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O Level Accounting (7707)•7707/11/M/J/25
Question 23 from 7707/11/M/J/25

Explanation

Partnership Appropriation Accounting Steps:

  • Review partnership financial statements: Income statement shows trading profit before appropriations; appropriation account divides profit among partners.
  • Evaluate statement 1: Interest on capital is an appropriation of profit, not an expense in the income statement—incorrect.
  • Evaluate statement 2: Interest on drawings is treated as additional income to the partnership, added to net profit in the appropriation account—correct.
  • Note missing statement 4 and evaluate statement 3: Partners' salaries are appropriations in the appropriation account, not expenses in the statement of financial position (balance sheet)—incorrect; insufficient details for full analysis.

Why B is correct:
Not enough information (statement 4 omitted, preventing confirmation of pairs).

Why the others are wrong:

  • A includes incorrect statement 1.
  • C and D reference undefined statement 4.

Final answer: Not enough information.

Topic: Partnerships

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