Topic 8 -_part_ii

Topic 8

Accounting for Partnership

Part II

8.4 Changes in Partnership Structure

• Circumstances whereby the profit-sharing arrangement

need to be altered to represent the new adjustment in

agreement between partners, and also the existing

assets (including goodwill) and liabilities need to be

revaluated:

(a) A change in profit-sharing arrangement among existing partners

(b) Admission of new partner

(c) Death or retirement of an existing partner.

This will ensure an equitable state of affairs among

partners.

It can be said that circumstances (b) & (c) will always

lead to (a).

BKAF3063 A141 2

Changes at the End of the Accounting Period

Retirement or Death of A Partner

The remaining balance in his current & capital ac will be paid to

him (or his heirs)

If the amount is paid in installments, the balance unpaid will be

recorded as loan to the business.

Assets need to be revalued to get the current value of the

partnership’s net assets. The profit or loss on revaluation of each

asset is credited or debited accordingly to the revaluation ac.

When all the assets have been revalued, the net profit or loss on

revaluation of these assets is transferred to the partners’ capital ac

according to their profit-sharing ratio or else transferred to the

partners’ current ac (if it is required by the partnership

agreement).

BKAF3063 A141 3


Besides the revalued amount of tangible net assets, a partner who

retires or dies is also entitled for an intangible asset known as

goodwill. This is an excess amount of the value of the business as

a whole [the selling price of the business] and the total value of the

tangible net assets.

o A buyer is willing to pay more than the amount of the tangible net

assets ‘coz of the existence of the goodwill. Goodwill might have

existed due to various factors, such as good business location,

staff-customer relationship & ability to earn profits.

o For a change in partnership, goodwill will be calculated based on

estimates. The estimates may be based on 1 or a combination of

the following methods:

Method Based on Accounting Profit

o The value of goodwill is equal to the value of the average annual

net profit for a specified past number of years (often referred to as

x years’ purchase of the net profits).

BKAF3063 A141 4


Illustration 2

On Ng’s retirement, goodwill was taken as equal to 2 years’

purchase of the average annual profit of the last 5 years:

RM

2009 70,500

2010 60,000

2011 110,000

2012 110,500

2013 140,000

Required:

Calculate the amount of goodwill.

Solution:

Avg. net profit = RM[70,500 + 60,000 + 110,000 + 110,500 + 140,000] / 5

= RM98,200

Goodwill = 2 x RM98,200 = RM196,400.

=========BKAF3063 A141 5


Method Based on Super Profits

o Super profits are the value of net profits after allowances have

been made for any salary to the partners & interests that would

have been earned if their capital had been invested elsewhere.

o The annual super profit is then multiplied by an agreed number to

arrive at the value of goodwill.

Illustration 3

The total salaries paid to Ajay, Bujal & Chan was RM30,000.

Their capital employed was RM550,000 & return on capital

employed was 20% per annum. Net profit for the year ended 31

Dec. 2013 was RM200,000. Goodwill was taken as equal to 4

years’ purchase of annual super profit on the retirement of Bujal.

Required:

Calculate the amount of goodwill.

BKAF3063 A141 6


Solution:

Calculation of annual super profit:

RM RM

Annual net profit 200,000

Less: Salaries of partners 30,000

Interest on capital employed 110,000

[20% x 550,000] ----------- (140,000)

-------------

60,000

========

Goodwill = RM60,000 x 4

= RM240,000

=========

There are also other methods to estimate the value of goodwill

such as Multiple of the Annual Turnover & Capitalisation of the

Expected Profit at the current market rate of return.BKAF3063 A141 7


Accounting for Goodwill

o The value of goodwill calculated when a partnership changes will

be allocated to the partners before the change, based on the old

profit-sharing ratio.

o After the change, the amount of goodwill will be written back to the

new partners, based on the new profit-sharing ratio.

o This kind of accounting treatment effectively eliminates goodwill in

the books of the partnership business.

o The treatment to write off goodwill is based on the argument that

the value of goodwill is highly subjective ‘coz it is based on

estimates [the amount may not be reliable & should not be

recorded as an asset].

BKAF3063 A141 8


o The required journal entries are:

[i] To record goodwill

Dr Goodwill Ac XX

Cr Partners’ Capital Ac XX

(‘old’ partners in the old profit-sharing ratio)

[ii] To write off goodwill

Dr Partners’ Capital Ac XX

(‘new’ partners in the new profit-sharing ratio)

Cr Goodwill Ac XX

BKAF3063 A141 9


Admission of a New Partner

The admission of a new partner results in the legal dissolution of

the existing partnership and the beginning of a new one.

A new partner may be admitted either by:

1) Purchasing the interest of an existing partner or

2) Investing assets in a partnership.

The existing partners will want to ensure that they receive their full

entitlement (share of net assets & goodwill) up to the date of the

admission.

Similarly, the new partner will want to ensure that he does not

bear any losses which may have arisen before his admission.

To be fair to the existing & the new partners, net assets need to be

revalued & goodwill need to be calculated using similar accounting

techniques involved in the case of Retirement or Death of A

Partner.

BKAF3063 A141 10

Illustration 4

Aina, Bushro & Khaira have been in partnership business for 6

years,sharing profits & losses in a ratio of 3:4:3, respectively. However,

Bushro decided to retire on 31 Dec. 2013. The following is a summarised

statement of financial postion of the partnership as on 31 Dec. 2013

(before Bushro’s retirement):

RM RM RM

Non-current assets

Freehold premises 300,000

Motor vehicles 200,000

Current assets

Inventory 80,000

Debtors 90,000

Provision for doubtful debts (9,000) 81,000

Bank 329,000

410,000

Current liabilities

Creditors (70,000)

Net current assets 340,000

920,000

11

Illustration 4

BKAF3063 A141

RM RM RM

Capital accounts

Aina 200,000

Bushro 350,000

Khaira 250,000 800,000

Current accounts

Aina 30,000

Bushro 30,000

Khaira 60,000 120,000

920,000

12

Illustration 4

Upon retirement, it was agreed that Bushro should take over the

motor vehicles valued at RM170,000. The partnership settled

Bushro’s capital balance in cash & the balance in the current ac

remained as a loan to the partnership at an interest rate of 10%

per annum. The assets were revalued as follows:

RM

Freehold premises 450,000

Inventory 70,000

Debtors 75,000

On the date of Bushro’s retirement, Rania joined the partnership.

She contributed RM180,000 cash as capital & RM50,000 for her

share of the goodwill. The new profit-sharing ratio for Aina,

Rania & Khaira is 3:2:3, respectively.

For the purpose of Bushro’s retirement & Rania’s admission,

goodwill was taken as being equal to 2 years’ purchase of the

average annual profit of the last 5 years.

BKAF3063 A141 13

Illustration 4

The last 5 years’ profits were:

RM

2009 75,000

2010 60,000

2011 110,000

2012 115,000

2013 140,000

Required:

Prepare the following:

[a] The revaluation ac, the goodwill ac & the partners’ capital ac.

[b] The statement of financial position of the new partnership as

at 1 January 2014.

BKAF3063 A141 14

Illustration 4 - Solution

Revaluation Account

BKAF3063 A141

RM RM

Motor vehicles [2] 30,000 Freehold premises [1] 150,000

Inventory [2] 10,000

Debtors [2] 6,000

Profit on revaluation: [3]

Cap. Aina (3/10) 31,200

Bushro (4/10) 41,600

Khaira (3/10) 31,200

150,000 150,000

15


Goodwill = {RM(75,000 + 60,000 + 110,000 + 115,000 + 140,000) /5}

X 2

= RM200,000

=========

Goodwill Account

BKAF3063 A141

RM RM

Capital ac [4] Capital ac [5]

Aina 60,000 Aina 75,000

Bushro 80,000 Khaira 75,000

Khaira 60,000 Rania 50,000

200,000 200,000

16


Partners’ Capital Account

BKAF3063 A141

Aina Bushro Khaira Rania Aina Bushro Khaira Rania

RM RM RM RM RM RM RM RM

Goodwill [5] 75,000 - 75,000 50,000 Bal. b/d 200,000 350,000 250,000 -

Motor

vehicles

[2] 170,000 Revaluati

on ac

[3] 31,200 41,600 31,200

Cash [7] 301,600 Goodwill [4] 60,000 80,000 60,000 -

Bal. c/d [8] 216,200 - 266,200 180,000 Cash:

-Capital [6] 180,000

-Goodwill [6] 50,000

291,200 471,600 341,200 230,000 291,200 471,600 341,200 230,000

17

Aina, Khaira and Rania

Statement of Financial Position as at 1 Jan. 2014

RM RM

Non-current assets

Freehold premises [1] 450,000

Current assets

Inventory [2] 70,000

Debtors [2] 75,000

Bank [9] 257,400

402,400

Current liabilities

Creditors (70,000)


782,400

BKAF3063 A141 18

Aina, Khaira and Rania

Statement of Financial Position as at 1 Jan. 2014

RM RM

Capital accounts [8]

Aina 216,200

Khaira 266,200

Rania 180,000 662,400

Current accounts

Aina 30,000

Khaira 60,000 90,000

Non-current liabilities

Loan: Bushro 30,000

782,400

BKAF3063 A141 19

Explanatory Notes

[1] Profit on revaluation of freehold premises {450,000 – 300,000 =

150,000} is credited to the revaluation ac & debited to the freehold

premises ac.

[2] Losses on revaluation of motor vehicles {200,000 – 170,000 =

30,000}, inventory {80,000 – 70,000 = 10,000} & debtors {81,000 –

75,000 6,000} are debited to the revaluation ac & credited to the

relevant assets ac. Note that the taking of the motor vehicles by

the retiring partner is treated as a revaluation of assets.

[3] Net profit on revaluation is transferred to the partners’ capital ac.

[4] Goodwill calculated on the retirement of Bushro is debited to the

goodwill ac & credited to the ‘old’ partners’ capital ac according to

the old profit-sharing ratio.

[5] To eliminate goodwill fr the partnership ac, the entries are debit

the ‘new’ partners’ capital ac & credit the goodwill ac according to

the new profit-sharing ratio.

BKAF3063 A141 20

Explanatory Notes

[6] Capital contribution by Rania is credited to her ac & debited to the

cash ac.

[7] On retirement, Bushro was paid RM30,160 in cash as part of her

capital contribution. The balance in her current ac was left as a

loan to the business.

[8] The balances carried down in the capital ac & current ac are

transferred to the statement of financial position at the end of the

accounting period.

[9] The cash balance is arrived at as follows:

RM

Balance b/d 329,000

Capital (Rania) 230,000

Capital (Bushro) (301,600)

257,400

=======

BKAF3063 A141 21

Changes During the Accounting Period

When the change in the partnership takes place during the actg.

period, it is necessary to apportion profits before the change and

those arising afterwards.

The profit appropriation ac needs to be prepared before & after the

change. Appropriation of profits before the change will be

recorded in the ‘pre’ column & after the change in the ‘post’

column as below:

Profit Appropriation Account

BKAF3063 A141 22

Pre Post Pre Post

Interest on Capital A XX XX Net profit XX XX

B XX XX

Remaining profit A XX XX

B XX XX

XX XX XX XX

Changes During the Accounting Period

In general, the net profit is assumed to be earned evenly

throughout the actg. period (unless otherwise stated). Hence, the

appropriation will be calculated based on a time basis.

It is important to note carefully the changes in the partnership

agreement as it will affect the amount calculated before & after the

change.

e.g. When a partner is admitted during the year & he makes a

drawing, interest on the drawing will only be charged in the profit

appropriation ac under the ‘post’ column.

A partnership agreement may provide for a minimum guaranteed

profit to 1 of the partners.

e.g. Partner A is guaranteed a minimum profit per annum of

RM5,000 & if his share is less, it will be borne by the other

partners.

BKAF3063 A141 23

8.5 Dissolution of Partnership

• Legally, a partnership is dissolved when any partner

leaves (due to retirement or death) or a new partner is

admitted into the business.

• In Part V of the Partnership Act 1961, dissolution can

be in any of these forms:

S.34 – by expiration or notice (based on the partnership agreement)

S.35 - by bankruptcy, death or charge (the charge under the

partnership Act for a partner’s separate debt)

S.36 – by illegality of partnership

S.37 – by court (under 6 different cases: a partner is found lunatic or

permanently unsound mind, a partner is permanently incapable of

performing his part, a partner has been guilty of such conduct, a

breach of the partnership agreement, business can only be carried

on at a loss & other circumstances considered by the court as just

to be dissolved).BKAF3063 A141 24

Dissolution of Partnership

• For actg. purposes, a partnership is dissolved when

the business is closed ‘coz all the partners are no

longer interested in carrying on the business or the

business is sold as a going concern to a limited

company.

o When a business ceased to exist, the partners are entitled to a

repayment of the capital contributed to set up the business.

o Repayment will only be made once all the assets are sold & all the

liabilities settled.

o In practice, realisation of assets may involve a considerable period

of time (referred to as piecemeal realisation), but this piecemeal

realisation is not allowed in Malaysia.

BKAF3063 A141 25


• According to S. 46(a) of the Partnership Act 1961,

major sources to settle losses are profits, partners’

capital ac & partners’ assets (according to percentage

of gain).

• It is stated in S 46 (b): partnerships assets should be

allocated according to this rank order of payment:

amounts owed to creditors other than partners

amounts owed to partners other than for capital and gain

(money advanced to a partnership by a partner is a capital

contribution unless there is an evidence such as a promissory

note saying that the money was a loan)

amounts due to partners with respect to their capital interest

balances will be allocated accordingly by % partnership interest or

gains and losses

BKAF3063 A141 26


Events taking place when a partnership business is

dissolved (at the date of the dissolution or within a

short period thereafter):

1. All non-cash assets are sold to a 3rd party or the partners & the

liabilities are settled. The related ac are closed & transferred to

the profit realisation ac.

The double entries will be the cash ac [if sold to 3rd parties] or the

partners’ capital ac [if taken over by any of the partners].

An alternative method for liabilities is not to transfer the amounts

immediately to the realisation ac, but instead, the amount owed is

settled & only the remainder is transferred to the realisation ac.

2. Any realisation expenses will be debited to the realisation ac &

credited to the cash ac.

BKAF3063 A141 27


3. The net balance (i.e.profit or loss on realisation) is transferred to

the partners’ capital ac besed on their profit-sharing ratio.

4. Any remaining balances in the current ac are transferred to the

capital ac. The net balance in the capital ac will now represent

the amount payable to or from the partners. The final cash

balance is then distributed to the partners (debit capital ac &

credit cash ac). All the ac of the partnership are now closed.

5. It is possible that a partner might have a debit balance in his

capital ac… the partner needs to pay the business.

If the partner is not able to pay in full or in part due to certain

circumstances, his balance will be borne by the other partners,

based on their opening capital ratio… referred as the Garner vs.

Murray Rule [the partner must be in debt & must also be

insolvent]

BKAF3063 A141 28

Illustration 5

• Jim, Pat & Teh were partners in a partnership sharing profits & losses in

the ratio of 4:4;2. The statement of financial position as at 31 Dec. 2013

is as follows:

BKAF3063 A141 29

RM RM

Non-current assets

Land & building (cost) 1,360,000

Vehicles (cost) 300,000

Less: ACM (200,000) 100,000

Current assets

Inventories 40,000

Debtors 70,000

Bank 30,000

140,000

Current liabilities – Creditors (60,000)


1,540,000

Illustration 5

RM RM

Capital accounts:

Jim 500,000

Pat 350,000

Teh 160,000 1,010,000

Current accounts:

Jim 400,000

Pat 250,000

Teh (220,000) 430,000

Non-current liabilities

Loan: Pat 100,000

1,540,000

BKAF3063 A141 30

Illustration 5

• On the same day, the partners decided to dissolve the

partnership. Business assets & liabilities were disposed of or

settled as follows:

[i] Land & building were realised for RM1,460,000. Vehicles were

realised for RM85,000.

[ii] Jim took over the inventory at an agreed price of RM32,000.

[iii]Amount collected from debtors was RM58,000.

[iv]Trade creditors had agreed to receive RM58,500 as settlement.

Loan from Pat was paid in full.

[v] Dissolution expenses which amounted to RM5,000 was duly paid.

[vi]Teh was declared bankrupt & had only managed to contribute

RM40,000 to cover his capital ac’s deficit.

Required:

Prepare realisation ac, bank ac & partners’ capital ac.

BKAF3063 A141 31


Realisation Account

BKAF3063 A141 32

RM RM

Land & building [1] 1,360,000 Loan [2] 100,000

Vehicles [1] 100,000 Creditors [2] 60,000

Inventories [1] 40,000 Bank:

Debtors [1] 70,000 Land & building [3] 1,460,000

Bank: Dissolution

expenses

[5] 5,000 Vehicles [3] 85,000

Creditors [5] 58,500 Debtors [3] 58,000

Pat: Loan [6] 100,000 Jim: Inventories [4] 32,000

Profit on realisation:

Jim 24,600

Pat 24,600

Teh 12,300 61,500

1,795,000 1,795,000


Bank Account

BKAF3063 A141 33

RM RM

Balance b/d 30,000 Creditors [5] 58,500

Realisation: Realisation:

Land & building [3] 1,460,000 Dissolution

expenses

[5] 5,000

Vehicles [3] 85,000 Capital: Jim [10] 888,070

Debtors [3] 58,000 Pat [10] 721,430

Capital: Teh [9] 40,000

1,673,000 1,673,000


Capital Account

BKAF3063 A141 34

Jim Pat Teh Jim Pat Teh

RM RM RM RM RM RM

Current ac [8] 220,000 Balance b/d 500,000 350,000 160,000

Realisation: Current ac [8] 400,000 250,000 -

Inventory

taken-over

[4] 32,000 Realisation:

Teh [9] 4,530 3,170 Profit [7] 24,600 24,600 12,300

Bank [10] 888,070 721,430 Loan [6] 100,000

Bank [9] 40,0000

Jim [9] 4,530

Pat [9] 3,170

924,600 724,600 220,000 924,600 724,600 220,000

Explanatory Notes

[1] The asset balances are transferred to the realisation ac.

[2] The liabilities balances are transferred to the realisation ac.

Assets & liabilities ac are now closed.

[3] When cash is received on the disposal of the assets, the

realisation ac is credited & the cash ac is debited.

[4] Inventory taken over by Jim is debited to his capital ac & credited

to the realisation ac.

[5] Dissolution expenses & payments to creditors are debited to the

realisation ac & credited to the cash ac.

[6] Loan from Pat is debited to the realisation ac & credited to his

capital ac.

[7] The final profit on realisation is transferred to the capital ac.

[8] The current ac balances are transferred to the capital ac.

[9] Teh’s capital ac balance is a debit {220,000 – 172,300 = 47,700} &

he could only pay the business RM40,000. The remaining

RM7,700 was paid by Jim & Pat.BKAF3063 A141 35

Explanatory Notes

The amount paid by Jim & Pat was computed as below:

Jim: 7,700 x {500,000 / (500,000 + 350,000)} = RM4,530.

Pat: 7700 x {350,000 / 850,000} = RM3,170.

The journal entries are:

Dr Capital ac - Jim 4,530

- Pat 3,170

Cr Capital ac - Teh 7,700

[10] The balance is the cash ac is finally paid to Jim & Pat. All the

partnership ac are now closed.

In relation to actg. for partnership, there is also a

complex actg for amalgamation & sale of partnership to

a limited co. which will not be covered in this course.

BKAF3063 A141 36

8.6 Musharakah (Partnership)

Definition of Shirkah

The word “syarikat” or co. is the plural form of an

Arabic word for shirkah. In Islamic commercial law,

partnership is known as shirkah that simply means

sharing.

2 kinds of shirkah:

i. Shirkat-ul-milk

Joint ownership of 2 or more persons in a particular property.

It is a co-ownership of an asset.

ii. Shirkat-ul-’aqd

A partnership affected by a mutual contract; also known as

joint commercial enterprise…sharing the capital & profit as in

the conventional partnership organisation.BKAF3063 A141 37

Musharakah (Partnership)

BKAF3063 A141 38

Shirkah

Joint Ownership Commercial Partnership

Work Credit-

worthinessFinance

(Musharakah)

Shirkat-ul-’aqd – Based on Type of Capital

i. Shirkat-ul-amwal (wealth @ finance partnership)

All partners invest some monetary capital into a commercial

enterprise.

The most common form of partnership in the business world.

Also known as Musharakah.

[Note the diff. between the wider scope of Shirkah as compared

to Musharakah]

ii. Shirkat-ul-a’mal (work)

All partners jointly undertake to render some services to their

customers & the fee charged is distributed among them

according to an agreed ratio.

iii. Shirkat-ul-wujooh (creditworthiness)

No monetary investment, but partners purchase commodities on

credit & sell them at cash price.

BKAF3063 A141 39

Shirkat-ul-’aqd – Based on Legal Form

Legal Form of Commercial Partnership

BKAF3063 A141 40

Inan Mufawadah Mudharabah

o Capital & mgt from all

partners

o Capital & mgt from all

partners

o Capital from 1 party,

mgt from another

party

o No complete equality

required

o Complete equality

required

o-

o Limited liability o Unlimited liability o-

o Profit according to

capital ratio or

agreed ratio

o Profit & loss shared

equally

o Profit shared

according to agreed

ratio

o Loss according to

capital ratio

o Loss borne by capital

provider

Basic Rules of Musharakah

Musharakah is a form of investment contract by

partners in a business venture.

Neither the return nor the capital should be

guaranteed.

Any profit or loss will be shared by the partners

depending on the outcome of the business

performance.

1. Distribution of profit

The profit-sharing ratio must be agreed upon at the time of

affecting the contract. If no such ratio has been determined, the

contract is not valid in Shari’ah.

The ratio of profit for each partner must be determined in

proportion to the actual profit accrued to the business, & not in

proportion to the capital invested by him.

BKAF3063 A141 41


• It is not allowed to fix a lump sum amount for any 1 of the

partners, or any rate of profit tied up with his investment. Hence

the following situations would not be allowed:

Ahmad put RM50,000 capital into a partnership with Alias. Ahmad

was promised that he would receive a return of RM5,000 every

year.

Karim started a partnership with Kassim & Kamal with a capital of

RM10,000 each. To attract a 4th partner into their business, they

promised to provide the new partner a 10% return from the

partners’ capital contribution every year regardless of the

performance of the partnership.

• Both situations are not allowed in islamic law ‘coz the return to the

partners does not take into ac the actual performance of the

partnership.

• In Islam, if we want to enjoy any return, then we should also bear

the responsibility if any losses arise.

BKAF3063 A141 42


• That’s why only a profit-sharing ratio is fixed upfront. The

distribution of the profit must be based on actual profit of the

partnership every year.

ii. Sharing of Loss

All Muslim jurists are unanimous on the point that each partner

shall suffer the loss exactly according to the ratio of his

investment (i.e. capital ratio).

iii. Nature of Capital

Capital can be contributed either in cash or the form of

commodities (using market value).

IV. Management of Musharakah

Normal principle of Musharakah: every partner has a right to take

part in its mgt. & to work for it. If a sleeping partner exists &

accepted, he shall be entitled to the profit only to the extent of his

investment.

BKAF3063 A141 43


v. Termination of Musharakah

• Every partner has a right to terminate after giving notice, hence

the musharakah will come to an end.

• If a partner died, the contract with him is terminated, but his heirs

will have the option either to draw the share of the deceased

from the business, or to continue with the contract of

musharakah.

• If any partners become insane or incapable of effecting

commercial transactions, the musharakah will be terminated.

• If 1 of the partners wants termination of the musharakah, while

the other partner or partners like to continue with the business,

this purpose can be achieved by mutual agreement. The

partners who want to run the business may purchase the share

of the partner who wants to terminate his partnership, ‘coz the

termination of musharakah with 1 partner does not imply its

termination between the other partners.

BKAF3063 A141 44

Musharakah vs Conventional Partnership

Conv. Partnership Musharakah

• in the absence of agreement, profit

& losses will be shared equally & no

salary paid to partners & no interest

on capital & no interest charges on

drawings.

• Apply

•Any loan from the partners, over &

above the capital amount, will earn

8% interest per annum.

• Violate the requirement of Islamic

law. Interest payment is not allowed,

hence any kind of loan to the

musharakah will only be guaranteed

a repayment of that amount, but not

any amount over & above the

principal sum. If a partner want to

enjoy any extra amount, over &

above the principal amount, he

should extend additional capital…no

guaranteed of a repayment, but he

may enjoy any profit arising from

therein & will have to bear any risk of

losses.BKAF3063 A141 45

Musharakah vs Conventional Partnership

Conv. Partnership Musharakah

•The profit-sharing ratio is in

accordance with the agreement.

•The profit-sharing ratio must be

determined on the commencement

day to avoid any disagreement later

on.

•The amount of salary to be paid is in

accordance with the agreement.

• Apply. However, payment of salary

to an active partner is not a

requirement of the Islamic law. It is

up to the agreement of the partners.

• Can have fixed & predetermined

return if agreed by partners.

• Not allowed ‘coz the return on

investment will reflect the

performance of the business. The

partners will absorb both profit &

losses according to the actual

performance of the partnership.

BKAF3063 A141 46

References

Beams, F. A., et al. (2012). Advanced Accounting, 11th Edition.

Prentice Hall, USA.

Partnership Act 1961.

Roshayani, A., et al. (2009). Financial Accounting – An

Introduction, 3rd Edition. Mc Graw Hill Education, Kuala Lumpur.

Siti Manisah, N., et al. (2008). Partnership Accounting – Principles

and Paractice. Mc Graw Hill Education, Kuala Lumpur.

BKAF3063 A141 47