Level: Intermediate
Intermediate Worked Examples: Accounting for Partnerships
Six escalating examples for Form 5 Chapter 4 covering interest calculations, the Profit and Loss Appropriation Account, Current Accounts under the Fixed Capital Method, the Owner's Equity section and partnership dissolution.
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Example 1: Example 1: Interest on Capital and Interest on Drawings
Question
Solution plan
Interest on capital = opening capital × rate. Interest on drawings must be time-apportioned from the drawing date to year end. Aiman 1 July = 6 months; Balqis 1 October = 3 months. Formula = amount × rate × (months / 12).
| Item | Working | Amount (RM) |
|---|---|---|
| Interest on capital: Aiman | 60000 × 5% | 3,000 |
| Interest on capital: Balqis | 40000 × 5% | 2,000 |
| Interest on drawings: Aiman | 12000 × 6% × 6/12 | 360 |
| Interest on drawings: Balqis | 8000 × 6% × 3/12 | 120 |
Answer
Interest on capital: Aiman RM3,000, Balqis RM2,000 (total RM5,000). Interest on drawings: Aiman RM360, Balqis RM120 (total RM480). Interest on capital is credited to partners while interest on drawings is charged to partners.
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Example 2: Example 2: Profit and Loss Appropriation Account (T-form)
Question
Solution plan
Net profit and interest on drawings sit on the credit side (increasing distributable profit). Interest on capital, salary and share of profit sit on the debit side. Distributable profit = 50,000 + 700 − 5,200 − 6,000 = 39,500, shared equally = RM19,750 each.
| Particulars | RM | Particulars | RM |
|---|---|---|---|
| Interest on capital: Chong | 3,200 | Net profit b/d | 50,000 |
| Interest on capital: Devi | 2,000 | Interest on drawings: Chong | 400 |
| Salary: Devi | 6,000 | Interest on drawings: Devi | 300 |
| Share of profit: Chong | 19,750 | ||
| Share of profit: Devi | 19,750 | ||
| 50,700 | 50,700 |
Answer
Both sides total RM50,700. Distributable profit is RM39,500 and each partner receives a share of profit of RM19,750.
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Example 3: Example 3: Profit and Loss Appropriation Account (Statement Format, Ratio 3:2)
Question
Solution plan
Begin with net profit, add interest on drawings, then deduct interest on capital and salary to obtain distributable profit. 72,000 + 1,000 − 8,000 − 12,000 = 53,000. Split 3:2: Faizal 53,000 × 3/5 = 31,800; Gopal 53,000 × 2/5 = 21,200.
| Particulars | RM | RM |
|---|---|---|
| Net profit | 72,000 | |
| Add: Interest on drawings | ||
| Faizal | 600 | |
| Gopal | 400 | 1,000 |
| 73,000 | ||
| Less: Interest on capital | ||
| Faizal | 5,000 | |
| Gopal | 3,000 | 8,000 |
| Less: Salary (Faizal) | 12,000 | |
| Distributable profit | 53,000 | |
| Share of profit (3:2) | ||
| Faizal (3/5) | 31,800 | |
| Gopal (2/5) | 21,200 | 53,000 |
Answer
Distributable profit is RM53,000. Share of profit: Faizal RM31,800 and Gopal RM21,200, totalling RM53,000.
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Example 4: Example 4: Current Accounts (Fixed Capital Method)
Question
Solution plan
Fixed Capital Method: the Capital Account stays at a fixed balance; all appropriations (interest on capital, salary, share of profit) are credited and drawings plus interest on drawings are debited in the Current Account. Current Account balance c/d = total credits − total debits. Interest on capital: Hakim 90,000 × 5% = 4,500; Ismail 60,000 × 5% = 3,000.
| Particulars | Hakim | Ismail | Particulars | Hakim | Ismail |
|---|---|---|---|---|---|
| Balance c/d | 90,000 | 60,000 | Balance b/d | 90,000 | 60,000 |
| 90,000 | 60,000 | 90,000 | 60,000 |
| Particulars | Hakim | Ismail | Particulars | Hakim | Ismail |
|---|---|---|---|---|---|
| Drawings | 10,000 | 12,000 | Balance b/d | 3,000 | 1,500 |
| Interest on drawings | 500 | 600 | Interest on capital | 4,500 | 3,000 |
| Balance c/d | 20,000 | 6,900 | Salary | 8,000 | |
| Share of profit | 15,000 | 15,000 | |||
| 30,500 | 19,500 | 30,500 | 19,500 |
Answer
Capital Account balances remain: Hakim RM90,000 and Ismail RM60,000. Current Account balances c/d (credit): Hakim RM20,000 and Ismail RM6,900. A credit balance means the business owes the partner.
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Example 5: Example 5: Owner's Equity Section (with Interest on Partner's Loan)
Question
Solution plan
Interest on a partner's loan (24,000 × 5% = 1,200) is an expense in the Profit and Loss Account, but if unpaid it is credited to Jaya's Current Account. Closing Current Account balance = balance b/d + interest on capital + loan interest + salary + share of profit − drawings − interest on drawings. Owner's Equity = Total Capital + Total Current Accounts.
| Particulars | Jaya (RM) | Kumar (RM) | Total (RM) |
|---|---|---|---|
| Capital Accounts | |||
| Fixed capital | 100,000 | 80,000 | 180,000 |
| Current Accounts | |||
| Balance b/d | 2,000 | 1,000 | |
| Interest on capital | 5,000 | 4,000 | |
| Interest on partner's loan | 1,200 | 0 | |
| Salary | 10,000 | 0 | |
| Share of profit | 18,000 | 18,000 | |
| Less: Drawings | -15,000 | -12,000 | |
| Less: Interest on drawings | -700 | -500 | |
| Closing Current Account balance | 20,500 | 10,500 | 31,000 |
| Total Owner's Equity | 211,000 |
Answer
Closing Current Account balances: Jaya RM20,500 and Kumar RM10,500 (total RM31,000). Total Owner's Equity is RM211,000 (Capital RM180,000 + Current Accounts RM31,000). The partner's loan of RM24,000 is not part of equity; it is a liability.
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Example 6: Example 6: Dissolution of Partnership
Question
Solution plan
Debit the Realisation Account with the book values of assets and the bank payments (creditors + expenses). Credit it with creditors transferred and the proceeds from asset sales. The balance = loss on realisation RM10,500 shared equally (RM5,250 each). The Bank receives the opening balance plus proceeds, and pays creditors, expenses and the partners' final balances. Capital Accounts: opening balance − loss on realisation = amount paid to partner.
| Particulars | RM | Particulars | RM |
|---|---|---|---|
| Debtors | 12,000 | Creditors | 15,000 |
| Inventory | 18,000 | Bank: Debtors | 11,500 |
| Fittings | 25,000 | Bank: Inventory | 15,000 |
| Motor vehicle | 40,000 | Bank: Fittings | 22,000 |
| Bank: Creditors paid | 15,000 | Bank: Motor vehicle | 38,000 |
| Bank: Dissolution expenses | 2,000 | Loss on realisation: Lim | 5,250 |
| Loss on realisation: Maniam | 5,250 | ||
| 112,000 | 112,000 |
| Particulars | RM | Particulars | RM |
|---|---|---|---|
| Balance b/d | 5,000 | Realisation: Creditors | 15,000 |
| Realisation: Debtors | 11,500 | Realisation: Dissolution expenses | 2,000 |
| Realisation: Inventory | 15,000 | Capital: Lim | 44,750 |
| Realisation: Fittings | 22,000 | Capital: Maniam | 29,750 |
| Realisation: Motor vehicle | 38,000 | ||
| 91,500 | 91,500 |
| Particulars | Lim | Maniam | Particulars | Lim | Maniam |
|---|---|---|---|---|---|
| Loss on realisation | 5,250 | 5,250 | Balance b/d | 50,000 | 35,000 |
| Bank | 44,750 | 29,750 | |||
| 50,000 | 35,000 | 50,000 | 35,000 |
Answer
The loss on realisation is RM10,500, shared equally at RM5,250 each. The Bank Account balances at RM91,500. Final payments to partners: Lim RM44,750 and Maniam RM29,750. Both Capital Accounts close with no debit balance.
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