Partnership appropriation account format

The standard format

1. Profit for the year
2. Add: interest on drawings
3. Less: interest on capital
4. Less: partners' salaries
5. Residual profit shared in the agreed ratio

Filled example

Notes

• Follow the order: profit, interest on drawings, interest on capital, salaries, then residual share.
• Use the profit-sharing ratio from the partnership agreement.

Building and reading this format

The income statement shows how much profit the partnership made.

The appropriation account shows how that profit is shared between the partners under their agreement. It earns nothing. It only divides.

Start with profit for the year from the income statement. Add any interest charged on the partners' drawings. This interest is money the partners owe back to the business, so it increases the profit to share.

Then deduct what the agreement gives the partners before the final split. These are interest on capital, which rewards each partner for the money invested, and partnership salaries, which reward extra work or responsibility. Deduct them in the order the agreement states.

What remains is the residual profit. Divide it in the agreed profit-sharing ratio. Each partner's total share is then carried to their current account.

Each line has a purpose. Interest on drawings discourages partners from taking money out early. Interest on capital rewards a partner who has put in more capital.

A salary recognises unequal effort. The ratio then divides whatever is left.

Here is a worked case. Profit is RM60,000. Interest on drawings is RM2,000, so the pool becomes RM62,000.

Interest on capital is RM5,000 and one partner's salary is RM8,000. That leaves 62,000 − 5,000 − 8,000 = RM49,000. With equal shares, each partner takes RM24,500 of residual profit on top of their own interest and salary.

To check your work, trace the profit from the opening figure to the individual shares. Every ringgit of profit, adjusted for interest on drawings, must end up with a partner.

Most marks are lost on direction and placement. Interest on drawings is added, not deducted. Interest on capital and salaries are deducted, not added.

Splitting the whole profit in the ratio before taking out interest and salary ignores the agreement and loses most of the marks. Partners' drawings belong in the current accounts, not in the appropriation account. Show each partner's share separately so the marker can see the division.

Head the account "Appropriation account for the year ended" plus the date. Show each partner's name and share in its own column.

If you struggle with which items to add and which to deduct, we can help. One of our teachers can rebuild a past-paper appropriation account with you, step by step, until the order sticks. Book a trial class

Related how-to

• How to prepare a partnership appropriation account

These formats are standard accounting practice with our own figures. Check your board's exact requirements on the exam boards page.