Exam code:4AC1
Income statement for partnerships
What is the layout of the income statement of a partnership?
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The income statement for a partnership is very similar to that for a sole trader
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The following do not appear on the income statement
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Interest on partners’ capital
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Interest on partners’ drawings
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Partners’ salaries
-
-
The interest on a partner’s loan is included as an expense on the income statement
Worked Example
Tam and Pan are in partnership providing car repair services in their local area. The following is a list of their balances for the year ended 30 June 2023.
|
|
$ |
|
Income from repair services |
101 260 |
|
Salaries of employees |
30 400 |
|
Electricity |
2 420 |
|
Telephone |
3 110 |
|
Rent and rates |
10 000 |
|
Trade payables |
12 190 |
|
Trade receivables |
14 220 |
|
Discount allowed |
1 400 |
|
Office expenses |
10 610 |
|
Supplies for repairs |
41 570 |
|
Irrecoverable debts |
1 200 |
|
Machinery and Equipment at cost |
52 000 |
|
Provision for depreciation on machinery and equipment |
20 800 |
|
Tam:
|
60 000 430 20 600 |
|
Pan
|
30 000 300 15 700 |
|
Bank |
21 750 |
Additional information 30 June 2023:
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Depreciate the office equipment at 20% per year using the straight-line method
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On 1 July 2022, Pan loaned $5 000 to the partnership with loan interest at 5% per annum
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Pan is to receive an annual partnership salary of $12 000
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Remaining profits and losses are shared as follows: Tan ⅔, Pam ⅓
-
5% interest is allowed on partners’ capital accounts
-
10% interest is charged on partners’ drawings
Prepare the income statement for Tam and Pan for the year ended 30 June 2023.
Answer
Identify which balances affect the income statement.
|
|
$ |
Income statement? |
|
Income from repair services |
101 260 |
IS |
|
Salaries of employees |
30 400 |
IS |
|
Electricity |
2 420 |
IS |
|
Telephone |
3 110 |
IS |
|
Rent and rates |
10 000 |
IS |
|
Trade payables |
12 190 |
|
|
Trade receivables |
14 220 |
|
|
Discount allowed |
1 400 |
IS |
|
Office expenses |
10 610 |
IS |
|
Supplies for repairs |
41 570 |
IS |
|
Irrecoverable debts |
1 200 |
IS |
|
Machinery and Equipment at cost |
52 000 |
|
|
Provision for depreciation on machinery and equipment |
20 800 |
|
|
Tam:
|
60 000 430 20 600 |
|
|
Pan
|
30 000 300 15 700 |
|
|
Bank |
21 750 |
Deal with the additional information.
-
Depreciate the machinery and equipment at 20% per year using the straight-line method
-
Find the year’s depreciation by multiplying the cost by 20%
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$52 000 × 20% = $10 400
-
-
-
On 1 July 2022, Pan loaned $5 000 to the partnership with loan interest at 5% per annum
-
Find the year’s interest by multiplying the loan amount by 5%
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$5 000 × 5% = $250
-
-
-
Pan is to receive an annual partnership salary of $12 000
-
This does not affect the income statement
-
-
Remaining profits and losses are shared as follows: Tan ⅔, Pam ⅓
-
This does not affect the income statement
-
-
5% interest is allowed on partners’ capital accounts
-
This does not affect the income statement
-
-
10% interest is charged on partners’ drawings
-
This does not affect the income statement
-
Prepare the income statement using the required format. Note that it is a service business so will not have a trading section.
|
Tam and Pan Income Statement for the year ended 30 June 2023 |
||
|
$ |
$ |
|
|
Income from repair services |
101 260 |
|
|
Expenses |
||
|
Supplies for repairs |
41 570 |
|
|
Salaries |
30 400 |
|
|
Offices expenses |
10 610 |
|
|
Irrecoverable debts |
1 200 |
|
|
Rent and rates |
10 000 |
|
|
Electricity |
2 420 |
|
|
Telephone |
3 110 |
|
|
Discount allowed |
1 400 |
|
|
Depreciation on machinery and equipment |
10 400 |
|
|
Loan interest (Pan) |
250 |
|
|
(111 360) |
||
|
Loss for the year |
||
Responses