Partnerships

Partnership Agreements

• Capital contributed by each partner
• Profit share ratio between partners
• Rate of interest payable on capital to partners
• Rate of interest chargeable on drawings to partners
• Salaries to be credited to partners
• Leaving/joining arrangements

Partnership Act 1890

• Profits and losses shared equally
• No entitlement to interest on capital
• No entitlement to salary
• No charge for interest on drawings
• Partners entitled to 5% interest on loans, they make to partnerships

Appropriation Account

• Follows on from net profit
• Shows how profits are appropriated between partners
• Add interest on drawings - Increases profits to share
• Deduct salaries + interest on capital
• Remaining profits are shared between partners in agreed profit share ratio

Capital and Current A/C

• Capital A/C used to record Capital invested by each partner
• Any revaluation of assets/goodwill adjusted through capital accounts
• Current A/C used to record salaries, interest on capital, profit share credited to each partner
• Record drawings and interest on drawings debited to each partner

Fixed and Fluctuating Capital Accounts

• Fixed Capital Accounts
  • Term used to describe system where separate capital and current accounts are kept
  • Balance on capital account will therefore rarely change
• Fluctuating Capital Accounts
  • …