A. A. DefinitionDefinition

Partnership is an association of from 2 to Partnership is an association of from 2 to 20 persons20 personscarrying on business in common with a carrying on business in common with a view of profit.view of profit.

1. General partnership: unlimited liability1. General partnership: unlimited liability

2. Limited partnership: at least one 2. Limited partnership: at least one general partnergeneral partner and the others limited partnersand the others limited partners

B. Accounting requirements B. Accounting requirements covered in Partnership Agreementcovered in Partnership Agreement

1. The amount of capital1. The amount of capital2. The profit or loss sharing ratio2. The profit or loss sharing ratio3. The rate of interest on partners capital3. The rate of interest on partners capital

4. The rate of interest on partners drawings4. The rate of interest on partners drawings5. The amount of salaries to be paid to partners5. The amount of salaries to be paid to partners6. The rate of interest on loans advanced by partners6. The rate of interest on loans advanced by partners

C. Capital AccountsC. Capital Accounts and Current and Current AccountsAccounts11. Fixed capital account systemFixed capital account system

a.a.Capital Accounts - record the fixed capital contributedrecord the fixed capital contributed by each partnerby each partner b.b.Current Account - record the changes which affect the - record the changes which affect the capital owed by the business to the partnercapital owed by the business to the partner c. Drawings account - at the end of the period, close the c. Drawings account - at the end of the period, close the accounts and transferred to the Current account.accounts and transferred to the Current account.

2. 2. Fluctuating capital account systemFluctuating capital account system It records all relevant transactions which affectIt records all relevant transactions which affect the capital owed by the business to the partnersthe capital owed by the business to the partners

D. Profit & LossD. Profit & Loss Appropriation accountAppropriation account

It shows how the profit is actually shared among the partners.It shows how the profit is actually shared among the partners.

Profit & Loss Appropriation account for the year ended 31 Dec 2000$ $

Partner's salaries Net profit b/dInterest on capital Interest on drawingsShare of profits

Share of loss

Example P.1Example P.1

Current a/cK.Yau T.Ping K.Yau T.Ping

2003 $ $ 2002 $ $

30-Jun Drawings 10000 2600 1-Jul Bal b/d 16480 1230030-Jun Bal c/d 52640 40240 2003

30-Jun Partner salaries 2000 /

30-Jun Interest on capital 1500 210030-Jun Share of profit 42660 28440

62640 42840 62640 42840

Capital a/cK.Yau T.Ping K.Yau T.Ping

2003 $ $ 2002 $ $

30-Jun Bal c/d 30000 42000 1-Jul Bal b/d 30000 4200030000 42000 30000 42000

P.2P.2

Drawings K.Yau T.Ping K.Yau T.Ping

2003 $ $ 2003 $ $

30-Jun Cash 8000 2000 30-Jun Current a/c 10000 200030-Jun Cash 2000 /

10000 2000 10000 2000

P.3P.3

Trading & Profit & Loss Appropriation a/c for the year ended 30 June 2003$ $ $ $

Opening stock 34740 Sales 375200Add: Purchases 246200 Less: Return Inwards 1200

280940Add: Carrisge Inwards 1650

282590Less: Closing Stock 42800Cost of Good Sold 239790Gross Profit c/d 134210

374000 374000Gross Profit b/d 134210

P.4P.4

Salaries 20600 Gross Profit b/d 134210General Expenses 3100 Discount Received 3000Rent and Rates 5860Carriage Outwards 1430Provision for Depr.Machinery (156000-60000)*20% 19200OfficeEquipment (80000-24000)*15% 8400Bad Debts 200Provision for Bad Debts 1320Loss on disposal of marhinery 400 60510Net Profit c/d 76700

137210 137210Net Profit b/d 76700

P.5P.5

P.6P.6

Balance Sheet as at 30 June 2003Fixed Asset $ $ $ $Machinery 154400 Capital a/cLess: Provision for Depr. 78000 76400 K.Yau 30000(18000+60000) T.Ping 42000 72000Office Equipment 80000 Current a/cLess: Provision for Depr. 32400 47600 K.Yau 52640 (24000+8400) T.Ping 43240 92880

Current Assets Current LiabilitiesStock 42800 Creditors 36000Debtors (27000-200) 26800Less:Provision for Doubtful Debts 1320

25480Cash in Bank 6400Cash in Hand 2200

200880 200880

by: KIMI (3)by: KIMI (3) PEGGY (12)PEGGY (12)