Income-Statement Igcse Cie

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Exam code:0452 & 0985

Income statement for partnerships

What is the layout of the income statement of a partnership?

The income statement for a partnership is very similar to that for a sole trader
The income statement for a partnership will have one new addition, for the interest on a partner’s loan
- A partner may choose to lend money to the partnership
- If this is the case, interest on the loan is a finance cost and an expense to the business
The following do not appear on the income statement
- Interest on partners’ capital
- Interest on partners’ drawings
- Partners’ salaries
You may have to make adjustments to an income statement
- This is the same idea as when preparing an income statement for a sole trader

**Layout of an income statement for a partnership**

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: Capital Current account Drawings	60 000 430 20 600
Pan Capital Current account Drawings	30 000 300 15 700
Bank	21 750

Additional information 30 June 2023:

Depreciate the office equipment at 20% per year using the straight-line method
On 1 July 2022, Pan loaned $5 000 to the partnership with loan interest at 5% per annum
Pan is to receive an annual partnership salary of $12 000
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: Capital Current account Drawings	60 000 430 20 600
Pan Capital Current account Drawings	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%
  - $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%
  - $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.

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Tam and Pan Income Statement for the year ended 30 June 2023
	$	$
Income from repair services		101 260
Less: 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	111 110
Loss from operations		(9 850)
Less: Loan interest (Pan)

Accounting Igcse Cie

Income-Statement Igcse Cie

Income statement for partnerships

What is the layout of the income statement of a partnership?

Worked Example

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