Partnership accounts Part 6

A partnership is formed when people agree to form a business. Each partner has unlimited liability. There can be limited partners. Their liability is limited. They can not take back their capital during the partnership’s life time. They are not allowed to run the business There must be at least one general manager.

Deed of partnership A deed of partnership is a legal document signed by all partners. It states: How much capital each partner has contributed How much profit / loss each partner will receive How much interest they will receive on the capital they invested How much interests they will be charged on any drawings How much each partner will be paid

Deed of partnership If no deed of partnership exists, the law states: Profits & losses shared equally There is no interest paid on capital No interest is charged on drawings Salaries are not allowed Partners who put a sum of money into a partnership in excess of the capital they agreed to invest, they are entitled to receive interest on that additional capital at a rate of 5%

Partnership definitions Capital contributions P&L sharing ratios Interest on capital Interest on drawings Fixed & Fluctuating accounts If there is no deed of partnership

Fixed & Fluctuating accounts Taylor - Capital Jan 1 Bank 20,000 Taylor - Capital Dec 31 Drawings15,000 Interest on drawings 500 Balance c/d5,000 20,500 Dec 31 Interest on capital1,000 Share of profits19,500 20,500 Balance b/d500

Questions (page 547)