Calculation and recording in preparing financial statements: interest on capital, interest on drawings, partnership salaries, interest on a partner's loan, shares of profit and losses, revaluation of assets and treatment of goodwill
Partnerships divide profits between partners using several agreed adjustments. You need to calculate each adjustment correctly and record it in the appropriation account.
Formula
Interest on capital = Capital balance × Agreed rate
Real World
In a two-partner veterinary practice, one partner invested £120,000 and the other £60,000; interest on capital at 5% compensates the first partner with £6,000 versus £3,000 before any remaining profit is shared equally.
Exam Focus
Deduct interest on drawings from partners (it increases profit available) — a common error is treating it the same as interest on capital.
Essay Framework
Use PEEL to structure every paragraph. Tap each step for guidance and an example.
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