Prepare a partnership appropriation account
Move from partnership profit to the partners’ agreed shares using salaries, interest and a residual profit ratio.
Exam scope and assessment notes
Cambridge International AS & A Level Accounting 9706, 2026–2028 syllabus, Version 2. These original lessons cover objective 1.5.3: partnership statements and appropriation, capital and current accounts, agreements and the stated Partnership Act 1890 defaults. Partnership accounting after a change of partners is A Level Topic 3.1.2 and is not covered here. Practice is self-checked, not an official Cambridge grade; full timed-paper practice and human subject-teacher review remain outstanding.
Before you begin
- Use the Topic 1.2 double-entry system and Topic 1.5.1 adjustments. Keep business profit separate from the partners’ appropriation of that profit and from cash drawings.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
A partnership earns $30,000 before any partner distributions. Does that amount already include the agreed profit-sharing ratio?
What you will learn
- Separate business profit from its appropriation
- Calculate interest on capital and drawings when agreed
- Allocate residual profit or loss using the stated ratio
Profit comes before appropriation
Prepare the partnership statement of profit or loss first. Trading income, service income, operating expenses, depreciation and interest on a partner’s loan are included when calculating profit for the year. A partner’s salary, interest on capital, interest on drawings and residual profit share are appropriation items, not operating expenses.
The appropriation account starts with profit for the year. Add interest on drawings if the agreement charges it, then deduct partners’ salaries and interest on capital to find the residual profit. Divide that residual using the agreed profit-sharing ratio. If the business made a loss, allocate the loss as the agreement requires; do not invent a profit to distribute.
Apply rates to the correct balance and time
Interest on capital is based on the agreed capital and rate for the time it was invested. Interest on drawings is based on the amount and timing of drawings if the agreement provides for it. Show the time fraction where a balance changes part-way through the year.
A partner’s loan is different from capital: its interest is a finance expense in the statement of profit or loss under the syllabus treatment. Do not deduct it again in the appropriation account. The partnership agreement and question instructions determine the accounting treatment being tested.
Pause and explain
Profit is $40,000. Salaries total $6,000 and interest on capital totals $2,000. No interest on drawings applies. What is residual profit?
Worked example
A partnership earns profit for the year of $50,000 before appropriation. A and B receive salaries of $8,000 and $6,000, interest on capital of $6,000 and $4,000, and interest on drawings of $1,000 and $500. Divide residual profit 3:2.
Show the worked solution
- Profit available after adding interest on drawings = 50,000 + 1,500 = $51,500.
- Less salaries $14,000 and interest on capital $10,000: residual profit = $27,500.
- A receives 3/5 × 27,500 = $16,500; B receives 2/5 × 27,500 = $11,000.
- Check: allocations credited to partners net of drawing interest total 14,000 + 10,000 + 27,500 − 1,500 = $50,000, equal to the original profit.
Answer Residual profit is $27,500: A’s share $16,500 and B’s share $11,000. The appropriation account also credits salaries and interest on capital and charges the agreed interest on drawings.
Try a topic test
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Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
Profit before appropriation is $36,000. A and B receive salaries of $5,000 and $3,000, capital interest of $2,000 and $1,000, and share residual profit equally. Find each partner’s residual share.
Give me a hint
Calculate the residual pool before applying the ratio.
Compare my reasoning
- Total salary = 5,000 + 3,000 = $8,000.
- Total capital interest = 2,000 + 1,000 = $3,000.
- Residual profit = 36,000 − 8,000 − 3,000 = $25,000; each receives $12,500.
Residual profit is $25,000, so each partner receives $12,500 of residual profit, in addition to the agreed salary and capital interest.
Look for these in your work
- Salary total correct
- Capital-interest total correct
- Residual pool and shares correct
A partner received an additional agreed capital contribution of $20,000 on 1 July. Capital interest is 8% per year and the year ends 31 December. Calculate the interest on this contribution for the six months.
Give me a hint
Use the amount, annual rate and proportion of the year invested.
Compare my reasoning
- Annual interest on $20,000 at 8% is $1,600.
- The contribution was invested for six of twelve months.
- Interest = 1,600 × 6/12 = $800.
Interest on the additional capital is $800 for the six-month period, subject to the partnership agreement’s stated basis.
Look for these in your work
- Annual interest correct
- Time fraction correct
- Period amount correct
Partners charge interest on drawings, but profit for the year is only $18,000. Explain why the appropriation calculation may still show a different residual profit and how the total allocations should be checked.
Give me a hint
Interest on drawings is added to the amount available before other appropriations; it is a charge to the partners’ current accounts.
Compare my reasoning
- Add agreed interest on drawings to profit in the appropriation account.
- Deduct agreed salaries and interest on capital before finding the residual.
- After allocating residual profit, verify total partner credits less drawing-interest charges reconcile to the original profit.
Residual profit can differ from the original $18,000 because the appropriation account adds agreed drawing interest and deducts salaries and capital interest. The reconciliation should return to $18,000 after drawing-interest charges are reflected in partner accounts.
Look for these in your work
- Drawing interest treated as agreed charge
- Residual calculated in order
- Reconciliation explained
Common mistakes
- Treating a partner salary as an operating expense in the partnership profit statement
- Allocating the ratio before deducting agreed salaries and interest on capital
- Charging partner-loan interest a second time in appropriation
What can you explain now?
Where is interest on a partner’s loan normally recorded under the syllabus treatment?
Compare with the explanation
As an expense before partnership profit is appropriated
A loan is a liability; its interest is distinct from the partner’s return on capital.
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Make it stick
Write the order used to calculate residual profit after a partnership’s profit for the year is known.
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.