1. 1 Introduction to Partnership Reference ： Chapter 4 （ Book 2, p. 69 ） 20

2. 2 AWhat is partnership? aDefinition ： 2 to 20 partners form a partnership to make profit. bE.g. ： Chan, Lee and Cheung open a trading company---Partnership Chan, Lee and Cheung---Partners

3. 3 BPartner’s profit-sharing methods 1Average method e.g. ： Chan and Wong share profit equally i.e. Chan=50%, Wong=50% or Chan:Wong=1:1 2Pro rata method e.g. ： Chan=60%, Wong=40% or Chan:Wong=3:2

4. 4 3According to the original capital contribution e.g. ： Capital:Chan=$10,000, Capital:Wong =$5,000 i.e. Chan:Wong=2 ： 1 4According to the closing capital contribution e.g. ： Chan:Wong=1:1 Partner Opening Capital Increase/ Decrease Closing Capital Chan$10,000- $2,000$8,000 Wong$5,000$3,000$8,000

5. 5 CAppropriation of profit * Items to be appropriated ： (1)(2)(3)(4)(5) ItemInterest on capital Partners’ salary Partners’ commission Interest on drawings Profit sharing MethodsCapital x % Drawings x % Profit sharing ratios DebitAppropriation A/CCurrent A/C Appropriation A/C CreditCurrent A/C Appropriation A/c Current A/C

6. 6 Appropriation A/C for the year ended 31 December 2008 $$ Net ProfitXXX Add: Interest on drawings-ChanX -WongXXX XXX Less: Interest on capital - ChanX - WongXXX Partners’ salary - ChanXX Partners’ commission - WongXX Profit sharing - ChanX - WongXXX

7. 7 In the partnership, each partner has a “Capital A/C” and a “Current A/C”. “Capital A/C” records the capital contributions by the partners. “Current A/C” records the items (1)~(5).

8. 8 Current A/C ChanWongCha n Wong $$$$ Balance b/fXXBalance b/fXX DrawingsXXInterest on CapitalXX Interest on drawings XXPartners’ salaryXX Balance c/fXXXPartners’ commissionXX Profit sharingXX XX

9. 9 D Other items: not affecting the Appropriation A/C 1Drawings e.g. ： Chan drew $100 cash. Dr. ： Drawings 100 Cr. ： Cash 100 Dr. ： Current: Chan 100 Cr. ： Drawings 100

10. 10 2 Interest on Loan Partners lent money to the partnership. The partnership should pay the interest on loan to the partners. This interest on loan is the expenses of the partnership, i.e. recording in the profit and loss a/c.

11. 11 e.g. ： Partner Mr.Chan lent $10,000 to the partnership, and receives 5% loan interest per annum. Dr. ： Cash 10,000 Cr. ： Loan-Chan 10,000 Dr. ： Interest on Loan 500 Cr. ： Cash 500 Dr. ： Profit and loss 500 Cr. ： Interest on Loan 500