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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


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