partnership

Without a partnership agreement

With a partnership

agreement

Profit or loss for the period

Profit for the year

x months ÷ 12

Profit for the year

x months ÷ 12

Subtract

Interest on partner’s loan

5% x Partner’s loan  

x months ÷ 12

Stated percentage x Partner’s loan

x months ÷ 12

Add

Interest on drawings

None

Stated percentage

x drawings during the period

Subtract

Interest on capital

None

Stated percentage

x Balance on ‘Capital’ account 

x months ÷ 12

Subtract

Partner’s salary

None

Salary x months ÷ 12

Remaining profit or loss

Split equally between the partners

Split between partners in their profit sharing ratio

Subtract

Interest on capital

None

Stated percentage

x Balance on ‘Capital’ account 

x months ÷ 12

Subtract

Partner’s salary

None

Salary x months ÷ 12

Remaining profit or loss

Split equally between the partners

Split between partners in their profit sharing ratio

DEBIT (DR)

Partner 1

Partner 2

CREDIT (CR)

Partner 1

Partner 2

Interest on drawings

750

600

Balance b/d

16,000

14,000

Drawings

30,000

25,000

Interest on partner’s loan

0

600

Salaries

12,000

9,400

Interest on capital

7,400

3,700

Balance c/d

24,000

15,000

Share of profits

19,350

12,900

54,750

40,600

54,750

40,600

Balance b/d

24,000

15,000

New partner joining

(admission of a new partner)

Partner retiring

Treatment of goodwill

Revaluation of assets

Profit sharing ratios

Capital introduced by new partner

Treatment of goodwill

Revaluation of assets

Profit sharing ratios

Closing a partner’s capital account

Garner vs Murray rule if a retiring partner is unable to repay a debit balance.