Examkin

Profit and Loss Appropriation Account

8 questions

All types8Multiple choice4Numeric4
Question 1Question →

Kemi and Funmi are partners sharing profits and losses in the ratio 3:2. For the year ended 31 December 2025, the firm reported a net profit of ₦150,000 before adjusting for interest on Kemi's loan. The following information is also available:
- Interest on Kemi's loan to the firm: ₦10,000
- Interest on drawings: Kemi ₦2,000; Funmi ₦3,000
- Partner's salary: Funmi ₦15,000
- Interest on capital: Kemi ₦10,000; Funmi ₦10,000

What is the net divisible profit to be shared between the partners in the Profit and Loss Appropriation Account?

Show answer & explanation

Answer: ₦110,000

Answer

The net divisible profit to be shared between Kemi and Funmi is ₦110,000.
Interest on partner's loan (₦10,000) is an expense charged in the Profit and Loss Account, reducing the net profit to ₦140,000. In the Profit and Loss Appropriation Account, interest on drawings (₦5,000) is added to net profit to yield ₦145,000. Deducting partner appropriations—Funmi's salary (₦15,000) and total interest on capital (₦20,000)—leaves a net divisible profit of ₦110,000.

Step-by-Step Solution

1
Calculate net profit after interest on loan
₦150,000 - ₦10,000 = ₦140,000
Interest on a partner's loan is a charge against profit (debited to P&L Account), not an appropriation of profit.
2
Add total interest on drawings to net profit
₦140,000 + (₦2,000 + ₦3,000) = ₦145,000
Interest on drawings is income to the partnership firm credited in the Appropriation Account.
3
Deduct total appropriations (partner salary and interest on capital)
₦145,000 - ₦15,000 (Salary) - ₦20,000 (Interest on Capital) = ₦110,000
Partner salaries and interest on capital are appropriations of profit distributed to partners.

Key Concept

Profit and Loss Appropriation Account Distinctions
Question 2Question →

Musa and Audu are partners sharing profits and losses in the ratio 3:23:2. For the year ended 31 December 2025, the net profit before adjusting for interest on Musa's loan was ₦500,000₦500,000. The partnership agreement provides for the following:
- Interest on Musa's loan: ₦20,000₦20,000
- Interest on capital: Musa ��30,000��30,000, Audu ₦20,000₦20,000
- Salary to Audu: ₦70,000₦70,000 per annum
- Interest on drawings: Musa ₦10,000₦10,000, Audu ₦10,000₦10,000

What is the net divisible profit available for distribution among the partners?

Show answer & explanation

Answer: 380000

Answer

The net divisible profit available for distribution is ₦380,000₦380,000.
The net divisible profit of ₦380,000₦380,000 is calculated by starting with the adjusted net profit after loan interest (₦500,000−₦20,000=₦480,000₦500,000 - ₦20,000 = ₦480,000), adding interest on drawings (₦10,000+₦10,000=₦20,000₦10,000 + ₦10,000 = ₦20,000), and subtracting appropriations comprising interest on capital (₦30,000+₦20,000=₦50,000₦30,000 + ₦20,000 = ₦50,000) and partner salary (₦70,000₦70,000).

Step-by-Step Solution

1
Deduct interest on partner's loan from net profit
Adjusted Net Profit = ₦480,000₦480,000
Interest on a partner's loan is a charge against profit in the Profit and Loss Account, not an appropriation.
2
Add total interest on drawings to net profit
Total Available Profit = ₦500,000₦500,000
Interest on drawings is paid by partners to the firm, which increases total profit available for appropriation.
3
Deduct appropriations of profit (interest on capital and partner salary)
Net Divisible Profit = ₦380,000₦380,000
Interest on capital (₦50,000₦50,000) and Audu's salary (₦70,000₦70,000) are appropriations of profit paid out of available profit.

Key Concept

Profit and Loss Appropriation Account Adjustments
Question 3Question →

Emeka and Tunde are partners in a business. For the year ended 31 December 2025, the net profit before adjusting for interest on Tunde's loan of ₦30,000 was ₦450,000. The partnership agreement provides for:
- Salary to Emeka: ₦50,000
- Total interest on capital: ₦70,000
- Total interest on drawings: ₦20,000

What is the net divisible profit to be shared between the partners?

Show answer & explanation

Answer: ₦320,000

Answer

The net divisible profit to be shared between the partners is ₦320,000.
Net divisible profit is determined after deducting charges such as loan interest in the Profit and Loss Account (₦450,000 - ₦30,000 = ₦420,000). Adding interest on drawings (₦20,000) and subtracting appropriations for salary (₦50,000) and interest on capital (₦70,000) gives ₦320,000.

Step-by-Step Solution

1
Calculate net profit after charging interest on partner loan
₦450,000 - ₦30,000 = ₦420,000
Interest on partner's loan is an expense in the Profit and Loss Account, not an appropriation of profit.
2
Add interest on drawings to net profit
₦420,000 + ₦20,000 = ₦440,000
Interest on drawings is income charged to partners, increasing total profits available for appropriation.
3
Deduct partner salary and interest on capital
₦440,000 - ₦50,000 (Salary) - ₦70,000 (Interest on Capital) = ₦320,000
Partner salaries and interest on capital are appropriations paid to partners out of divisible profits.

Key Concept

Profit and Loss Appropriation Account adjustments
Question 4Question →

Zainab and Chidi are partners in a firm. For the year ended 31 December 2025, the firm reported a net profit of ₦450,000 before accounting for interest on Chidi's loan of ₦50,000 at 10% per annum.

According to their partnership agreement:
- Interest on capital: Zainab ₦20,000; Chidi ₦15,000
- Annual salary: Zainab ₦60,000
- Interest on drawings: Zainab ₦5,000; Chidi ₦4,000
- Profit-sharing ratio: 3:2

What is the net divisible profit to be shared between the partners?

Show answer & explanation

Answer: 359000

Answer

The net divisible profit to be shared between the partners is ₦359,000.
The correct net divisible profit is ₦359,000. Interest on a partner's loan is a charge against profit and must be deducted to find the true net profit (₦450,000 - ₦5,000 = ₦445,000). Adding total interest on drawings (₦9,000) yields ₦454,000. Deducting interest on capital (₦35,000) and partner salary (₦60,000) leaves ₦359,000 as net divisible profit.

Step-by-Step Solution

1
Calculate interest on partner's loan and adjust the Net Profit
Adjusted Net Profit = ₦445,000
Interest on a partner's loan (10% of ₦50,000 = ₦5,000) is a charge against profit (debited to Profit and Loss Account), not an appropriation.
2
Add Interest on Drawings to Adjusted Net Profit
Total available profit = ₦454,000
Interest on drawings (₦5,000 + ₦4,000 = ₦9,000) is an income to the partnership and increases divisible profit.
3
Subtract Appropriations (Interest on Capital and Partner Salary)
Net Divisible Profit = ₦359,000
Interest on capital (₦20,000 + ₦15,000 = ₦35,000) and partner salary (₦60,000) are appropriations of profit and reduce the total profit available for sharing.

Key Concept

Distinction between charges against profit (e.g., loan interest) and appropriations of profit (e.g., interest on capital, salaries, interest on drawings).
Question 5Question →

Dayo and Nkechi are partners in a firm. For the year ended 31 December 2025, the business recorded a net profit of ₦500,000 before considering the following financial items:

- Interest on Nkechi's loan to the firm: ₦20,000
- Interest on partners' drawings: ₦15,000
- Partners' salaries: ₦40,000
- Interest on capital: ₦30,000

What is the net divisible profit to be shared between the partners?

Show answer & explanation

Answer: ₦425,000

Answer

The net divisible profit to be shared between the partners is ₦425,000.
The correct figure of ₦425,000 is derived by first deducting interest on Nkechi's loan (₦20,000) from the reported net profit (₦500,000) to get an adjusted net profit of ₦480,000. Next, adding interest on drawings (₦15,000) yields ₦495,000 available profit. Finally, deducting the total appropriations of ₦70,000 (salaries of ₦40,000 plus interest on capital of ₦30,000) results in ₦425,000.

Step-by-Step Solution

1
Calculate the adjusted Net Profit after deducting loan interest
₦500,000 - ₦20,000 = ₦480,000
Interest on a partner's loan is an expense charged to the Profit and Loss Account, not an appropriation of profit.
2
Add interest on drawings to the adjusted net profit
₦480,000 + ₦15,000 = ₦495,000
Interest charged on partner drawings increases total profits available for distribution.
3
Deduct appropriations (partner salaries and interest on capital)
₦495,000 - (₦40,000 + ₦30,000) = ₦425,000
Salaries and interest on capital are appropriations paid out to partners from available profits.

Key Concept

Profit and Loss Appropriation Account
Estimated Time:1m 30s
Question 6Question →

Folake and Biodun are partners sharing profits and losses in the ratio 3:13:1. For the year ended 31 December 2025, the firm recorded a net profit of ₦680,000 before adjusting for interest of ₦20,000 on Folake's loan to the firm. Additional financial information for the year shows:

- Total interest on capital: ₦60,000 (Folake: ₦40,000; Biodun: ₦20,000)
- Annual salary allocated to Biodun: ₦100,000
- Total interest on drawings charged to partners: ₦20,000 (Folake: ₦10,000; Biodun: ₦10,000)

What is Biodun's share of the net divisible profit in Naira (₦)?

Show answer & explanation

Answer: 130000

Answer

Biodun's share of the net divisible profit is ₦130,000.
Interest on a partner's loan is a charge against profit, reducing net profit from ₦680,000 to ₦660,000. In the Profit and Loss Appropriation Account, interest on drawings of ₦20,000 is added, bringing the total to ₦680,000. Deducting interest on capital (₦60,000) and partner salary (₦100,000) leaves a net divisible profit of ₦520,000. Biodun's share (1/4) equals ₦130,000.

Step-by-Step Solution

1
Calculate adjusted net profit before appropriation
₦660,000
Interest on a partner's loan is a financial charge to the Profit and Loss Account, not an item of appropriation.
2
Add interest on drawings to adjusted net profit
₦680,000
Interest on drawings is income to the firm and increases the pool of profit available for distribution.
3
Deduct appropriations (interest on capital and salary)
₦520,000
Interest on capital (₦60,000) and Biodun's salary (₦100,000) are appropriations out of profit.
4
Apportion remaining profit to Biodun based on the ratio 3:1
₦130,000
Biodun receives 1 out of 4 total profit sharing ratio parts: ₦520,000 × (1 / 4) = ₦130,000.

Key Concept

Profit and Loss Appropriation Account calculations in partnership accounts
Question 7Question →

Tariq and Amaka are partners sharing profits and losses in the ratio 3:23:2. For the year ended 31 December 2025, the firm recorded a net profit of ₦680,000\text{₦}680,000 before taking the following items into account:
- Interest on capital: Tariq ₦40,000\text{₦}40,000; Amaka ₦30,000\text{₦}30,000
- Annual salary payable to Amaka: ₦50,000\text{₦}50,000
- Interest on drawings: Tariq ₦10,000\text{₦}10,000; Amaka ₦10,000\text{₦}10,000
- Tariq provided a loan of ₦100,000\text{₦}100,000 to the partnership on 1 January 2025 at an interest rate of 10%10\% per annum, which has not yet been recorded in the Profit and Loss Account.

What is Tariq's share of the net divisible profit for the year?

Show answer & explanation

Answer: ₦342,000

Answer

Tariq's share of the net divisible profit is ₦342,000.
Interest on Tariq's loan of ₦10,000\text{₦}10,000 (10%×₦100,00010\% \times \text{₦}100,000) must be charged to the Profit and Loss Account, reducing the net profit to ₦670,000\text{₦}670,000. Adding total interest on drawings (₦20,000\text{₦}20,000) yields ₦690,000\text{₦}690,000. Deducting interest on capital (₦70,000\text{₦}70,000) and Amaka's salary (₦50,000\text{₦}50,000) gives a net divisible profit of ₦570,000\text{₦}570,000. Tariq's 3/53/5 share is 35×₦570,000=₦342,000\frac{3}{5} \times \text{₦}570,000 = \text{₦}342,000.

Step-by-Step Solution

1
Calculate interest on Tariq's loan and determine adjusted net profit
Interest on loan = 10% of ₦100,000 = ₦10,000. Adjusted net profit = ₦680,000 - ₦10,000 = ₦670,000.
Interest on a partner's loan is a charge against profit (debited to Profit and Loss Account), not an appropriation of profit.
2
Add total interest on drawings to the adjusted net profit
Total interest on drawings = ₦10,000 + ₦10,000 = ₦20,000. Profit available = ₦670,000 + ₦20,000 = ₦690,000.
Interest on drawings is income credited to the Profit and Loss Appropriation Account.
3
Deduct total appropriations (interest on capital and partner salary)
Total interest on capital = ₦40,000 + ₦30,000 = ₦70,000. Total salary = ₦50,000. Total appropriations = ₦70,000 + ₦50,000 = ₦120,000. Divisible profit = ₦690,000 - ₦120,000 = ₦570,000.
Interest on capital and partner salaries represent appropriations of profit.
4
Calculate Tariq's share of net divisible profit
Tariq's share = 3/5 × ₦570,000 = ₦342,000.
Profits are shared in the agreed ratio of 3:2.

Key Concept

Distinguishing charges against profit (such as interest on partner loan) from appropriations of profit (interest on capital, partner salary, interest on drawings).
Estimated Time:2m 0s
Question 8Question →

Bisi and Halima are partners in a firm. For the year ended 31 December 2025, the firm recorded a net profit of ₦300,000. According to their partnership agreement, the following provisions apply:
- Annual salary to Bisi: ₦50,000
- Total interest on partners' capital: ₦30,000
- Total interest on drawings charged to partners: ₦10,000

What is the net divisible profit available for distribution between the partners?

Show answer & explanation

Answer: 230000

Answer

The net divisible profit available for distribution is ₦230,000.
The net divisible profit is obtained by taking the net profit of ₦300,000, adding interest on drawings of ₦10,000 to get total appropriable profit of ₦310,000, and then deducting partner salary (₦50,000) and interest on capital (₦30,000) for a final net divisible profit of ₦230,000.

Step-by-Step Solution

1
Add interest on drawings to net profit
₦300,000 + ₦10,000 = ₦310,000
Interest on drawings is paid by partners to the firm, increasing the total profit available for appropriation.
2
Deduct partner salary and interest on capital
₦310,000 - (₦50,000 + ₦30,000) = ₦230,000
Partner salaries and interest on capital are appropriations of profit and must be subtracted to arrive at the net divisible profit.

Key Concept

Profit and Loss Appropriation Account
Profit and Loss Appropriation Account Practice Questions — JAMB UTME | Examkin