Financial Performance and Profit Distribution in a Partnership

Part A

Prepare a Statement of Comprehensive Income (Income Statement) for the year ended 30 June 2025 using structure and format that complies with accounting standards and organisational requirements, to show the performance of the partnership.

The policies and procedures of HJ Design World state that the Statement of Comprehensive Income is to be named an Income Statement and be prepared in accordance with Australian Accounting Standard AASB101 Presentation of Financial Statements.

• Stock on hand at 30 June 2025 is $20,000

Part B

Hari and Jane, of HJ Design World share profits in the ratio 4:1. They have provided you with the following information as at 30 June 2025:

Their partnership agreement provides for the following:

• Interest on capitals: 6% p.a.

• Interest on drawings: 3% p.a.

• Interest on loan to partnership 5% p.a.

• An annual salary of $10,000 which is not paid in cash, is to be credited to Jane (at the end of each financial year on 30 June)

• All drawings are taken on 31 December 2024

• Net profit (before adjustments) is $60,500

You are required to collect, code and classify the above data accurately and reliably to prepare the following General Ledger accounts for the year ended 30 June 2025 to submit for verification and authorisation by the partners and the accountant (your teacher/assessor):

• Profit & Loss Account

• Profit & Loss Appropriation

• Current : Hari

• Current : Jane

Assessment Requirements Summary

The HJ Design World partnership assignment focuses on preparing and analysing the financial performance of a partnership in accordance with Australian Accounting Standards. The assessment is divided into two main parts:

Part A : Statement of Comprehensive Income (Income Statement):

• Prepare an Income Statement for the year ended 30 June 2025.

• Use the prescribed format and structure following AASB101 : Presentation of Financial Statements.

• Include revenues, expenses, and net profit while taking into account stock on hand ($20,000).

• Ensure the report accurately reflects the financial performance of the partnership.

Part B : Profit Appropriation and Partner Ledger Accounts:

• Allocate profits between Hari and Jane based on the profit-sharing ratio of 4:1.

• Apply partnership agreement provisions:

  • Interest on capital accounts at 6% p.a.

  • Interest on drawings at 3% p.a.

  • Interest on loan to partnership at 5% p.a.

  • Annual salary of $10,000 credited to Jane (non-cash).

• All drawings occurred on 31 December 2024.

• Prepare General Ledger accounts:

  • Profit & Loss Account

  • Profit & Loss Appropriation Account

  • Current Accounts for Hari and Jane

Key Pointers to Cover:

1. Accurate classification and coding of financial data.

2. Correct calculation of interest, drawings, and salaries per partnership agreement.

3. Compliance with accounting standards (AASB101).

4. Proper presentation of ledger accounts for verification and authorisation.

Approach Guided by Academic Mentor

Step 1 : Data Collection and Review:

• The mentor instructed the student to collect all financial data, including net profit, stock on hand, drawings, and partnership agreement details.

• The student was guided to review the partnership agreement carefully to identify adjustments (interest on capital/drawings, salary).

Step 2 : Prepare Income Statement (Part A):

• The mentor demonstrated structuring the Income Statement following AASB101.

• Student classified revenues and expenses, included closing stock, and calculated net profit before adjustments.

Step 3 : Profit Appropriation and Adjustments (Part B):

• The student calculated:

  • Interest on capital for Hari and Jane

  • Interest on drawings

  • Loan interest

  • Non-cash salary for Jane

• The mentor emphasized correct sequencing of adjustments before final profit allocation.

Step 4 : Prepare General Ledger Accounts:

• Using the adjusted net profit, the mentor guided the student to prepare:

  • Profit & Loss Account

  • Profit & Loss Appropriation Account

  • Current Accounts for Hari and Jane

• Student recorded credits and debits accurately, showing transfers of profit and adjustments to each partner’s current account.

Step 5 : Verification and Review:

• The mentor checked the accuracy of calculations, presentation, and compliance with accounting standards.

• Feedback was provided on clarity, format, and correct application of the partnership agreement.

Outcome and Learning Objectives Covered

Final Outcome:

• Completed Income Statement accurately reflecting the partnership’s performance.

• Correctly prepared Profit Appropriation and Partner Ledger Accounts.

• All calculations of interest, drawings, and salary adjustments were verified and compliant.

Learning Objectives Achieved

1. Apply AASB101 standards in preparing financial statements.

2. Understand profit-sharing mechanisms in a partnership.

3. Develop skills in ledger account preparation and adjustment entries.

4. Enhance analytical and accounting decision-making skills.

5. Gain practical experience in classifying, coding, and presenting financial data for verification and authorisation.

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