Partnership accountsLearning 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) The capital to be contributed by each partner.b) The ratio in which profits/losses are to be shared.c) The rate of interest to be paid on capital if any, before

the profits are shared.d) The rate of interest if any to be charged to partners

drawings.e) Salaries to be paid to partners.f) Arrangement for the admission of new partners.g) Procedures to be carried out when the partners retire.

Details items of partnershipSharing 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 capitalThere 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.

Additional account required.i) 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.

ii) Partners Current account.To reflect the effect of the distribution of partnership profit.The method adopted

a) 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

b) Fluctuating Capital accountThe 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 Rm26,000Interest 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/cfor the year ended 31.12.2006.

Rm RmNet Profit (From P&L) 50,000Add: Interest on drawings

Raslan: 500 Ali : 1,000 1,500

51,500Less: Salary

Ali: (15,000)

Less:Interest on CapitalRaslan: (1,000) --------Ali : (3,000) (4,000) 32,500

=====Balance of Profit shared:

Raslan (60%) 19,500Ali (40%) 13,000 32,500

Currents Accounts.Date Details Raslan Ali Date Details Raslan Ali

31.12 Cash Drawings 15,000 26,000 01.12 Balance b/d Nil Nil

31.12 Interest on drawings

500 1,000 31.12 Salary Nil 15,000

31.12 Interest on capital 1,000 3,000

31.12 Balance c/d 5,000 4,000 31.12 Share of profits 19,500 13,000

20,500 31,000 20,500 31,000

Bal b/d 5,000 4,000

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 Company’s 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 clubReceipts and Payments Account for the year ended 31.12.2006.Debit CreditReceipts Rm Payments RmBank b/d 1.1.06 524 Restaurant supplies 38620Subs rec for: Manager wages 19939

2005 (arrears) 1400 chef wages 86242006 14350 Restaurant expenses 2342007 (in advance) 1200 Repairs to stands 740

Restaurent sales 61280 Ground upkeep 1829Donations receive 800 Secretary’s expenses 938

Transport cost 2420Bank bal c/d 6210

79554 79554====== =====

Additional information.31.12.05 31.12.06

1. Rm Rma) Stocks in the

restaurant at cost 4496 5558b) Owing for restaurant

supplies 3294 4340c) Restaurant expenses

owing 225 336d) Transport costs owed. - 265

2. 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.

3. The equipment at 31.12.2005 was valued at Rm2,500 and is to be depreciated at 20 % on straight line method.

4. 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 RmFixed Assets.Land 40000Golf Stands 20000Equipment 2500

62500Current Assets.Stocks 4496Debtors (subscription owe) 1400Cash at bank 524

6420Less: Current LiabilitiesCreditors (owe to supplier) 3294Restaurant expenses owed 225 (3519)Net Current Assets 2901

--------65401=====

Financed by: --------- Accumulated Funds 65401

=====

solutionsWorkings 1.

Purchases a/c

Rm RmCash 38620 Bal (creditor) b/d 3294Bal c/d(Creditor) 4340 To Trading a/c 39666

42960 42960===== =====

Workings 2. Restaurants Expenses a/c

Rm RmCash 234 Balance b/d 225Balance c/d 336 To Trading a/c 345 570 570

=== ====

Workings 3.Transport cost a/c

Rm RmCash 2420 To income &

Bal c/d 265 expenditure 2685 2685 2685 ==== ====

Workings 4.Subscription received a/c

Rm RmBal b/d 1400 Cash – 2005 1400 To income & Exp 16100 Cash – 2006 14350Bal c/d (adv) 1200 Cash – 2007 1200

Bal c/d (owe) 175018700 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 RmSales 61280Less:Cost of goods sold:

Opening Stocks 4496Add: Purchases 39666

44162Less: Closing stocks (5558) (38604)Gross Profit 22676Less: Restaurant Exps (W2) 345

Chef wages 8624 (8969)Net Profit TO Income & Expenditure a/c 13707

======

Unimas Golf ClubIncome & Expenditure A/C for the year ended 31.12.2006

Rm RmIncomeSubscription-2006 (W4) 16100Profit from restaurant 1 3707Donations received 800

30607

ExpenditureManager wages 19939Repairs to stands 740Ground upkeep 1829Secretary expenses 938Transport cost (W3) 2685Depreciation –Stands (W5) 2000Depreciation – equipment (W6) 500 (28631)Surplus of income over expenditure 1976

=======

Unimas Golf ClubBalance Sheet as at 31.12.2006

Rm Rm RmFixed AssetsLand 40000Golf Stands 20000Less Depreciation (2000) 18000Equipment 2500Less Depreciation ( 500) 2000

Current Assets.Closing Stocks 5558Debtors –subsriptions 1750Cash at bank 6210

13518Less: Current LiabilitiesCreditors – Restaurant supplies 4340Restaurant expenses owed 336 Transport cost owed 265Subscription received in advance 1200 (6141)Net Current Assets 7377

--------67377=====

Financed by:Accumulated fundsBalance as at 1.1.2006 65401Add: Surplus of income over expenditure 1976

--------67377=====