15.2 Profit and loss appropriation

• A partnership agreement is a legal contract that outlines the terms and conditions of the partnership
• The terms outlined in the partnership agreement determine how the partnership's profits are appropriated
• The profit sharing ratio in a partnership agreement defines the percentage of profits each partner receives
• Match the term with its description in a partnership agreement:

  Interest on Capital ↔️ The rate of interest paid on partners' capital contributions

  Salaries ↔️ Fixed payments to partners for their services

  Interest on Drawings ↔️ The rate of interest charged on partners' withdrawals

  Profit Sharing Ratio ↔️ The percentage of profits allocated to each partner
• The terms of a partnership agreement ensure fair and consistent distribution of profits


  True
• The percentage of profits allocated to each partner is known as the profit sharing ratio
• Fixed salaries paid to partners are referred to as salaries
• What is the purpose of a partnership agreement?

  To outline partnership terms
• Fixed salaries are paid to partners for their services.


  True
• The profit sharing ratio determines the allocation of profits based on agreement
• What are fixed salaries paid to partners for?

  Their services
• Interest on capital is paid on partners' capital contributions.


  True
• The Profit and Loss Appropriation Account is based on the terms of the partnership agreement.
• What happens to the remaining profits after interest, salaries, and drawings are accounted for?

  They are shared based on the profit sharing ratio
• Interest on capital is paid on the original capital contributions of partners.


  True
• The profit and loss appropriation account shows how a partnership's profits are distributed based on the partnership agreement


  True
• Match the element of a partnership agreement with its description:

  Profit Sharing Ratio ↔️ The percentage of profits allocated to each partner

  Interest on Capital ↔️ The rate of interest paid on partners' capital contributions

  Interest on Drawings ↔️ The rate of interest charged on partners' drawings

  Salaries ↔️ Any fixed salaries paid to partners
• A partnership agreement ensures fair and consistent profit distribution among partners

  True
• Interest on drawings is charged on partners' withdrawals from the partnership


  True
• The profit sharing ratio in a partnership agreement is based on the partners' agreed-upon share
• What is the primary purpose of the Profit and Loss Appropriation Account?

  To distribute partnership profits
• What is interest on drawings charged on?

  Partners' withdrawals
• Match the term with its description:

  Profit Sharing Ratio ↔️ Percentage of profits for each partner

  Interest on Capital ↔️ Rate on capital contributions

  Interest on Drawings ↔️ Rate on partners' withdrawals

  Salaries ↔️ Fixed payments to partners
• The profit sharing ratio determines the percentage of profits each partner receives
• What type of financial statement is the Profit and Loss Appropriation Account?

  Statement of profit distribution
• Match the term with its description:

  Interest on Capital ↔️ Rate paid on capital contributions

  Salaries ↔️ Fixed payments to partners

  Interest on Drawings ↔️ Rate charged on withdrawals

  Profit Sharing Ratio ↔️ Percentage of profits allocated
• Interest on drawings is charged on partners' withdrawals
• What is the role of interest on capital in a partnership agreement?

  To reward capital contributions
• Steps in preparing a Profit and Loss Appropriation Account:

  1️⃣ Calculate interest on capital

  2️⃣ Calculate interest on drawings

  3️⃣ Determine salaries to partners

  4️⃣ Allocate remaining profits based on the profit sharing ratio
• The profit sharing ratio determines how profits are allocated based on agreed-upon shares
• Why is it important to have a partnership agreement?

  To ensure fair profit distribution