Скачать или смотреть 10. Appropriations are more than profit | Charge against profits and appropriation out of profits

Hi Learners.
In this video you will understand about the special cases of Profit and Loss Appropriation Account and the situation when appropriation is more than profit and what if the appropriations consider as a charge.
Chapters:
00:00 - When appropriations are more than available profit
02:18 - When appropriations are more than available profit Illustration - 1
08:39 - When appropriations are more than available profit and appropriations are considered as charge Illustration - 2



If the profit is less than appropriations. appropriations can not be more than the available profit. Such profit would be distributed as among partners in their appropriations amount ratio.
Lets understand the different situations one by one.
Lets have an example to Understand this concept.


A and B are two partners sharing profits equally. A and B capitals as on 1st April 2020 are ₹ 120000 and ₹ 60000. Interest on capital has to be allowed @ 10% p.a. At the end of the year net profit is ₹ 1500. Show the distribution of the profit among partners.

Solution:-

A’s Interest on Capital = ₹ 1200
B’s Interest on Capital = ₹ 600

Total Interest on Capital is ₹ 1800

Interest on capital would be considered as appropriation in this question as partnership deed is silent whether interest on capital is to be considered as appropriation of charge.

So total appropriation is ₹ 1800 that is greater than available profit ₹ 1500.
In this case Interest on capital would be allowed to the extent of available profit. Hence only ₹ 1500 would be allowed as interest on capital to both of the partners.

But how?

As I told you, first we have calculate the ratio of appropriate amount of the partners. Here only interest on capital is being given as the appropriation hence we would calculate the ratio of interest on capital of the both the partners.

Ration of the interest on capital of both the partners - 1200 : 600 It would become 2 : 1.

Hence ₹ 1500 profit would be divided in 2 : 1 as interest on capital to both of the partners as shown below.

A’s Interest on Capital = ₹ 1500 * 2/3 = ₹ 1000

B’s Interest on Capital = ₹ 1500 * 1/3 = ₹ 500

I hope you must have understood this concept.




There is a restriction on the appropriation of profits. The firm must earn profits for the appropriation of profit. There are no appropriations in case of losses.


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Thank you 🤗🤗🤗
Neelkamal Singh



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