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• # 81414
• Sun 01 Apr 2012 02:31 AM

Hi everyone,

I was just wondering whether someone attempted the above Mock Paper, and wondered the following in regards to the calculation of the Partners' Current Account - Appropriation of the Profit.

According to the answers on the Mock Exam, the Examiner took the Salary payable to new Partner - Gehan before allocating the Profits to the partners at different Profit Sharing Ratios, making (in my opinion) the figure that is shared wrong.

The Examiner took the Profit £19496 and then immediately after deducting the Interest on Capital for the different 2 periods and the Gehan Salary (£916 x 6 months, i.e. £5496), meaning that the profits to be shared amongst the partners did not fully take into account the actual period that the new partner joined the partnership.  Hopefully the calculations and differences between my calculations and the examiners' one make far more sense than trying to explain this in text:

Examiners' calculations:

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  Carla
  AICB CB.Cert PM.Dip
  
  
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• # 81833
• Thu 12 Apr 2012 02:33 PM

Hi Carla

Comment from examiner:

With regard to profit sharing the examination paper only includes an extract of the partnership agreement and so candidates must complete the finer points of their answer using convention in the absence of specific instructions. As the period being reported is a year, this period takes precedence when appropriating profits with assumptions on fractions of this period falling lower down the appropriation. In this way the candidate should make appropriations from the yearly profit figure first.

In the case of Webfinity we know that there was a change in capital after 6 months, the amounts of capital held by each partner and the rates of interest paid; so the figures can be calculated exactly without any assumptions being made. We also know Gehan Noel's salary is £916 per month and that he was present for 6 months, so his salary of £5,496 is deducted from the year's profit along with the interest payments before the profit share itself is split into 2 x 6 month periods. In general, all appropriations of the net profit including, where stated, interest paid on capital and interest charged on drawings as well as salary payments should be made before the profit sharing takes place as these are costs that have occurred during the year's trading.

A general note on examination technique may be relevant here: If an examiner sees an incorrect figure on its own, they are unable to award any marks for it. However if the same incorrect figure is shown alongside an explanation of how that figure has been derived, then they are usually able to award some marks for the method. In the computerised part of this paper full marks may be awarded for the correct profit share figures on their own (as no workings have been requested) however if incorrect figures are given no marks can be awarded. Whereas, if some evidence (e.g. an appropriation account or even just an audit trail) is provided that shows how the incorrect profit share has been derived and it can be seen that, for example, the 12 months salary of £10,992 was deducted, an incorrect interest rate was paid on capital or an incorrect net profit figure was derived due to some other error, then it is likely that the candidate will still be awarded some of the marks allocated for this question.

The marks allocated to the questions within the Level 3 computerised papers would not cause a candidate to fail if this appropriation / profit share was incorrect on its own. Only if several other errors have been made as well would a candidate be likely to fail the paper.

I hope this helps

Allison 
ICB 

Edited at 12 Apr 2012 02:33 PM GMT

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