Partnership Accounts
Partnership Accounts
This domain tests the partnership appropriation account, capital and current accounts, and profit-sharing arrangements. SPM questions often require allocating profit after salaries, interest on capital and interest on drawings.
Core rules
- A partnership has two or more owners; the partnership agreement governs profit sharing, salaries, interest on capital and drawings.
- The appropriation account follows the income statement and shows how profit is divided.
- Partners' salaries and interest on capital are appropriations of profit, not business expenses.
- Interest on drawings is income to the partnership and is charged to the partner's current account.
- Residual profit is shared in the agreed ratio.
- Capital accounts record permanent capital; current accounts record drawings, share of profit, salaries and interest.
Worked example
Profit for the year is RM60,000. Salaries: A RM12,000, B RM8,000. Interest on capital: A RM3,000, B RM2,000. Interest on drawings: A RM500, B RM300. Residual = RM60,000 + RM800 - RM20,000 - RM5,000 = RM35,800. Shared 2:3: A RM14,320; B RM21,480. A's total = RM12,000 + RM3,000 + RM14,320 - RM500 = RM28,820. B's total = RM8,000 + RM2,000 + RM21,480 - RM300 = RM31,180. The total is RM60,000.
Traps
- Treating partners' salaries as operating expenses.
- Debiting interest on capital to the income statement.
- Sharing residual profit before deducting appropriations.
- Forgetting that drawings are debited to the current account.
Key points
- Appropriation account divides profit
- Salaries are appropriations
- Interest on drawings increases divisible profit
- Residual profit uses agreed ratio
- Current accounts track drawings and shares