ACCOUNTING

Strand 2: Partnership Accounting Sub Strand 2.2: Preparing

Financial Statements for a
Partnership
Lesson Activity 2: Final Accounts

Key Learning Outcome: Students are able to demonstrate knowledge application and critical
evaluation of partnership financial reports.

Skill
No. Specific Learning Outcomes (SLO) SLO Code
Level
1 state the function or purpose of the partnership Statement of 1 Acc2.2.1.1
Financial Performance/ Statement of Financial Position.
2 state the function or purpose of the partnership Profit and Loss 1 Acc2.2.1.2
Appropriation Statement.
3 differentiate between the Statement of Financial Performance 3 Acc2.2.3.1
and the Statement of Financial Position.
14 prepare partnership financial statements (Profit & Loss 4 Acc2.2.4.1
Appropriation account).
prepare partnership financial statements (Statement of Financial
15 Performance/ Statement of Financial Position incorporating 4 Acc2.2.4.2
balance day adjustments).

Purpose of:

Statement of Financial Performance – A general partnership prepares its Statement of Financial

Performance to reflect the revenues the firm generated, the expenses it incurred and the resulting
partnership profits.

Statement of Financial Position - The purpose of the statement of financial position is to present true
information about the business’s assets, liabilities, and equity. It helps to reveal the financial position
of the partnership as at a particular date.

The statement is also useful for the management as it helps them track the partnership’s financial
position and take measures for improvement.
Profit and Loss Appropriation (Distribution) Account
It is a special account that a firm prepares to show the distribution of profits/losses among the partners
or partner’s capital.
This account should not be confused with the typical Profit and Loss Account but rather seen as an
extension of it as it is made after making the Profit and Loss Account.
Overall, the firm uses it to show the allocation and distribution of Net Profit among the partners.

Accounting_Strand_2_Sub_strand_2.1_Lesson_Activity_2 1
Example

The following information relates to the partnership business of Colati and Ashok’s Retail Business:

Trial Balance of Goreti and Philomena Retailers as at 31st March 2022

Debit ($) Credit ($)
Sales 25 000
Discount Revenue 130
Purchases 9 600
Advertising 380
Sales Salaries 2 180
Cell Phone Expenses 250
Office Expenses 920
Rates 360
Partner’s salary - Goreti 2 000
Partner’s salary - Philomena 2 700
Bad Debts 450
Discount Expenses 90
Petty cash 65
Cash at Bank 1 750
Accounts Receivables 950
Provision for Doubtful Debts 60
st
Inventories (1 April 2021) 15 320
Furniture and Fixtures 1 600
Accumulated depreciation on Furniture 325
Goodwill 4 000
Accounts payable 1 200
Capital - Goreti 8 000
Capital - Philomena 3 000
Retained Profits - Goreti 6 580
Drawings - Goreti 720
Retained profit - Philomena 960
44 295 44 295

Additional information as at 31st March 2022:

• Charge interest on drawings – Goreti, $80.

• Allow interest on partners’ fixed capital, 5 percent.
• Provision for doubtful debts to be 4 percent of Accounts Receivable.
• Accrued rates $80 and cell phone expense prepaid $30.
• Inventories at 31st March 2018, $12 200.
• Provide for depreciation of furniture and fixtures, 10% on cost.
• The partners are working partners. Half of salaries paid is attributable to administrative and
half to selling expenses.
• Profit or losses to be shared equally.

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Required:
Prepare the following:
(a) Statement of Financial Performance for the year ended 31st March 2022.
(b) Profit Distribution Statement for the year ended 31st March 2022.
(c) Current Accounts.
(d) Statement of Financial Position as at 31st March 2022.

(a) Goreti and Philomena Retailers

Statement of Financial Performance for the year ended 31st March 2022
$ $ $
Sales 25 000
Less Cost of Goods Sold
Opening Stock 15 320
Add Purchases 9 600
Goods available for sale 24 920
Less Closing Stock 12 200
Cost of Goods Sold 12 720
Gross Profit 12 280
Add Other Income
Discount Revenue 130
Doubtful Debts 22 152
12 432
Less Expenses
Selling and Distribution Expenses
Advertising 380
Sales - Salaries 2 180
Partner’s Salary - Goreti 1 000
Partner’s Salary - Philomena 1 350
4 910
General and Administrative Expenses
Cell Phone expenses (250 – 30) 220
Office Expenses 920
Rate (80 + 360) 440
Depreciation on Furniture and Fixtures 160
Partner’s Salary - Goreti 1 000
Partner’s Salary - Philomena 1 350
4 090
Finance Expenses
Bad Debts 90
Discount Expenses 450 540 9 540
Net Profit 2 892

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(b) Profit Distribution Statement of Goreti and Philomena for the year ended,
31st March 2022
$ $ $
Net Profit 2 892
Add: Interest on Drawing - Goreti 80
2 972
Less: Interest on Capital Account - Goreti 400
- Philomena 150 550
2 422
Share of Profit
Current Account: Goreti 1 211
Philomena 1 211
(2 422)
Nil

(c)
Current Account - Goreti
Date Particulars Debit ($) Date Particulars Credit ($)
Mar 31 Interest on drawings 80 Mar 31 Opening Balance 6 580
Drawings 720 Share of Profit 1 211
Balance c/d 7 391 Interest on Capital 400
8 191 8 191

Current Account - Philomena

Date Particulars Debit ($) Date Particulars Credit ($)
Mar 31 Opening Balance 960 Mar 31 Share of Profit 1 211
Balance c/d 401 Interest on fixed 150
capital
1 361 1 361

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 (d) Goreti and Philomena Retailers
Statement of Financial Position as at 31st March 2022
$ $ $
Current Assets 65
Petty cash 1 750
Cash at Bank 950
Accounts Receivables 38 912
Less Provision for Doubtful Debts 12 200
Inventories 30
Cell phone prepaid 14 957
Add Non-Current Assets
Add Fixed Asset
Furniture and Fixtures 1 600
Less Accumulated depreciation (325 + 160) 4 85 1 115
Add Intangible Assets
Goodwill 4 000
Total Assets 20 072
Less Liabilities
Accounts Payable 1 200
Accrued Rates due 80 1 290
Net Assets 18 792
Owners’ Equity
Capital - Goreti 8 000
Philomena 3 000
Retained Profit - Goreti 7 391
Philomena 401
18 792

Exercise
Ana and Tom are partners of Deep Water, a local accountancy firm.
The following is a list of accounts taken from the Trial Balance as at 31st December 2022
$
Accounts payable 10 000
Cash at Bank 2 000
Building 200 000
Commission received 10 000
Capital - Ana 100 000
Capital - Tom 50 000
Current Account - Ana 3 000
Capital Account- Tom 20 000
Drawings - Ana 40 000
Drawings - Tom 25 000
Computers 10 000
Mortgage on Buildings at 4% 65 000
Office Rent 15 000
Fees received 95 000

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Additional Information:

(i) Office rent owing on 31st December 2022, $3 000.

(ii) Commission was outstanding on balance day $2 000.
(iii) Building to be depreciated at 10% p.a. on cost.
(iv) Interest on mortgage due but not paid on balance day.
(v) On 1st November 2022, Ana contributed an additional $15 000 cash to the partnership.
(vi) Ana and Tom have the following profit-sharing clauses / ratios in their partnership agreement:
• Interest on Capital: 5 % on the opening balance.
• Interest on Current accounts: 3% credited on the opening balance.
• Interest on drawings: 2% per annum.
• Salaries to partners: Ana $20 000 and Tom $25 000 (non-working).
• Net profits and losses are shared on a ratio of 3:4.

Required:

Using the information given above, prepare the following:

a) Statement of Financial Performance for the year ended 31st December 2022. (L4) Acc2.2.4.2
b) The Profit Distribution Statement for Deep Water a local accountancy firm for the year ended 31st
December 2022. (L4) Acc2.1.4.1
c) Statement of Financial Position for the year ended 31st December 2022. (L4) Acc2.2.4.2

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