital of 10,00,000. Their profit sharing ratio was 2:3 and interest allowed on capital as provided in the partnership deed was 12% per annum. Salary of 180,000 was payable to Nandan. During the year ended 31st March 2018m the firm earned profit of 200,0000. Prepare profit and loss appropriation account of Brij and Nandan for the year ended 31st March, 2018.
SOLUTION:
Profit and Loss Appropriation A/c
| Particulars | Amount | Particulars | Amount |
| To Interest on Capital A/c (Brij) To Salary to Nandan | 80,000 120,000 | By Net Profit as per P&L A/c | 200,000 |
WORKING NOTE:
Interest on Capital (Brij) = 10,00,000 x 12/100 = 120,000
Salary to Nandan = 180,000
This equates to an expense of 300,000 but the available profit is 200,000.
So Brij will get 120,000 / 200,000 x 300,000 = 80,000 AND Nandan will get 180,000 / 300,000 x 200,000 = 120,000
