Partnership accounts

Learning objectives

Explain what a partnership is.

what are the accounts involved in a

partnership.

Understands in details the contents of a

partnership agreement.

In the absence of partnership agreement

on sharing of profit and loss, how it could
be
shared.

Learn some of the ledger account such as

appropriation account and current account of partners.

What is partnership.
When two or more people/parties formed
to form a partnership.
Normally the size of a partner ranges
from02 to 20 people.
It is formed to make a profit.

Contents of partnership agreement.

a)
b)
c)
d)
e)
f)
g)

The capital to be contributed by each

partner.
The ratio in which profits/losses are to be shared.
The rate of interest to be paid on capital if any, before
the profits are shared.
The rate of interest if any to be charged to partners
drawings.
Salaries to be paid to partners.
Arrangement for the admission of new partners.
Procedures to be carried out when the partners retire.

Details items of partnership

Sharing of Profit Loss of partners.
Partners can agree to share profit /losses in any ratio or any way they may wish.
It is NOT necessarily true that the sharing of profit is based on the amount of capital
being contributed.
Interest on capital
There shall be agreement tp provide interest on capital contributed by each partner.
The interest shall be deducted from profit before it is being distributed among the
partners.
Interest on drawing.
Interest are charged to partner for cash withdrawal.
Interest charge shall be added to partnership profit before they being are distributed
among the partners.
Partnership salary.
A partner salary shall be deducted prior to sharing the balance of the profit.
Performance related payment to partners such as bonus.
It may agree that commission or performance related bonuses be payable to some or all
partners linked to their individual performance. It shall be deducted first before sharing
the balance of profits.

i)

ii)

a)

b)

Additional account required.

Profit and Loss Appropriation account.
To reflect the distribution of profit among the partners and may include items such as partners
salary and bonuses, partners interest on drawings, partners interest on capital.
Partners Current account.
To reflect the effect of the distribution of partnership profit.
The method adopted
Fixed capital account plus current a/c.
The capital account for each partner year by year at the figure of capital put into the firm by the
partner.
The profits, interest on capital , salaries and bonuses are credited to the partner separate current
account.
The drawings and the interest on drawings are debited to its current a/c.
OR
Fluctuating Capital account
The balance on the capital a/c will change each due because the distribution of profits would be
credited to the capital account and its drawings and the interest shall be debited to its capital
account.
OPTION A) IS PREFERRED, THAT IS, ADOPTING FIXED CAPITAL ACCOUNT PLUS CURRENT
ACCOUNT.

Raslan and Ali have been in partnership for one year sharing profits
and losses in the ratio of 60:40 respectively. Both are entitled to 5
%per annum interest on capitals, Raslan providing capital of
Rm20,000 and Ali Rm60,000. Ali shall have a salary of Rm15,000.
Raslan withdraw cash Rm15,000 and Ali withdraw Rm26,000
Interest is charged on drawings, Raslan being charged interest
Rm500, and Ali interest Rm1,000.
The net profit, before any distribution to the partners, amounted to
rm50,000 for the year ended 31 December 2006.
Prepare:
a)Profit and Loss Appropriation a/c
b) Current a/c for each partner.

Raslan & Ali Apprpriation a/c

for the year ended 31.12.2006.
Rm
Net Profit (From P&L)
50,000
Add: Interest on drawings
Raslan: 500
Ali :
1,000
1,500
51,500
Less: Salary
Ali:
(15,000)

Rm

Less:Interest on Capital
Raslan: (1,000)
Ali
: (3,000)

(4,000)

Raslan (60%)
Ali
(40%)

19,500
13,000

-------32,500
=====

Balance of Profit shared:

32,500

Currents Accounts.
Date

Details

Raslan

Ali

Date

Details

31.12

Cash Drawings

15,000

26,000

01.12

31.12

Interest on
drawings

500

1,000

31.12

Balance c/d

5,000

4,000

20,500

31,000

Raslan

Ali

Balance b/d

Nil

Nil

31.12

Salary

Nil

15,000

31.12

Interest on capital

1,000

3,000

31.12

Share of profits

19,500

13,000

20,500

31,000

5,000

4,000

Bal b/d

LEARNING OBJECTIVE
Understand how a non-profit
organization income and expenditure
statement are drawn up.
Understand the Concept of
accumulated funds.
Understand surplus or deficit of
income over expenditure.
That a non profit body is still
required to prepare its financial
statement for its members.

Non Profit Organization

The Statement of Profit and Loss shall be called The
Statement of Income and Expenditure.
Profit from operation shall be classified as Surplus of
Income over expenditure and the Loss from operation shall
be deficit of Income over Expenditure.
The Net profit/Net income which is added to earlier non
profit capital shall be classified as the accumulated
Reserve/funds .
Accumulated Fund = Assets Liabilities.

What is a non profit organization.

Objective is purely non profit motivated and it is not run
the was a profit making body is managed.
It is not required to register with the Companys
Commission (formerly Registrar of companies), but may
be required to register with the Registrar of Society.
The books of accounts are normally prepared by a non
account staff and may be lacking in a double entry
system

Steps in accounts preparation.

Step 1.
Check if the opening account (statement of affair ) has
been prepared. If this is not prepared, it is the
responsibility of the treasurer to get it done.
The opening balance of the statement of affair accounts
are usually the closing balance of the last year financial
account.
Step 2.
If this non-profit body are involved in business or
involved in funds raising activities, it may be required to
prepare a trading, income and expenditure a/c and a
balance a/c.

Illustration Non Profit body

The treasurer of a Unimas Golf club can
only come up with a Cash Book of Receipt
and Payment accounts for the year ended
31.12.2006.
He has asked the public auditor to prepare
the Income and Expenditure and the
balance Sheet for this accounts as at
31.12.2006.

Unimas Cash/bank Book Record.

Unimas Golf club
Receipts and Payments Account for the year ended 31.12.2006.
Debit
Credit
Receipts
Rm
Payments
Bank b/d 1.1.06
524
Restaurant supplies
Subs rec for:
Manager wages
2005 (arrears)
1400 chef wages
2006
14350 Restaurant expenses
2007 (in advance)
1200 Repairs to stands
Restaurent sales
61280 Ground upkeep
Donations receive
800 Secretarys expenses
Transport cost
Bank bal c/d
79554
======

Rm
38620
19939
8624
234
740
1829
938
2420
6210
79554
=====

Additional information.
1.
a)
b)
c)
d)
2.
3.
4.

Stocks in the
restaurant at cost
Owing for restaurant
supplies
Restaurant expenses
owing
Transport costs owed.

31.12.05
Rm

31.12.06
Rm

4496

5558

3294

4340

225
-

336
265

The land and football stands were valued at 31.12.2005: Land Rm40,000; Golf
stands Rm20,000; the golf stands are to depreciate at 10 % on straight line
method.
The equipment at 31.12.2005 was valued at Rm2,500 and is to be depreciated
at 20 % on straight line method.
Subscription owing by some members amounted to Rm1400 on 31.12.2005
and Rm1750 on 31.12.2006

Solutions- statement of affairs.

Unimas Golf Club
Statement of Affairs at 31.12.2005.
Rm

Rm

Fixed Assets.
Land
Golf Stands
Equipment
Current Assets.
Stocks
Debtors (subscription owe)
Cash at bank
Less: Current Liabilities
Creditors (owe to supplier)
Restaurant expenses owed
Net Current Assets

Financed by:
Accumulated Funds

Rm
40000
20000
2500
62500

4496
1400
524
6420
3294
225

(3519)
2901
-------65401
=====
--------65401
=====

solutions
Workings 1.
Purchases a/c

Cash
Bal c/d(Creditor)

Rm
38620
4340
42960
=====

Bal (creditor) b/d

To Trading a/c

Rm
3294
39666
42960
=====

Workings 2.
Restaurants Expenses a/c

Cash
Balance c/d

Rm
234
336
570
===

Balance b/d
To Trading a/c

Rm
225
345
570
====

Workings 3.
Transport cost a/c

Cash
Bal c/d

Rm
2420
265
2685
====

Rm
To income &
expenditure

2685
2685
====

Workings 4.
Subscription received a/c

Bal b/d
To income & Exp
Bal c/d (adv)

Rm
1400
16100
1200
18700
=========

Cash 2005
Cash 2006
Cash 2007
Bal c/d (owe)

Rm
1400
14350
1200
1750
18700
=====

Workings 5.
Depreciation on football stands.
Depreciation is Rm20,000 * 10 %
= Rm2,000.
Workings 6.
Depreciation on equipment.
Depreciation is Rm 2500 * 20 %.
= Rm500.

Unimas Golf Club Restaurant Trading Account for the year ended
31.12.2006.
Rm
Rm
Sales
61280
Less:Cost of goods sold:
Opening Stocks
4496
Add: Purchases
39666
44162
Less: Closing stocks
(5558)
(38604)
Gross Profit
22676
Less: Restaurant Exps (W2)
345
Chef wages
8624
(8969)
Net Profit TO Income & Expenditure a/c
13707
======

Unimas Golf Club

Income & Expenditure A/C for the year ended 31.12.2006
Rm
Income
Subscription-2006 (W4)
Profit from restaurant
Donations received

Expenditure
Manager wages
Repairs to stands
Ground upkeep
Secretary expenses
Transport cost (W3)
Depreciation Stands (W5)
Depreciation equipment (W6)
Surplus of income over expenditure

Rm
16100
1 3707
800
30607

19939
740
1829
938
2685
2000
500

(28631)
1976
=======

Unimas Golf Club

Balance Sheet as at 31.12.2006
Rm
Rm
Rm
Fixed Assets
Land
40000
Golf Stands
20000
Less Depreciation
(2000)
Equipment
2500
Less Depreciation
( 500)

18000
2000

Current Assets.
Closing Stocks
5558
Debtors subsriptions
1750
Cash at bank
6210
13518
Less: Current Liabilities
Creditors Restaurant supplies4340
Restaurant expenses owed
336
Transport cost owed 265
Subscription received in advance
1200
Net Current Assets
7377
-------67377
=====
Financed by:
Accumulated funds
Balance as at 1.1.2006
65401
Add: Surplus of income over expenditure 1976
-------67377
=====

(6141)