PARTNERSHIP ACCOUNTS

A partnership is defined in the Partnership

Act as the relationship that subsists between
persons carrying on a business in the
common with a view to profit.
Advantages of being in a partnership.
1. With more partners, more capital can
be injected into the business
2. Where problems arise, more heads
(definitely better than one {sole
trader}) can restore the problem with
confidence.
3. With more hands make light work; this
enables duties to be shared by
different partners.
THE PARTNERSHIP AGREEMENT.
To set up the intentions of the partners
clearly, to avoid any misunderstanding in the
future, it is better for partners to enter in a
Deed of partnership commonly known as
the Partnership Agreement.
It covers:
1. The amount of capital contributed by
each partner.
2. The ratio at which profits/losses are to
be appropriated/shared
3. The rate of interest, if any to be paid
on capital before the appropriation of
profit.
4. The rate of interest, if any to be
charged on drawings
5. The rate of interest, if any, on loans
given by the partners to the
partnership.
6. Remuneration/salary to be allocated to
the partners
7. Maximum amount a partner can
withdraw annually
8. Procedures to be followed in the
admission of a new partner
9. Procedures to be followed when a
partner retires or dies.

THE PARTNERSHIP ACT

When no partnership deed or agreement
exists, section 24 of the partnership act 1890
states that inter alia:
1. Profits and losses are to be shared
equally irrespective of the amount of
capital contributed by partners
2. No interest to be allowed on capital
3. No salary or remuneration to be
allowed
4. No interest to be charged on drawing
5. All loans by partners to be paid an
interest of 5% per annum
In a partnership certain accounts are
prepared and they include:
CAPITAL ACCOUNT- shows the amount of
capital invested by the partner
CURRENT ACCOUNT- to record transactions
that affect the partners capital account i.e.
the status of the partners.
N.B IF A DEBIT BALANCE ON THE CURRENT IS
SHOWN THAT MEANS THE PARTNER OWES
THE BUSINESS BUT IF A CREDIT BALANCE
APPEARS THE BUSINESS OWES THE PARTNER
APPROPRIATION ACCOUNT- to show how
profits or losses are distributed among the
partners.
N.B INTERSEST ON LOANS TAKEN FROM
PARTNERS APPEARS IN THE PROFIT AND
LOSS ACCOUNT AND NOT THE
APPROPRIATION ACCOUNT.

EXERCISE 1
Cheese and Bread are in a partnership
sharing profits and losses. After successfully
trading for the period the business realized a
net profit of $65780.
The following also occurred during the
period of January, 01, 2000 to June, 30, 2000
Cheese withdrew $4500 of inventory during
the period. Bread took home a bookshelf for
her husband worth $1290 and $340 of stock.
The Partnership Agreement states:
Profits and losses are to be shared in a
ratio of 4:3 respectively
Interest on capital is 6% annually
Interest on drawings $1390 and $900
respectively
Cheese is to receive a salary $990
monthly.
N.B The partners opening balances are:
Capital A/C
Current A/C
Cheese $23900
$12000
(credit)
Bread
$14500
$ 940
(debit)
REQUIRED:
1. Prepare the Cheese and Bread
Appropriation Account for the period.
2. Prepare the partners capital and
current accounts for the period.

3. Explain the meaning of each of the

balances on the partners current
account.
Exercise 2
Big Bird and Elmo are in partnership sharing
profits and losses. After a year of
successfully trading the business realized a
profit of $24560. During the period Big Bird
withdrew a yellow suit for a party worth
$1000. The business received a loan from
Elmo worth $27900
The partners opening balances are as follow:
Capital A/C
Current A/C
Big Bird $12300
$1450 (cr)
Elmo
$15900
$ 1980 (cr)
The partnership agreement states:
1. Profits and losses are to be shared
equally
2. No interest to be charged on drawing
3. Interest on capital is 5% per annum
4. Both partners to receive remuneration
$120 monthly and $1900 semiannually respectively.
5. Interest on loan is 8%
Required:
1. Prepare the Appropriation Account for
the period January 01, 1999 to
December 31, 1999.
2. Prepare the partners capital and
current account for the period
3. What are two advantages of being in a
partnership?