Partnership Financial

statements
Income Statement
Appropriation account
Current accounts
Statement of financial position
advantages
⚫ More capital
⚫ More ideas
⚫ Sharing of responsibilities
⚫ Better management
⚫ Expansion, growth
⚫ Sharing of loss
Disadvantages
⚫ Dispute/ disagreement
⚫ Delay in decision making
⚫ Unlimited liability
⚫ Profit is shared
⚫ Frozen investments
Partnership agreement/contract/deed

⚫ 1Capital contribution
⚫ 2Profit and loss sharing ratio
⚫ 3Salary / bonus / commission
⚫ 4Interest on capital
⚫ 5Interest on drawings
⚫ 6Procedure for admission and retirement
⚫ 7Procedure for revaluation of assets
⚫ 8Procedure for calculating goodwill
Provisions of partnership Act 1890 in the absence of deed

⚫ 1 Profit and loss shared equally

⚫ 2 no salary , bonus , commission
⚫ 3 no interest on capital
⚫ 4 no interest on drawings
⚫ 5 interest on loan @ 5% p.a
Q 41.9
Sales 363111
Less Cost of sales
Op Inventory 62740
Add purchases 210000
Less closing inventory (74210) (198530)
Gross profit 164581
Add other income
Decrease in provision for bad debts 130
Less Expenses
Carriage outward 3410
Office expenses 4975
Salaries and wages 58529
Bad debts 1632
Deprecation (5000+600) 5600
Discount allowed 620
Loan interest 3900 (78666)
Profit for the year 86065
Sole Trader’s Capital Account

Drawings 10000 Balance b/f 50000

Balance c/f 70000 Profit for the year 30000
80000 80000
Balance b/f 70000
 Capital accounts fluctuating
Ali’s Capital A/C
Interest on drawings 4000 Cash / bank 50000
drawings 20000 profit 30000
Interest on capital 5000
Balance c/f 65000 Salary 4000
89000 89000
Balance b/f 65000
 Fixed capital accounts
2007 Balance c/f 15000 2007 Cash / bank 15000
2008 Balance c/f 15000
2009 Balance c/f 15000
2010 Balance c/f 15000
2011 Balance c/f 15000
Profit and loss appropriation a/c
$ $
Profit for the year (Calculated from I/S) 86065
Add interest on drawings Frame 900
French 600 1500
87565
Less salary to Frame (30000)
Less interest on capital frame 5000
french 3750 (8750)
Residual profit 48815
Profit share frame 3 48815*3/5 29289
french 2 48815*2/5 19526 (48815)
0
 Current Account
drawings Frame French Earning/income frame French
$ $ $ $
Balance b/f - Balance b/f 4100 1200
Drawings 31800 28200 Salary 30000
Interest on drawings 900 600 Interest on loan -
Loss share Interest on capital 5000 3750
Balance c/f 35689 Profit share 29289 19526
Balance c/f 4324
68389 28800 68389 28200
Balance b/f 4324 Balance b/f 35689
Journal entries
⚫ 1 To record interest on loan
⚫ I/S
⚫ current a/c
⚫ 2 To record interest on Capital / Salary
⚫ P& L appropriation a/c
⚫ current a/c
⚫ 3 To record interest on drawings
⚫ Current a/c
⚫ P&L appropriation a/c
Equity section Of SOFP
⚫ Capital Account frame 100000
⚫ french 75000 175000

⚫ Current a/c frame 35689

⚫ french (4324) 31365 206365
⚫ Non Current liabilities
⚫ Loan from p smith 65000
⚫ Current Liabilities
⚫ Accounts payables
⚫ Accrued expenses