Partnerships
2.1.2 Partners’ Current Accounts
The profits, interest on capital and salaries that the partner may receive are credited
to, and the drawings and interest on drawings are debited to, a separate current
account.
A credit balance on the current account at the end of each financial year will represents
the amount owed to the partners (undrawn profits).
A debit balance represents the amount owed by the partner to the business.
(A) Interest on Capital
(B) Partners’ Salaries
(C) Drawings: A drawings account is maintained for each partner. The total of this account is
transferred to the partner’s current account at the end of the financial year.
(D) Interest on Drawings
(E) Interest on Loan from Partner
Loans from partners
o Loans from partners are not part of the capital of the business and are treated
as any other loan.
o Interest on the loan is a business expense.
(F) Residual Profit
Current Account
A B C A B C
$ $ $ $ $ $
Drawings x x x Balance b/d x x x
Interest on drawings x x x Interest on capital x x x
Partners’ salaries x x x
Residual Loss x x x Interest on loan x
Balance c/d x x x Residual Profit x x x
--------------------------------- -------------------------------
x x x x x x
=================== ==================
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Partnerships
2.1.3 Fluctuating Capital Accounts
The balance on a fluctuating capital account will change each year.
Instead of using a current account, the distribution of profits will be credited, and the drawings
and interest on drawings will be debited to the capital account
3. Partnership’s Financial Statement
3.1 Income Statement
Partnership
Income Statement for the year ended 31 December 20-7
$ $
Revenue x
Less: Cost of Sales
Opening Inventory x
Add: Purchases x
Less: Closing Inventory (x) (x)
Gross Profit x
Commission received x
Expenses
Wages & salaries x
Rent x
Discount allowed x (x)
Profit from operations x
Loan interest (x)
Profit for the year P
3.2 Profit and Loss Appropriation Account
Partnership
Appropriation Account for the year ended 31 December 20-7
$ $
Profit for the year P
Add: Interest on drawings
A x
B x x
Less:
Salaries A (x)
Interest on capital A x
B x (x)
Residual Profit R
Profit share A (R x %) x
B (R x %) x R
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Partnerships
3.3 Statement of Financial Position
Partnership
Statement of Financial Position
As At 31 December 20-7
Assets $ $
Non-Current Assets
Property x
Motor vehicles x
x
Current Assets
Inventory x
Receivables x
Bank x x
Total Assets X
Capital and Liabilities
Capital account – A x
B x x
Current account – A x
B x x
Non-Current Liabilities
Loan x
Current Liabilities
Payables x
Bank overdraft x x
Total Capital and Liabilities X
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Manufacturing A/C
Xxx ( company name)
Manufacturing account for the year ended xxx (date)
$ $
Inventory of raw material (opening) xx
Purchases of raw material xx
Carriage on purchases of raw material xx
xxx
Less: Inventory of raw material (closing) ( xx)
Cost of direct raw materials consumed xxx
Direct wages xx
Direct expenses xx
Prime Cost xxx
Factory overheads
Indirect wages xx
Insurance xx
Rent and rates xx
Factory management salaries xx
Provision for depreciation of plant and xx
machinery
General expenses xx xxx
Cost of production xxxx
Manufacturing A/C
SOLUTION
ABC
Manufacturing Account for the year ended 31 December 20-7
$ $
Opening raw materials 21,000
Add: Purchases of raw materials 370,000
Carriage inwards of raw materials 3,500
394,500
Less: Closing raw materials (24,000)
Cost of raw materials consumed (a) x
Direct labour (b) x
Direct Expenses (Royalty) (c) x
Prime costs (a+b+c) xx
Add: Factory overheads:
General factory expenses x
Lighting (5/6 x$ 7500) x
Power x
Rent ( 5/6 x $12 000) x
Insurance ( 5/6 x $4200) x
Depreciation of productive machinery x
Indirect labour(wages for factory supervisor x xxx
/ manager)
xxx
Add: Opening work in progress x
xx
Less: Closing work in progress (xx)
Cost of Production xxx
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Manufacturing A/C
ABC
Income Statement for the year ended 31 December 20-7
(for office & Trading)
$ $
Sales (Revenue) 1,000,000
Less: Cost of goods sold
Opening inventory (finished goods) xx
Add: Production cost of goods completed xx
(cost of production)
xx
Less: Closing inventory (finished goods) (xx) (xxx)
Gross profit 207,650
Less: Expenses
Administration expenses X
Administration salaries X
Rent (1/6 x ??) X
Insurance (1/6 x ??) X
General expenses x
Lighting (1/6 x ??) x
Discount allowed x
Depreciation of administration computers x
Sales representative salaries x
Commission on sales x
Carriage outwards x (xx xx)
Profit from operation xxxx
Less: Financial charges
Bank charges / Loan interest (xx)
Profit for the year xxxx
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Manufacturing A/C
ABC
Statement of Financial Position as at 31 December 20-7
Cost Accumulated Net book
depreciation value
ASSETS $ $ $
Non-current Assets
Productive machinery 280,000 78,000 202,000
Administration computers 20,000 10,000 10,000
300,000 88,000 212,000
Current Assets
Inventory
Raw materials 24,000
Work-in-progress 40,000
Finished goods 15,000 79 000
Trade receivables X xxx
Other receivables 142,300
Bank 16,800
Cash 1,500 239,600
Total Assets 451,600
CAPITAL & LIABILITIES
Capital
Opening balance / opening capital 357,800
Add: Net profit 89,800
447 600
Less: Drawings (drawings + goods for (60,000) 387,600
own used)
Non-current Liabilities xx
Current Liabilities
Trade payables 64,000
Other payables xx 64,000
Total Capital & Liabilities 451,600
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Limited Company
5. Income Statement
Company name
Income Statement for the year ended 31 December 20-7
$m
Revenue x
Less: Cost of sales (x)
Gross profit x
Less: Expenses
Distribution cost x
Administrative expense x
Depreciation x
Irrecoverable debts x (x)
Profit from operations x
Less: Finance cost
Debenture interest (x)
Profit for the year P
6. Statement of Changes in Equity
• The statement of changes in equity shows the movements in the entity’s equity
for the period.
• It summarises the changes during the year to the ordinary share capital, non-
redeemable preference share capital, retained earnings and general reserve.
• Any profit that is not appropriated for dividends is carried forward to the following
year. This is known as retained earnings.
• Many companies will transfer an amount from the profit for the year to a
general reserve. This is another means of ploughing back profits into the
company to help it grow.
• Sometimes the directors will recommend an interim dividend (half way dividend)
to be paid during the year on ordinary shares (and also on non-redeemable
preference shares). This will appear in the statement of changes in equity for
that particular year.
• Dividends proposed are not included in the financial statements for the current
year, but may appear as a note.
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Limited Company
Statement of Changes of Equity for the year ended 31 December 20-7
Ordinary General Retained Total
Share Capital Reserve Earnings
$ $ $ $
Balance at 1 Jan 20-7 x x x x
Profit for the year P x
Dividends paid (x) (x)
Transfer to general reserve x (x)
Balance at 31 Dec 20-7 x x x x
7. Statement of Financial Position
Company name
Statement of Financial Position as at 31 December 20-7
$ $ $
Cost Accumulated Net book
ASSETS depreciation value
Non-Current Assets
Land and building x x x
Motor vehicle x x x
xx xx xx
Current Assets
Inventories x
Trade receivables x
Less: Provision for doubtful debts (x) x
Other receivables x
Cash x xx
Total assets xx
EQUITY and LIABILITIES
Equity
Ordinary share capital x
General reserve x
Retained earnings x x
Non-Current Liabilities
Debentures x
Bank Loan x x
Current Liabilities
Trade payables x
Other payables x
Bank overdraft x x
Total equity and liabilities xx
