Cambridge (CIE) IGCSE Accounting - Financial Statements for Partnerships - Partnership Agreement - Statement of Profit or Loss

Oct 29, 2026

Cambridge (CIE) IGCSE Accounting material explaining partnership financial statements, focusing on the partnership agreement and the statement of profit or loss. It defines what a partnership agreement covers, including capital contributions, interest on capital, salaries, drawings, interest on drawings, loans, and profit/loss sharing. It then describes the layout of the partnership statement of profit or loss, highlighting what is excluded and how to adjust it. A worked example for Tam and Pan prepares the statement using given balances, depreciation, and loan interest, plus guidance on which items affect profit or loss.

LanguageEnglish

CategoryExam

FormatPDF

Pages23

Reading Time58 min

AccessFree to download

Partnership Agreement

What is contained in the partnership agreement?

Statement of Profit or Loss

Layout and key inclusions/exclusions

Worked Example: Tam and Pan

Cambridge(CIE)IGCSE Accounting Financial Statements for Partnerships Contents Partnership Agreement Statement of Profit or Loss Appropriation Account Capital & Current Accounts Statement of Financial Position Your notes Partnership Agreement Partnership agreement Whatisa partnership agreement? A partnership agreement is a document that sets out the terms of how the partnership should operate Its purpose is to help partners avoid disagreements in the future What is contained in the partnership agreement? The agreement contains information about: The amount of capital each partner is to invest Whether the partners are entitled to interest on their capital And if so, the percentage to be paid Interest on capital is given to reward partners for investing their money into the business Whether salaries are paid to each partner And the amount to be paid Whether partners are entitled to drawings and the limit each partner can take out of the business Whether interest is charged on partners ' drawings And if so, the percentage to be charged Interest on drawings is charged to discourage partners from withdrawing money from the business Whether the partners are entitled to interest when they loan their own money to the business And if so, the percentage to be paid Interest on loans is given to reward partners for loaning their money to the business The distribution of profits and losses to be shared between partners Why might a partner provide aloantothe business instead of increasing their capital investment? A partner might provide a loantothe business because the loan is repayable The partner is then guaranteed income from the repayments each year Your notes The partner might not want to invest more capital in order to avoid: having to alter the partnership agreement having money tied up in the business Your notes Statement of Profit or Loss Statements of profit or loss for partnerships What is the layout of the statement of profit or loss of a partnership? The statement of profit or loss for a partnership is very similar to that for a sole trader The statement of profit or loss 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 statement of profit or loss Interest on partners ' capital Interest on partners ' drawings Partners ' salaries You may have to make adjustments toa statement of profit or loss This is the same idea as when preparing a statement of profit or loss for a sole trader Your notes Layout of a statement of profit or loss fora 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 | Your notes | 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 | 52000 | | Provision for depreciation on machinery and equipment | 20800 | | Tam:
Capital
Current account
Drawings | 60000
430
20600 | | Pan
Capital
Current account
Drawings | 30000
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 share

FAQs

What is the purpose of a partnership agreement in IGCSE accounting?

A partnership agreement sets out the terms for how the partnership operates. Its purpose is to help partners avoid disagreements in the future.

Which items are not included in the statement of profit or loss for a partnership?

Interest on partners’ capital, interest on partners’ drawings, and partners’ salaries do not appear in the statement of profit or loss.

In the Tam and Pan example, how is depreciation and loan interest handled for profit or loss?

Depreciation is calculated using the straight-line method (e.g., $52,000 × 20% = $10,400). Loan interest on the $5,000 loan is calculated as $5,000 × 5% = $250 and included as a finance cost.

Oct 29, 2026

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