Income Statement (Cambridge International IGCSE Accounting)

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

Final answer: Tam and Pan Final answer: Income Statement for the year ended 30 June 2023
	Final answer: $**	Final answer: $
Final answer: Income from repair services		Final answer: 101 260
Final answer: Less: Expenses
Final answer:** Supplies for repairs **	Final answer: 41 570
Final answer:** Salaries **	Final answer: 30 400
Final answer:** Offices expenses **	Final answer: 10 610
Final answer:** Irrecoverable debts **	Final answer: 1 200
Final answer:** Rent and rates **	Final answer: 10 000
Final answer:** Electricity **	Final answer: 2 420
Final answer:** Telephone **	Final answer: 3 110
Final answer:** Discount allowed **	Final answer: 1 400
Final answer:** Depreciation on machinery and equipment	Final answer: 10 400	Final answer: 111 110
Final answer: Loss from operations		Final answer: (9 850)
Final answer: Less: Loan interest (Pan)		Final answer: 250
Final answer: Loss for the year		Final answer: (10 100)