ZIMSEC O Level Principles of Accounting: Accounting for Partnerships: Partnership Financial Statements Example
- As already said elsewhere partnerships also prepare Financial Statements at the end of every period
- These do not differ much from say those of a Sole Trader
- Financial Statements of a Partnership include:
- An Income Statement for the period ended
- An Appropriation account for the period ended
- A Statement of Financial Position as at at the last day of the period
- If the partnership business is involved in manufacturing a Manufacturing Account is also prepared
- If it is a business with many departments a departmental Income Statement can also be prepared
- We will now look at an example involving the preparation of Financial Statements
Example question
Save and Moyo are trading in partnership sharing profits and losses and equally. Interest at 5% per annum is allowed or charged on both the capital account and the current account balances at the beginning of the year. Interest is charged on drawings at 5% per annum. The partners are entitled to annual salaries of: Save $12 000; Moyo $8 000.
Save and Moyo
Trial Balance as at 31 December 20X8
| DR | CR | |
| $ | $ | |
| Capital Accounts: Save | 100 000 | |
| Moyo | 50 000 | |
| Current Accounts: Save | 2 000 | |
| Moyo | 600 | |
| Cash Drawings for the year: Save | 15 000 | |
| Moyo | 10 000 | |
| Freehold premises at cost | 50 000 | |
| Stock at 1 January 20x8 | 75 000 | |
| Fixtures and Fittings at cost | 15 000 | |
| Purchases and Stock Returns | 380 000 | 12 000 |
| Bank | 31 600 | |
| Sales and Sales Returns | 6 000 | 508 000 |
| Trade Debtors and Trade Creditors | 52 400 | 33 300 |
| Carriage Inwards | 21 500 | |
| Carriage outwards | 3 000 | |
| Staff Salaries | 42 000 | |
| VAT | 8 700 | |
| Office Expenses | 7 500 | |
| Provision for doubtful debts | 2000 | |
| Advertising | 5 000 | |
| Discounts Allowed and received | 1 200 | 1 000 |
| Bad Debts | 1 400 | |
| Rent and business rates | 2 800 | |
| Accumulated provision for depreciation on fixtures and fittings | 3 000 | |
720 000 | 720 000 |
December 20X8:
- Stock on hand was valued at $68 000
- Purchase invoices amounting to $3 000 for goods included in the stock valuation at a above had not been recorded
- Staff salaries owing $900
- Business rates paid in advance $200
- Provision for doubtful debts to be increased to $2 400
- Goods withdrawn by partners for private use had not been recorded and were valued at: Save
$500 and Moyo $630. No interest is to be charged on these amounts - Provision is to be made for depreciation of fixtures and fittings at 10% on cost
- Interest on drawings for the year is to be charged: Save $360 Moyo $280
NB:
- As you can see this a comprehensive question we will be using it to illustrate partnership basics and not just here
- VAT is a potential stumbling block for you as it is beyond the scope of Ordinary Level Accounting at the time we created this topic. It does not appear in the Income Statement or the Appropriation Account but only appears in the Statement of Financial Position as an Accrued expense.
- We used this question to create current accounts for Save and Moyo which we posted here.
Required:
- An Income Statement and Appropriation Account for the year ended 31 December 20×8
- A Statement of Financial Position as at 31 December 20×8
- The solution to question 1 can be found here
- While the solution to question 2 can be found here
To access more topics go to the Principles of Accounts Notes.
