mindset learner version gr 11 acc session 4

8/4/2019 Mindset Learner Version Gr 11 Acc Session 4

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1. Introduction

2. Partnership entries

INTRODUCTION

The following year-end procedures relating to sole proprietorships are followed with

regard to partnerships (Assumption entries are limited to the perpetual inventory

system):

DEBIT CREDIT

1. Sales Debtors Allowances2. Trading account Cost of Sales3. Sales Trading account4. Trading account Profit and loss account5. *Each revenue item Profit and loss account6. Profit and loss account *Each expense item

From this point on, the closing transfers of sole proprietorships and partnerships differ.After the closing transfers listed above, the balance on the Profit and Loss accountrepresents the net income (or net loss) for the year. In the case of a sole proprietorship,this accrues to only one owner; therefore the Profit and Loss account is closed off to the

Capital account.

However, in the case of a partnership, the profit (or loss) has to be shared between twoor more partners. An Appropriation Account is created in the final accounts section inorder to facilitate the splitting of the net income (or net loss) between the partners.

In the case of a partnership, the Profit and Loss account will be debited (with the net

SUBJECT: ACCOUNTING

GRADE 11

CHAPTER: PARTNERSHIPS

LESSON: FINAL ACCOUNTS

LESSON OVERVIEW (KNOWLEDGE AREAS)

LESSON


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income) and the Appropriation account will be credited. This credit balance on theAppropriation account is then allocated to each partner according to the profit-sharingratio stipulated in the partnership agreement. The Appropriation account is debited withthe amounts applicable to the partners, and the Current accounts of the partners arecredited with their share of the profit (in the case of a net loss, the entries will be the

other way around). Remember that we cannot transfer the share of profit to the Capitalaccounts of the partners, because these accounts must be maintained at the amountsstipulated in the partnership agreement.

At this point, assuming the partnership has made a profit, the Current Accounts willrepresent the amounts owed to the partners in respect of their portions of the netincome. Their Drawings accounts however, have debit balances and represent theamounts that have been withdrawn by the partners during the year. It is thereforenecessary to offset the Drawings against the amounts owed to the partners inaccordance with their respective shares in the net income. The Drawings accounts willtherefore be closed off to the Current Accounts of the partners.

The following example illustrates these points. In order to highlight the special entries

relating to partnerships, the usual closing transfers to the Trading and Profit and Loss

accounts have been omitted

GENERAL LEDGER OF FT TRADERS

BALANCE SHEET ACCOUNTS SECTION

DR. CURRENT ACCOUNT: FERNANDO B3 CR2010 2010

Feb 28 Drawings: Fernanado GJ2 40 000 Feb 28 Salary: Fernando GJ2 24 000

Interest on capital GJ2 6 000

Appropriation GJ2 3 000Balance c/d 7 000

40 000 40 000

2010

Mar 1 Balance b/d 7 000

DR.

CURRENT ACCOUNT: TORRES

B4 CR

2010 2010Feb 28 Drawings : Torres GJ2 27 000 Feb 28 Salary : Torres GJ2 24 000

Balance c/d 6 000 Interest on capital GJ2 6 000

Appropriation GJ2 3 000

33 000 33 000

2010

Mar 1 Balance b/d 6 000


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FINAL ACCOUNTS SECTIONDR. APPROPRIATION ACCOUNT F3 CR

20.2 20.2

Feb 28 Salary: Fernando GJ2 24 000 Feb 28 Profit and loss GJ2 66 000

Salary : Torres GJ2 24 000

Interest on capital GJ2 12 000

Current account :

Fernando GJ2 3 000

Current account :

Torres GJ2 3 000

66 000 66 000

Exercise 1

The partners approach you for assistance to complete the following accounts on 28February 2010 , the end of the financial year

Current account: Had

Current account: Lee Appropriation account

INFORMATION:

Capital: Had R75 000Capital: Lee 25 000Current account: Had (1 March 2009) 4 500 CrCurrent account: Lee (1 March 2009) 3 700 DrDrawings: Had 25 000Drawings: Lee 23 000

The profit for the year is R92 000. The partnership agreement stipulates the following:

(a) Salary allowance to Had, R30 000(b) Salary allowance to Lee, R15 000(c) Interest on capital at 12% p.a.(d) Remaining profits or losses to be shared between Had and Lee in the

ratio 3: 2.


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Homework

The following balances were extracted from the ledger of BH TRADERS on28 February 2010, the end of the accounting period. There are two partners, Brian andHabana.

INSTRUCTION

The partners approach you for assistance to complete the following accounts:

Current account: Brian

Current account: Habana

Appropriation account

INFORMATION:

Capital: Brian R300 000Capital: Habana 200 000Current account : Brian (1 March 2009) 10 000 DrCurrent account: Habana (1 March 2009) 12 500 CrDrawings: Brian 60 000Drawings: Habana 72 000

The profit for the year is R125 000.

The partnership agreement stipulates the following:

Salary allowance to Brian, R40 000 p.a.

Salary allowance to Habana, R40 000 p.a.

Interest on capital at 15% p.a.

Remaining profit and losses to be shared between

Brian and Habana in the ratio 2: 1.


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mindset learner version gr 11 acc session 4

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