Partnership Accounts and Incomplete Records
Partnership accounts extend sole-trader accounting with an appropriation account. Incomplete records questions reconstruct profit from limited information using a statement of affairs, mark-up or margin.
Partnership rules
- The appropriation account distributes profit: partners' salaries, interest on capital, interest on drawings (debit), then residual profit in the profit-sharing ratio.
- Capital accounts record long-term capital; current accounts record drawings, share of profit, salaries and interest.
- Drawings are not an expense.
Worked example
A and B share profits 3:2. Profit before appropriations is €60,000. Salary to A €10,000; interest on capital A €2,000, B €1,000. Residual = 60,000 - 10,000 - 2,000 - 1,000 = €47,000. A gets 3/5 × 47,000 = €28,200; B gets €18,800.
Incomplete records
Closing capital from a statement of affairs is €42,000; opening capital €30,000; drawings €10,000; capital introduced €2,000. Profit = 42,000 - 30,000 + 10,000 - 2,000 = €20,000.
If cost of sales is €80,000 and mark-up is 25%, sales = 80,000 × 1.25 = €100,000 and gross profit = €20,000. Margin would be 20% of sales.
Traps
Using margin as mark-up; forgetting to add back drawings or deduct capital introduced; omitting interest on drawings; and allocating residual profit before salaries and interest. In incomplete records, check whether the question gives mark-up or margin.