appropriation Interest on drawings 3000 Interest on capital 15000 Salary to

Appropriation interest on drawings 3000 interest on

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appropriation — Interest on drawings 3,000 Interest on capital 15,000 Salary to partner 100,000 Share of profit 257,500 372,50 0 372,50 0 2016 Jan 1Balance b/f 309,500 Capital: Ng 2015 $ 2015 $ 300,00 0 300,00 0 Dec 31 Balance c/f 300,000 2016 Jan 1Balance b/f 300,000 Jan 1Bank 300,000 Page: 9 Page: 9 Fixed capital accounts (with current accounts)
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Fluctuating and fixed capital accounts When we combine the balances of the fixed capital accounts and current accounts: Chan: $400,000 + $440,500 = $840,500 Ng: $300,000 + $309,500 = $609,500 we find that the total balances are actually the same as those in the fluctuating capital accounts Chan: $840,500 Ng: $609,500
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Capital and current accounts in columnar form
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Capital and current account balance Current account balances When a partnership is profitable and the partners have not made excessive drawings, credit balances will be brought forward in the current accounts. However, it is possible to have debit balances in the current accounts. This situation will arise if a partner has overdrawn his current account. In other words, the drawings have exceeded the balance accumulated from the share of profit and other appropriation items.
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Capital and current account balance Capital account balances Credit balances will normally be brought forward in the capital accounts. However, if a partnership has made a substantial loss and/or a partner has made excessive drawings, his capital balance (or the combined balance of capital and current accounts) will be positive / negative . In this case, the partner is said to have a capital deficiency. He is indebted to the partnership and is required to repay the amount owed.
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Capital and current account balance Capital account balances
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Unlike the income statement of a sole proprietorship, an appropriation section appears in the income statement of a partnership immediately after the item ‘net profit’ . Income statement of a partnership Appropriation section
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Unlike the income statement of a sole proprietorship, an appropriation section appears in the income statement of a partnership immediately after the item ‘net profit’ . Income statement of a partnership The interest on drawings was an addition to the net profit to be shared. It should be distinguished from the operating income.
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Unlike the income statement of a sole proprietorship, an appropriation section appears in the income statement of a partnership immediately after the item ‘net profit’ . Income statement of a partnership The interest on capital and the partner’s salary were deducted from the net profit to be shared. They should be distinguish from the operating expenses.
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The financial statements of a partnership, which include an income statement and a statement of financial position, are prepared at the end of an accounting period. Preparation of financial statements for a partnership Ho and Fong are partners. They agree to share profits and losses in the ratio of 3 : 2. The following trial balance was extracted from the books of the partnership as at 31 March 2015 (see next slide): Exhibit 10.2
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Exhibit 10.2
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Preparation of financial statements for a partnership
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  • Spring '07
  • Smith
  • partner, current account

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