TOPIC 6
PARTNERSHIP
6.1 FORMATION
1. Def:
According to s 3(1) and s 47(2),
Partnership Act 1961
Partnership is a form of business
consist of at least 2 person and a
maximum of 20 (except for
professional-50) carried out
business for a purpose of profit.
2. Advantages:
i) Capital can be provided by more
than 1 person.
ii) Each partner can contribute
various skill, knowledge,
experience as well as ability to
manage the business.
iii) Many people like to share
management instead of doing
everything on their own.
iv) Normally the partners are from
the same family of closed friend.
3. Partnership agreement
A partnership agreement can be created
by verbal, written or under seal.
Content of Agreement:
-name of partners and partnership
business.
-date of p/ship agreement is signed.
-date of p/ship business is commence.
-nature of business.
-capital contributed by partners.
-partners salary.
-Interest on drawing, Interest on loan and
interest on capital.
-profit sharing ratio/loss sharing ratio
-provisions as to dissolution of
partnership
-Management of partnership.
4. Absence of Partnership agreement:
If there is no agreement, S 26 of
Partnership Act 1961 provides:
i) Profit and losses to be shared
equally.
ii) Not entitled for partners salary
iii) Not entitled for IOC,IOL.
iv) Advances/Loan to firm entitled
8% interest p.a.
v) Every partner may manage the
firm.
vi) No partner will be may be
admitted without consent of all
partners.
 CAPITAL ACCOUNT AND CURRENT ACCOUNT

CAPITAL ACCOUNT CURRENT ACCOUNT

-2 types: - A separate Current a/c must be
i) Fixed Capital account. maintained to record a transaction
- show original capital invested by between Partners and a business.
partners and movement of capital( - Used to records all the adjustments
plus any additional capital or less among partners other than the
reduction in capital.) movement of capital.
Capital a/c
Current a/c
A B A B
A B A B Bal b/d
X X X
Drawing X
Decrease X X Bal b/d x x IOD X X IOL X X
in capital LSR X X IOC X X
Bal c/d X X
Increas X X Salaries X X
Bal c/d e in Bonus X X
x x
capital PSR X X

xx x xx xx
x

ii) Fluctuating Capital account

-do not show only the original capital
contributed and the movement of
capital but also other transactions
made by partner.
-It is a combination of Capital a/c and
Current a/c

A B A B
Decrease X X Bal b/d x x
in capital Increase x x
Drawing X X in capital X X
IOD X X IOL X X
LSR X X IOC X X
Bal c/d x x Salaries X X
Bonus X X
PSR x x
x x x x
 FINANCIAL STATEMENT OF A PARTNERSHIP

STATEMENT OF PROFIT OR
LOSS APPROPRIATION a/c
Net profit b/d xx
Add: Interest on Drawing
Sales xx -Partner A xx
Less: return Inwards
xx
(xx) -Partner B xx

Net sales xx Less: Interest on capital

Less: COGS -Partner A xx (Xx)
-Partner B xx
Opening inventory Xx
Add: Purchases Xx Less: Interest on loans/Advances
Less: Return Outward (xx) - Partner A xx
Less: Closing inventory (xx) - Partner B xx (Xx)
Cost of good sold (xx)
Less: Interest on Current
Gross Profit Xx - Partner A xx
(Xx)
Add: Revenues Xx - Partner B xx
Less: Expenses (xx)
Less: Partners salaries
Net Profit c/d xx - Partner A xx
- Partner B xx (Xx)
Less:
Bonus/Allowance/Commission
- Partner A xx (Xx)
- Partner B xx

DIVISIBLE PROFIT XXX

PSR/LSR:
- Partner A xx
- Partner B xx XXX
 STATEMENT OF FINANCIAL
POSITION
Non current assets Example 1:
xx
Investment Partners A B C
xx
Current assets PSR 5 3 2
Xx
Less: Current Liabilities Total net profit RM3,000 and C is entitled to
(xx)
get minimum guaranteed profit of
xxx RM1,000.
Financed by:
Capital account: Partners Before After
-Partner A xx Xx
-Partner B xx A 5/10 x 3,000 5/8x(3,000-
=1,500 1,000)
=1,250
Current account:
-Partner A xx B 3/10 x 3,000 3/8x(3,000-
-Partner B xx Xx =900 1,000)
=750
Loan from partner xx
C 2/10 x 3,000 RM1,000
xxx =600 (Guarantee
d Profit)

Example 2:
Partners A B C
PSR 5 3 2
Total net profit RM3,000 and C is entitled to
GUARANTEED PROFIT get minimum guaranteed profit of RM550.
Before allocating divisible profit @
distributable profit according to the Partners Before After
minimum guaranteed profit provision, you A 5/10 x 3,000 5/10x3,000
have to compare it with the allocation of =1,500 =1,500
profit using the actual PSR and take the
highest amount. B 3/10 x 3,000 3/10x3,000
=900 =900

2 situations, refer to:

1)Example 1 C 2/10 x 3,000 2/10 x
2)Example 2 =600 3,000 =600
(actual
profit >
Guaranteed
profit)
 CHANGES HAPPENED DURING THE ACCOUNTING PERIOD
1. Changes happened when:
i) PSR of old partners changed ii) Admission of a new partner. iii) Retirement/Death of old partner. iv) Change in capital contribution

APPROPRIATION a/c
Pre Post
Net profit b/d (from Income statement)-pre xx xx
Post-
Add: Interest on Drawing
-Partner A -pre
-post
-Partner B-pre
-post Xx Xx
Less: Interest on capital
-Partner A-pre
-post
-Partner B pre
-post (Xx) (Xx)
Less: Interest on loans/Advances
- Partner A -pre
-post
- Partner B pre (Xx) (Xx)
-post

Less: Interest on Current

- Partner A pre
(Xx) (Xx)
-post
- Partner B pre
- post
(Xx) (Xx)
Less: Partners salaries
- Partner A pre
-post
- Partner B-pre
- -post
Less: Bonus/Allowance/Commission
- Partner A -pre
-post xx
- Partner B pre
-post xx

DIVISIBLE PROFIT XXX

PSR/LSR: xx xx
-Partner A pre
- -post
-Partner B pre
- post