Start the appropriation account with the net profit, add interest on drawings, take off interest on capital and salaries, and share only what is left in the profit ratio. The order matters because the ratio applies to the residual, not to the whole profit.
This lesson is part of the partnerships chapter. The net profit comes from the statement of profit or loss you already know.
What goes in the appropriation account?
The account shows how profit is split. It has four kinds of item.
- Interest on capital is deducted, and credited to each partner.
- A partner’s salary is deducted, and credited to that partner.
- Interest on drawings is added to profit, and charged to the partner.
- The residual profit is shared in the ratio.
Worked example: Nadia and Kumar
Nadia and Kumar share profits 3:2. Net profit is RM72 000. Capital is Nadia RM80 000 and Kumar RM40 000, with interest at 5%.
Kumar has a salary of RM12 000. Interest on drawings is RM800 for Nadia and RM400 for Kumar.
| Line | RM |
|---|---|
| Net profit | 72 000 |
| Add interest on drawings (800 + 400) | 1 200 |
| 73 200 | |
| Less interest on capital: Nadia 4 000, Kumar 2 000 | (6 000) |
| Less salary: Kumar | (12 000) |
| Residual profit | 55 200 |
The residual is shared 3:2. Since 55 200 ÷ 5 = 11 040, Nadia gets 3 × 11 040 = RM33 120, and Kumar gets 2 × 11 040 = RM22 080.
Each partner’s total:
- Nadia: 4 000 − 800 + 33 120 = RM36 320
- Kumar: 2 000 + 12 000 − 400 + 22 080 = RM35 680
The two totals add to 36 320 + 35 680 = RM72 000, which equals the net profit. The appropriation reconciles.
The mistake that costs marks
One slip is to share the whole RM72 000 in the ratio and stop. Nadia would get RM43 200 and Kumar RM28 800, which ignores the agreement.
| Step | Wrong | Right |
|---|---|---|
| First line after net profit | Share 3:2 | Add interest on drawings |
| Interest and salary | Skipped | Deducted before the ratio |
| Base for the ratio | RM72 000 | RM55 200 |
| Nadia’s total | RM43 200 | RM36 320 |
The fix is to use the same order every time: add, deduct, share, then reconcile.
Check yourself
Net profit is RM54 000. Partner B has a salary of RM6 000. Interest on capital is A RM3 000 and B RM2 000.
The ratio is 1:1. Find each partner’s total share.
Answer
Residual = 54 000 − 6 000 − 3 000 − 2 000 = RM43 000. Each partner gets RM21 500.
A: 3 000 + 21 500 = RM24 500.
B: 2 000 + 6 000 + 21 500 = RM29 500.
Check: 24 500 + 29 500 = RM54 000.
What to study next
Next, post these results into the partners’ accounts in updating partners’ current and capital accounts. The cash profit transaction timeline shows how profit differs from cash.
If you want a teacher to go through appropriation questions with you, see online one-to-one Accounting tuition.