PARTNERSHIP ACCOUNTS

Partnership, an association of two or more persons to carry on as co-owners of a

business for profit.
Type of Business:
 Small retail, service, or manufacturing companies.
 Accountants, lawyers, and doctors.
ASSOCIATION OF INDIVIDUALS
 Legal entity.
 Accounting entity.
 Net income not taxed as a separate entity.
MUTUAL AGENCY
 Act of any partner is binding on all other partners, so long as the act
appears to be appropriate for the partnership.

The Partnership Act 1890

In the absence of a partnership agreement certain rules laid down by the Partnership
Act
1890 apply:
a) Residual profits are shared equally between the partners
b) There are no partners’ salaries
c) Partners receive no interest on the capital they invest in the business
d) Partners are entitled to interest of 5% per annum on any loans they advance to the
business in excess of their agreed capital.

Default provisions: (no written agreement)

• Residual profits shared equally
• No partners’ salaries
• No interest on capital

• Partners are entitled to interest of 5% per annum on loans they advance to the
business in excess of agreed capital.
Nature of partnership
• Formed to make profit
• Partnership Act 1890 and the Limited Partnership Act 1907
• Minimum of two and maximum of 20 persons except for professional firms

• Each partner except limited partner must pay his or her share of any debts that the
partnership is unable to pay; they are personally liable.

Limited partners
• Liability limited to capital contribution
• Not allowed to take part in management

• All the partners cannot be limited partners. Must be at least one partner with unlimited
liability.

The advantages and disadvantages of a partnership

Advantages
• Less formal with fewer legal obligations
• Easy to start
• Sharing of firm’s liabilities, if any.
• Creates a pool of expertise.
• Privacy
• Increased capital

Disadvantages
• Unlimited liability
• Lack of stability
• Uncertainty as to going concern
• Loss of individual partners’ autonomy.

The partnership deed or agreement

Written terms of the partnership.
Financial arrangements:
• Capital - the amount to be contributed by each partner.
• Interest on capital – payment and the rate.

• Profit sharing ratio - equally, or different ratios depending on capital contributed or

the amount of work to be put in or the level of experience.

• Partners’ salaries: to some or all. Partners’ salaries are an appropriation of profit, and
not an expense in the profit and loss account of the business.
• Drawings: for personal use. Specify the rate of interest to be paid.

Contents of partnership agreement

Need for written agreement but not necessary (however advisable)
– Name of firm the type of business or duration
– Amount of capital to be contributed by each partner
– Proportion of sharing profits/losses
– Rate of interest if any to be paid on capital before profits are shared
– Rate of interest to be charged to partners on drawings
– Salaries paid to partners
– Performance related payments to partners
– Settling of disputes
– Preparation and audit of accounts

Capital contributions
Partners may agree to contribute equally and/or in unequal proportion towards the
capital of their partnership.
Cash or other assets.
a. debited to the relevant asset account
b. credit is made to the capital account.
c. Fixed capital accounts not used to record drawings or shares of profits but only for
major changes in the relations between partners.
• Fixed capital accounts used for:
– Capital introduced or withdrawn by new or retiring partners
– Revaluation adjustments.
E.g.
• Lorry contribution
– Debit: Lorry or Motor vehicles account
– Credit: Capital account
• Cash Contribution
– Debit: Cash account
Credit: Capital account
The balances on capital accounts do not necessarily bear any relation to the division of
profits. The difference in capital is catered for by the payment of interest on capital
accounts. This is done through the appropriation account.

Profit (or loss) sharing ratios

It is important to appreciate that all of the above examples are means of sharing profits
of the partnership and are not expenses of the business. A partner’s salary is not an
expense of the firm i.e., it’s not a salary in the real sense of the term.

Wages for employees deducted as an expense from gross profit before arriving at net
profit, partners salaries on the other hand are deducted from net profit.
Interest on drawings Partners may also include in the partnership agreement, a clause
which stipulates for the payment of interest on drawings. This is charged to the
individual partners who have taken any drawings from the partnership. Interest on
drawings is included in the agreement as a cure to a mischief of partners taking out
cash from the partnership. It is usually charged from date of withdrawal to end of the
financial year. However in this module interest on drawings, regardless of the date of
drawing, will be charged for the whole year.

Partnership salaries
There may be instances when a partner is given more responsibilities than the other
partner(s).
As a reward for the added responsibilities, that partner will be paid a partnership salary.
The salary is not an expense to be charged (deducted) from the gross profit and/or total
income. It will have to be deducted from the Partnership’s NET PROFIT.

Partners’ salaries are an appropriation of profit, and not an expense in the profit and
loss account of the business.

Partners’ current accounts

• Records regular transactions between partners and the firm:
– Share of profits, interest on capital, and partners’ salaries.
– Drawings against the annual share of profit.
• Profit, interest on capital and salaries
– credited to a current account for the partner,
– Drawings and interest on drawings are debited to the account.
• The balance on the current account represents the amount of the undrawn (or
withdrawn) profits.
– Credit balance undrawn profits debit balance drawings in excess of the profits.

Legal Practitioners Accounts

Introduction
A legal practitioners may, having met the requisites stipulated by the Law Association
of Zambia, may set up a firm, either as a sole practice or in partnership, with other legal

practitioners of similar standing. The founding of a law practice, mandates the

practitioners, as provided under Part VIII of the Legal Practitioners Act, to maintain
books of accounts.
Further, a law firm is a business, and as an economic vehicle, it is expected to return
profits to the partners.

The provisions of the law and also it being a business, makes it mandatory for
practitioners in private practice to maintain a set of books of accounts.
Specific Unit Outcomes
After studying this unit, you should be able to:
a). Explain the different types of accounts maintained by a law practice;
b). Acquire the knowledge and skills to prepare an income statement for a law practice;
and
c). Prepare a statement of financial position for a law practice.
6.6.1 The Books of Accounts

A law firm’s operations are mainly similar to other business enterprises that sell
services, and maintain books of accounts which are: cash books; ledgers; receipt books;
and petty cash.
6.6.2 Cash Book

Pursuant to the provisions of the Legal Practitioners’ Act (LPA), a law firm is expected to
maintain not less than two cash books, with one specifically designated for the sole
purpose of recording transactions relating to clients (Clients’ Account), and also called
a trust account. The other cash book(s) is for the firm’s operations.
The Legal Practitioners’ Act further provides for clients’ funds to be accounted for
separately from the firm’s, and any cross transactions between the two types of accounts
must be within the confirms of the law.

The cash book format in a law firm is the same as the one used by other types of
businesses

Billing Clients
Introduction
A law firm is a business and to ensure that it is able to meet its operational costs, as
well as return a profit to its partner(s), it has to ensure that all the services it provides
are accurately billed to its clients.
In this unit, you will learn: the stages of billing; source of, and how to use, the scales
rates in billing; reports that can be generated from a billing system; and how you can
interpret the information from a billing report.
Specific Unit Outcomes
After studying this unit, you should be able to:
a). Explain the stages of billing;
b). Know the different types of billing scales;

The Stages of Billing

A billing system could either be manual or computer based, such as Legal Manager©,
and whichever system is used, the ultimate objective of the system is to generate
revenue (sales)information in the form of fee notes (invoices), which are then submitted
to clients for settlement. A billing system is critical to the going concern of a law firm,
as its accuracy, efficiency, and effectiveness has a bearing on the firm’s cashflows, and
invariably its operations.
The billing process for the provision of legal services is made in three stages, namely:
i). Pre-billing stage

This is the first step that determines whether a retainership be accepted or not. It is at
this stage that a law firm must have within its client acceptance process, onboarding
vetting tools, such as Know-Your-Client (KYC) forms. The onboarding vetting of client is
now mandatory at law (see the Financial Intelligence Act No. 46 of 2010).

Once the vetting process is completed, the next step is execution of an agreement
(engagement letter) between the firm and the client. The engagement letter will contain:
the parties; commencement and determination dates (events) of the retainership; scope
of work; the legal practitioners to be assigned and their years at the Bar; the charge-out
rates; and other terms and conditions. The engagement letter is a key element to an
accurate, efficient and effective billing systems. It’s only upon full execution of the
engagement letter, that a firm is recommended to proceed and start acting on the client’s
instructions.
ii). Active retainership stage
During this stage, assignments as stipulated in the engagement letter are being
performed by the law firm. The firm will, depending on the type of assignments, and in
the case of contentious matters, keep records of the time and work being done. The work
may include; court appearance, preparing of court documents, legal opinions and
correspondences, meetings (both physical and virtual), receipt of any further
instructions, a priori assignment.
The firm should have tools, either in manual forms or digital format, which have time
recording and retention capabilities.

It is cardinal that the time recording system, should be designed in a way that each
second, a legal practitioner spends, as time is Counsel’s “stock in-trade”, and is recorded
for onward computation of the fees.

Pursuant to the terms and conditions contained in the engagement letter, bills of costs
together with fee notes, may be submitted to the client, within agreed intervals, for
settlement. A firm that intends to have cash-flow stability may look to submission of the
same, in shorter intervals.
iii. Post retainership stage
Determination of a retainership may come in the form of an event such as a delivery of,
a decision by a court of law (contentious matters), or non-contentious matters such as;
drafting of legal opinion, agreement, and/or conveyancing retainership.
Relative to the terms and conditions contained in the engagement letter, a law firm may
render a final bill of cost to its client. The final bill of cost may include among others;
costs covering the period the assignment was subsisting and also post-event
determination costs such as “success fees.”
The Scales rates to be used for billing
The scales rates that are to be used in determining the value of the work done are
provided for in various pieces of legislation for both, conveyancing and non-contentious,
and contentious matters.
Conveyancing and Non-contentious matters
The Legal Practitioners (Conveyancing and Non-Contentious Matters) (Costs) Order,
2017 (Statutory Instrument No. 7 of 2017), provides the scales rates to be used when
instructions have been received for conveyancing and non-contentious assignments.
Contentious matters

The charge-out rates for contentious matters are provided in the respective, Subordinate
Court, High Court, Court of Appeal, Constitutional Court, and Supreme Courts’ Rules
and/or through subsidiary legislation of the Legal Practitioners Act.
The Subordinate Court
The charge-out scale rates for matters before the Subordinate Court are provided for
under the Subordinate Courts (Civil Jurisdiction) (Amendment) Rules, 2001, Statutory
Instrument No. 22 of 2001.
The High Court
The scales rates for matters before the High Court are stipulated in the Legal
Practitioners (Costs) Order, 2017 (Statutory Instrument No. 6 of 2017), and the
Legal Practitioners (High Court) (Fixed Costs) Order, 2016 (Statutory Instrument No. 97
of 2016.
Court of Appeal

Order 12 Rule 1 (SI No. 65 of 2016) of the Court of Appeal Rules provides for the Court
to make any order as to the whole or any part of the costs of appeal or of any court
below as may be just. It [the Court] may assess the same, or direct taxation in
accordance with the scales provided for in the High Court under the High Court Act.
The Constitutional Court
The Constitutional Court Rules Act, 2016 (SI No. 37 of 2016) stipulates that the
prescribed scales rates are applicable. As at the date of publishing of this manual, no
Order for Costs has been promulgated for matters before the Constitutional Court. In
the current, and as a matter of practice, the Supreme Court (Amendment) Rules, 2017
(SI No. 5of 2017) is being applied.
The Supreme Court
The Supreme Court (Amendment) Rules, 2017 (Statutory Instrument No. 5 of 2017) of
the Supreme Court Act Cap 25, provides the applicable scales rates for matters before
the Supreme Court of Zambia.
Reports produced by a billing system

A firm should ensure that its billing system is capable of generating reports on a timely
basis, as information from the reports would help in decision-making, comparative
analyses with the budget and/or previous performance, among many others. The
primary reports any billing system should be able to produce include:
Bill of costs
A bill of costs report shows the works done on specific instructions, the time taken to
perform tasks therein, the applicable scales rates, computed values of undertaken
tasks, and name(s) of Counsel who were in conduct of the instructions. The report will
also show Counsel’s years at the bar, and also the grand total payable.
Fee note/Invoice
An integrated billing system (Computer-based) should be able to produce a report of the
total fee notes generated in a period, together with their respective values. However,
where a firm is using a manual billing system, the system, using various time recording
forms and the applicable scales rates, should be able to culminate to issuance of fee
notes.
Revenue report
A revenue report’s purpose is to show the total sales generated by a firm, in a specified
period.
Further, the report should also be designed in a way that it is capable of listing all the
issued fee notes within a specified period. Both computer-based and manual billing
systems, are capable of generating a revenue report.
Billed time report
This is a report when generated will show, depending on the design of the billing system,
show the billed time per day, week or on a monthly basis. The report can also be
designed to highlight names of the billing persons against the reported billed time.
Direct costs report

A direct costs report shows the direct costs incurred on each assignment. The direct
costs may include, among many others: labour costs (i.e salary of Counsel in conduct
of the assignment), court fees, and stationery.
Analysis reports

These are reports that go in more detail to provide information on profitability of the
firm in general, and can be generate drilled down reports to departments and even
individual Counsel’s performance.
Analysis reports are designed in line with information required by a firm for its effective
decision-making.
How to interpret information in a billing report

Interpretation of information in a billing report depends on the report that has been
requested from the system. Information from the context of a bill of costs, for example,
can be interpreted from the following positions:
a) Seniority of Counsel in conduct of the matter;
b) The tasks undertaken in performing the instructions;
c) Whether there have been any disputes as to costs (an application for bill
of costs to be taxed, is evidenced);
d) The duration of the matter before its determination; and
e) The time it took to perform certain tasks.

TYPES OF TAXES
Pay as You Earn (PAYE)
With Holding Tax (WHT)
Value Added Tax (VAT)

Biography

Zambia Institute Advanced Legal Education, Legal Practitioners Qualifying Course,

Book Keeping and Accounts