OxfordAQA A-Level Accounting: Partnership accounts (9615) – Revision Notes

These notes condense section 3.2.5, Partnership accounts, of the OxfordAQA International AS and A-level Accounting (9615) specification, Version 1.2, for International AS exams May/June 2025 onwards and International A-level exams May/June 2026 onwards. All of 3.2.5 is International A-level only, and the specification places it among the sections assessed in Paper 3: Financial Accounting. The full method and longer examples are in the study guide; to test yourself, use the practice questions.

Related: Types of business organisation, the organisation types notes, the course hub, the printable checklist and the free diagnostics. Figures are in dollars; all names are invented.

3.2.5 in one table (International A-level only)

Content	Skills
Prepare and comment on the financial statements of partnerships	Three statements: income statement, appropriation account, statement of financial position. Calculate salaries, interest on capital, loan interest, interest on drawings and profit or loss shares; handle revaluation and goodwill
Prepare capital and current accounts of partners	Fixed or fluctuating capitals; the Partnership Act 1890 when partners have not agreed terms
Account for changes in partnership	A new partner joining; a partner retiring

Dissolution of partnerships will not be examined.

Vocabulary

• Appropriation account: the statement after the income statement that divides profit for the year among the partners.
• Interest on capital: a reward for the capital each partner has invested; an appropriation, never an expense.
• Interest on drawings: a charge to partners for taking resources out during the year; it adds to the profit to be shared.
• Partnership salary: an appropriation rewarding a partner’s work; not part of wages.
• Residual profit or loss: what is left after salaries and interest; split in the profit-sharing ratio.
• Current account: under fixed capitals, the account that collects every appropriation and all drawings for a partner.
• Revaluation account: a temporary account recording value changes in assets and liabilities when partners change.
• Goodwill: the value of the business as a whole above the fair value of its identifiable net assets.

Partnership Act 1890 defaults

Use these only where partners operate without agreement (section 24 of the Act):

Matter	Default
Profits and losses	Shared equally
Interest on capital	Not allowed
Partnership salaries	Not allowed
Interest on drawings	Not charged (the Act has no such term)
Partner’s advance beyond agreed capital	Interest at 5% a year from the date of the advance

Reminder. No agreement; Ruskin advances 6,000 on 1 July and the year ends 31 December. Interest = 6,000 × 5% × 6/12 = 150, charged as an expense before profit is shared equally.

Which statement each item belongs in

Item	Where it goes	Partner’s current account
Interest on a partner’s loan	Income statement, as an expense	Credited only if not paid in cash
The loan itself	Statement of financial position, liabilities	–
Interest on drawings	Appropriation account, added	Debit
Interest on capital	Appropriation account, deducted	Credit
Partnership salary	Appropriation account, deducted	Credit
Share of residual profit / loss	Appropriation account	Credit / debit
Drawings	Not in any statement of profit	Debit

Method in steps

Appropriation account

  Profit for the year (loan interest already charged)
+ Interest on drawings
- Interest on capital
- Partnership salaries
= Residual profit or loss -> split in the profit-sharing ratio

Check: salaries + interest on capital + residual = profit for the year + interest on drawings.

Interest on drawings: amount × rate × (months from the drawing to the year end ÷ 12), for each drawing.

Interest on capital: rate × capital for the months it was held; split the year if capital changes.

Current account (fixed capitals)

Credit: opening credit balance, interest on capital,
        salary, profit share, loan interest not paid out
Debit:  opening debit balance, interest on drawings,
        drawings, loss share
Closing debit balance = partner has taken out more than credited

Equity section: show capital and current accounts for each partner, with debit current balances in brackets and deducted.

Changes in partnership: ratio rules

Step	Ratio	Entry
Revaluation profit	Old	Dr Revaluation, Cr old partners’ capitals
Revaluation loss	Old	Dr old partners’ capitals, Cr Revaluation
Goodwill created	Old	Dr Goodwill, Cr old partners’ capitals
Goodwill written off (not kept)	New	Dr remaining partners’ capitals, Cr Goodwill
New partner’s cash	–	Dr Bank, Cr new partner’s capital
Retiring partner’s current account (credit)	–	Dr Current account, Cr Capital
Retiring partner settled	–	Dr Capital, Cr Bank / Loan / asset taken

Revaluation entries: an asset that rises is debited to the asset and credited to revaluation; an asset that falls, or a liability or provision that rises, is debited to revaluation.

Goodwill reminder. Kilbride and Mottram share 2 : 1. Aspinall joins and all three then share equally. Goodwill of 27,000 is not kept.

                 Kilbride   Mottram   Aspinall
Created (2:1)     +18,000    +9,000         --
Written off       -9,000    -9,000     -9,000
Net effect        +9,000         0     -9,000

Kilbride gives up a third of the profits and is compensated; Mottram’s share stays at one third, so nothing changes for him.

Retiring partner’s amount due = capital ± current account balance + revaluation share + goodwill share. Pay by cash, an asset taken over, or a loan; a loan is a liability of the firm afterwards.

Commenting: points that earn credit

• Compare each partner’s total reward with the capital and time they put in.
• Spot falling or debit current accounts: drawings above what was credited reduce the firm’s cash.
• A partner’s loan adds an interest expense and must be repaid; without an agreement it earns 5% a year.
• Without an agreement, equal sharing may be unfair where capital or work differs.
• On a change, ask whether the goodwill value is fair and whether the firm can fund payments to a retiring partner.

Must-know distinctions

Pair	Key difference
Loan interest vs interest on capital	Loan interest is an expense in the income statement; interest on capital is an appropriation
Salary to a partner vs wages to staff	Appropriation vs expense
Fixed vs fluctuating capitals	Two accounts per partner vs one account that changes every year
Old vs new ratio	Revaluation and goodwill created use the old ratio; goodwill removed uses the new one
Goodwill left in the books vs removed	Left in: a non-current asset. Removed: created, then written off to nil
Admission vs retirement	New partner brings capital; retiring partner is paid out

Quick self-test

1. Profit before loan interest is 42,700. A partner’s loan of 9,000 carries interest at 7% a year for the whole year. Find the profit for the year.
2. A partner draws 7,200 on 30 September. The year ends 31 December; interest on drawings is 5% a year. Calculate the interest.
3. Calculate a year’s interest on capital of 80,000 at 4.5%.
4. Profit for the year 55,000; interest on drawings 900; interest on capital 7,500; salaries 11,000. Find the residual profit and split it 3 : 2.
5. Two partners have no agreement and a profit for the year of 33,000. How much does each receive?
6. A current account opens with a debit balance of 1,200. Interest on capital 2,000, profit share 18,500, interest on drawings 300, drawings 17,600. Find the closing balance.
7. On admission, premises rise by 16,000, vehicles fall by 2,600 and the provision for doubtful debts rises by 400. Old partners share 3 : 2. Find each share.
8. A retiring partner has capital 28,000, a current account debit balance of 1,100, a revaluation share of 2,400 and a goodwill share of 6,000. How much is due?
9. Where is a partnership salary recorded?
10. Goodwill of 40,000 is not kept. Old partners shared 1 : 1; the new ratio is 2 : 2 : 1. How much is debited to the new partner’s capital?

Answers

1. Interest 630; profit for the year 42,070.
2. 7,200 × 5% × 3/12 = 90.
3. 80,000 × 4.5% = 3,600.
4. 55,000 + 900 − 7,500 − 11,000 = 37,400; 22,440 and 14,960.
5. 16,500 each.
6. −1,200 + 2,000 + 18,500 − 300 − 17,600 = 1,400 credit.
7. Profit 13,000: 7,800 and 5,200.
8. 28,000 − 1,100 + 2,400 + 6,000 = 35,300.
9. Appropriation account (deducted), credited to the partner’s current account.
10. 40,000 × 1/5 = 8,000.

Where marks are usually lost

• Putting loan interest in the appropriation account, so profit for the year is overstated.
• Deducting interest on drawings instead of adding it.
• Counting months from the start of the year, not from the drawing date to the year end.
• Using the Act’s 5% for a loan where the agreement sets a different rate, or ignoring the Act where there is no agreement.
• Scaling salaries down when profit is low instead of creating a residual loss.
• Sharing revaluation or goodwill created in the new ratio, or giving the incoming partner a share.
• Treating a retiring partner’s debit current account balance as an addition.
• Showing the retiring partner’s loan as capital rather than a liability.

Official syllabus

OxfordAQA International AS and A-level Accounting (9615) specification, Version 1.2, for International AS exams May/June 2025 onwards and International A-level exams May/June 2026 onwards, published by OxfordAQA: section 3.2.5, Partnership accounts.