Accounting for Partnership

Chapter 3

Profit and Loss Sharing

Outline

1) Profit and Loss Sharing of A Partnership
2) Journal Entries relating to Partners’ Equity
3) Profit and Loss Appropriation
4) Partners’ Equity in the Statement financial position

Learning Objectives

1. Able to explain the profit and loss sharing of a partnership
2. Able to record transactions relating to partners’ equity
3. Able to appropriate the profit and loss of a partnership
4. Able to report partners’ equity in the Statement financial position
5. Having work habit of organized, careful, honesty, discipline, punctuality, and good attitude

towards the accounting profession

Accounting for Partnership Page 43

Chapter 3
Profit and Loss Sharing

Introduction

At the end of an accounting period, the business will prepare
the Income Statement to report the result of operations, whether it has
net profit or net loss and at what amount. In case of net profit, it may
be appropriated to the partners in varieties of compensation, such as
salary, interest on the capital, bonus, and the sharing of the remaining
net profit as agreed. These will be reported in the Income Statement, the net profit sharing will be at the
final part of the Income Statement.

Profit and Loss Sharing of a Partnership

After the partnership has been operated to the end of an accounting period, all revenue and
expense accounts will be closed. Then the partnership can realize the net profit or loss from the
operations, and that net profit or loss will be shared among the partners according to the agreement. In
case that there is no agreement, Thai law rules that the net profit or loss will be shared by the capital ratio.
The partnership may appropriate all net profit from operations or retain some part for future use of the
partnership, depends on the policy, Therefore total income of the partnership can be divided in to 2 types:

1. Appropriated Income. Income which is appropriated to partners in varieties of compensation
such as salary, interest on capital, bonus, and the remaining income sharing according to the
agreement which will be reported in the income statement, after the net profit

2. Un-appropriated Income. Income which the partnership has not yet distributed to the
partners, due to the loss, small retained earnings, or for future expansion.

Accounting for Partnership Page 44

In case that the partnership appropriates only some part of the income. The remaining will be
recorded in the retained earnings account or un-appropriated income account. At the period ending date,
the partnership will close the profit and loss account to the retained earnings, then the profit and loss will
be appropriated to the partners’ capital account or Current Capital from the retained earnings.

TIP Thai law rules that the profit and loss will be shared by the capital ratio

Journal Entries about Partners’ Equity

Journal entries of the partnership relating to revenues, expenses, assets and liabilities are not
different from those of other firms, except for those relating to capital will depend on the firm types, such
as sole propriePunpunship, partnership, company.

1. Journal entries relating to the capital of partnership : can be recorded using 2 methods
- Fixed Capital Method
- Alternative Capital Method

1. Fixed Capital Method

Using this method, there are 2 accounts relating to capital of the partners - capital account
and Current Capital. The 2 accounts will be opened for each partner. The entries will be

1.1 Capital Account is used to record permanent changes in the partner’s investment such as

investment, capital increase, capital reduction or withdrawal. The examples are:

Dr. Capital - Punpun Cr.
Withdrawals (Capital Reduction) XX Initial Investment XX
Additional Investments XX

Dr. Capital - Prim Cr.
Withdrawals (Capital Reduction) XX Initial Investment XX
Additional Investments XX

Accounting for Partnership Page 45

1.2 Current Capital is used to record temporary changes in the partners’ interest such as

drawings for personal use, profit and loss sharing, including interest on capital, salary and
bonus. The examples are:

Dr. Current Capital - Punpun Cr.
Interest on Advance to Partners XX Interest on Capital / Salary XX
Loss Sharing XX Bonus for Partners XX
Drawings for Personal Use XX Profit Sharing XX

Dr. Current Capital - Prim Cr.

Interest on Advance to Partners XX Interest on Capital / Salary XX
Loss Sharing XX Bonus for Partners XX
Drawings for Personal Use XX Profit Sharing XX

2. Alternative Capital Method

Using this method, there is only one account for each partner – the capital account. All
transactions relating to the capital of each partner, including changes in the capital of partners – permanent
or temporary i.e. investments, withdrawals, drawings for personal use, interest on capital, salary and bonus
for partners will be recorded in this account. The examples are:

Dr. Capital - Punpun Cr.
Withdrawals (Capital Reduction) XX Initial / Additional Investments XX
Drawings for Personal Use XX Interest on Loans from Partners XX
Loss Sharing XX Interest on Capital/Salary/Bonus XX
Interest on Loans to Partners XX Profit Sharing XX

Dr. Capital - Prim Cr.
Withdrawals (Capital Reduction) XX Initial / Additional Investments XX
Drawings for Personal Use XX Interest on Loans from Partners XX
Loss Sharing XX Interest on Capital/Salary/Bonus XX
Interest on Loans to Partners XX Profit Sharing XX

Accounting for Partnership Page 46

Journal entries of the partnership may use either method, or both methods concurrently. For
example, during the accounting period the journal entries use the fix capital method. Then after the entries
of profit and loss sharing at period end, the Current Capitals of all partners will be closed to their capital
accounts. In Thailand the unregistered ordinary partnership can choose either method, but for the
registered ordinary partnership the law rules that capital of each partner must be clearly stated, any change
in the capital of the partnership must be registered with the Department of Business Development, the
Ministry of Commerce. Also to conform to the Civil Code’s requirements, the registered partnership and
limited partnership should use the fixed capital method to record the capital accounts so that the balance in
the capital accounts will always be equal to the registered capital

Entries of the profit and loss sharing will be:

1 Fixed Capital Method

In case the partnership has net profit, XX
Dr. Profit and Loss XX
XX
Cr Current Capital – Partner A
Cr Current Capital – Partner B

In case the partnership has net loss, XX
Dr. Current Capital – Partner A XX
Dr. Current Capital – Partner B
XX
Cr Profit and Loss

2 Alternative Capital Method

In case the partnership has net profit, XX
Dr. Profit and Loss XX
XX
Cr Capital – Partner A
Cr Capital – Partner B XX
In case the partnership has net loss, XX
Dr. Capital – Partner A XX
Dr. Capital – Partner B
Cr. Profit and Loss

Note Apply the above accounting concept for journal entries by any method of profit and loss sharing

Accounting for Partnership Page 47

Profit and Loss Appropriation

Usually there are 4 methods to appropriate the profit and loss. These are:
1. Profit and loss sharing equally
2. Profit and loss sharing by the capital ratio
3. Profit and loss sharing by the agreed ratio
4. Profit and loss sharing, providing the interest on capital and / or salary, bonus first, the remaining
will be shared by the agreed ratio

1. Profit and Loss Sharing Equally

This method is the easiest, the capability and capital of each partner are ignored.

Example 1. On January 1, 25x1 Punpun and Prim agreed to form a partnership. Punpun contributed

400,000 Baht and Prim contributed 600,000 Baht.They agreed to share the profit and loss equally. The

ending date of accounting period is December 31. The partnership operations results in net profit of

300,000 Baht for the year 25x1.

Punpun will have net profit sharing = 300,000 x ½

= 150,000

Prim will have net profit sharing = 300,000 x ½

= 150,000

And the journal entries will be

Fixed Capital Method

General Journal Page…..…..

25x1 Transactions A/C Debit Credit
MD No.

Dec 31 Profit and Loss 303 300,000 -
Current Capital - Punpun 304 150,000 -
Current Capital - Prim 305 150,000 -

Profit and loss sharing equally
¤

Accounting for Partnership Page 48

Alternative Capital Method

General Journal Page…..…..

25x1 Transactions A/C Debit Credit
MD No.

Dec 31 Profit and Loss 303 300,000 -

Capital - Punpun 304 150,000 -
Capital - Prim 305 150,000 -

Profit and loss sharing equally
¤

2. Profit and Loss Sharing by the “Capital Ratio”

According to the Commercial Code, Article 1044, “Profit or loss of all partners will be
according to the ratio of his capital”.

The provision requires that the profit and loss to be shared by the capital ratio. This method
of profit and loss sharing considers that the capital is the key factor of profit. It should be clearly stated
that the capital at which date to be base of calculation, since the capital of the partners may change from
events such as the additional investment or withdrawal. The profit and loss sharing by the capital ratio
shall be as of the following

2.1 Profit and loss sharing by the capital ratio at any date:

2.1.1 At the formation date
2.1.2 At the accounting period opening date
2.1.3 At the accounting period ending date

Example 2. On January 1, 25x1 Punpun and Prim agreed to form a partnership. Punpun contributed
400,000 Baht and Prim contributed 600,000 Baht. They agreed to share the profit and loss using the
capital ratio. The ending date of accounting period on 31 December. The operation of the partnership
results in net profit of 300,000 Baht for 25x1. During the period there are changes in the capital accounts
of the partners as follow

Accounting for Partnership Page 49

Capital -Punpun .

25x2 Transactions Post Dr. 25x2 Transactions Post Cr.
MD Ref MD Ref
Beginning Bal.
Oct 15 Cash (Withdrawal) 100,000 - Jan 1 450,000 -
Cash (Additional
Dec 31 Ending Balance 350,000 - Apr 1 Investment) 200,000 -

450,000 - 450,000 -

Capital -Prim

25x2 Transactions Post Dr. 25x2 Transactions Post Cr.
MD Ref MD Ref
Beginning Bal.
Apr 15 Cash (Withdrawal) 100,000 - Jan 1 550,000 -

Dec 31 Ending Balance 450,000 -

550,000 - 450,000 -

2.1.1 Profit and loss sharing by the capital ratio at formation date

Capital Ratio Punpun : Prim = 300,000 : 200,000

= 3:2

Punpun will have net profit sharing (200,000 x 3/5) = 120,000

Prim will have net profit sharing (200,000 x 2/5) = 80,000

The journal entries will be

Fix Capital Method

General Journal Page…..…..

25x1 Transactions A/C Debit Credit
MD No.

Dec 31 Profit and Loss 303 200,000 -

Current Capital - Punpun 304 120,000 -

Current Capital - Prim 305 80,000 -

Profit and loss sharing by the capital ratio at

¤formation date

Accounting for Partnership Page 50

Alternative Capital Method

General Journal Page…..…..

25x1 Transactions A/C Debit Credit
MD No.

Dec 31 Profit and Loss 303 200,000 -

Capital - Punpun 304 120,000 -

Capital - Prim 305 80,000 -

Profit and loss sharing by the capital ratio at

¤formation date

2.1.2 Profit and loss sharing by capital ratio at period opening date

Capital Ratio Punpun : Prim = 250,000 : 550,000

= 5 : 11

Punpun will have net profit sharing (200,000 x 5/16) = THB 62,500

Prim will have net profit sharing (200,000 x 11/16) = THB 137,500

Fixed Capital Method

General Journal Page…..…..

25x1 Transactions A/C Debit Credit
MD No.

Dec 31 Profit and Loss 303 200,000 -

Current Capital - Punpun 304 120,000 -

Current Capital - Prim 305 80,000 -

Profit and loss sharing by the capital ratio at

¤period opening date

Accounting for Partnership Page 51

Alternative Capital Method

General Journal Page…..…..

25x1 Transactions A/C Debit Credit
MD No.

Dec 31 Profit and Loss 303 200,000 -

Capital - Punpun 304 62,500 -

Capital - Prim 305 137,500 -

Profit and loss sharing by the capital ratio at

period opening date

2.1.3 Profit and loss sharing by capital ratio at period ending date

Capital Ratio Punpun : Prim = 350,000 : 450,000

=7:9

Punpun will have net profit sharing (200,000 x 7/16) = THB 87,500

Prim will have net profit sharing (200,000 x 9/16) = THB 112,500

The journal entries will be
Fixed Capital Method

General Journal Page…..…..

25x1 Transactions A/C Debit Credit
MD No.

Dec 31 Profit and Loss 303 200,000 -

Current Capital - Punpun 304 87,500 -

Current Capital - Prim 305 112,500 -

Profit and loss sharing by the capital

¤ratio at period ending date

Accounting for Partnership Page 52

Alternative Capital Method

General Journal Page…..…..

25x1 Transactions A/C Debit Credit
MD No.

Dec 31 Profit and Loss 303 200,000 -

Capital - Punpun 304 87,500 -

Capital - Prim 305 112,500 -

Profit and loss sharing by the capital ratio at

period ending date

2.2 Profit and loss sharing by average capital ratio

This method of profit and loss sharing is for the case that there are many transactions of
change in the partners’ equity
Example 3 From example 2, the calculation will be

Capital Date Capital Fixed Months Result of Multiplying

Punpun Jan 1, 25x1 250,000 of Capital (Capital x Time)
Apr 1, 25x1 450,000
Oct 1, 25x1 350,000 3 250,000 x 3 = 750,000
6
Prim Jan 1, 25x1 550,000 3 450,000 x 6 = 2,700,000
Apr 1, 25x1 450,000 12
3 350,000 x 3 = 1,050,000
9
12 4,500,000

550,000 x 3 = 1,650,000

450 000 x 9 = 4,050,000

5,700,000

The average capital ratio of Punpun and Prim will be 4,500,000 : 5,700,000 = 45 : 57

Calculating the profit and loss sharing by the average capital ratio

Punpun will have net profit sharing (200,000 x 45/102) = 88,235*

Prim will have net profit sharing (200,000 x 57/102) = 111,765*

Note * decimal rounded

Accounting for Partnership Page 53

The journal entries will be

Fixed Capital Method

General Journal Page 1

25x1 Transactions A/C Debit Credit
MD No.

Dec 31 Profit and Loss 303 200,000 -

Current Capital - Punpun 304 88,235 -

Current Capital - Prim 305 111,765 -

Profit and loss sharing by the average

¤capital ratio

Alternative Capital Method

General Journal Page…..…..

25x1 Transactions A/C Debit Credit
MD No.

Dec 31 Profit and Loss 303 200,000 -

Capital - Punpun 304 88,235 -

Capital - Prim 305 111,765 -

Profit and loss sharing by the average capital

ratio

3. Profit and loss sharing by the agreed ratio

This method of profit and loss sharing will show the difference of capability and participation in the
operations of each partner. The profit and loss may be shared as follow:

3.1 Profit and loss sharing by the agreed single ratio
3.2 Profit and loss sharing by the agreed multiple ratios

Accounting for Partnership Page 54

3.1 Profit and loss sharing by the agreed single ratio

Example 4 From example 2

Assume that Punpun and Prim agreed to share the profit and loss at the ratio of 2 : 3

The calculation of profit and loss sharing will be

Punpun will have net profit sharing = 200,000 x 2/5

= THB 80,000

Prim will have net profit sharing = 200,000 x 3/5

= THB 120,000

The entries will be

Fixed Capital Method

General Journal Page…..…..

25x1 Transactions A/C Debit Credit
MD No.

Dec 31 Profit and Loss 303 200,000 -

Current Capital - Punpun 304 80,000 -

Current Capital - Prim 305 120,000 -

Profit and loss sharing by the agreed single

ratio

Alternative Capital Method

General Journal Page…..…..

25x1 Transactions A/C Debit Credit
MD No.

Dec 31 Profit and Loss 303 200,000 -

Capital Account - Punpun 304 80,000 -

Capital Account - Prim 305 120,000 -

Profit and loss sharing by the agreed single

ratio

Accounting for Partnership Page 55

3.2 Profit and loss sharing by the agreed multiple ratios

Example 5 From example 2 Assume that Punpun and Prim agreed to share the first THB 100,000 profit
and loss at the ratio of 2 : 3, then the remaining will be equally shared.
The calculation of profit and loss sharing will be

Punpun will have the profit sharing from first portion of net profit = 100,000 x 2/5
Prim will have the profit sharing from first portion of net profit = 40,000
The remaining net profit = 200,000 – 100,000 = 100,000 x 3/5
Punpun will have the sharing from the remaining net profit = 60,000
Total profit sharing for Punpun will be = 100,000
Prim will have the sharing from the remaining net profit = 100,000 x ½
Total profit sharing for Prim will be = 50,000
= 40,000+50,000
= 90,000
= 100,000 x ½
= 50,000
= 60,000+50,000
= 110,000

The entries will be

Accounting for Partnership Page 56

Fixed Capital Method

General Journal Page…..…..

25x1 Transactions A/C Debit Credit
MD No.

Dec 31 Profit and Loss 303 200,000 -

Current Capital - Punpun 304 90,000 -

Current Capital - Prim 305 110,000 -

Profit and loss sharing by the agreed

multiple ratios

Alternative Capital Method

General Journal Page…..…..

25x1 Transactions A/C Debit Credit
MD No.

Dec 31 Profit and Loss 303 200,000 -

Capital Account - Punpun 304 90,000 -

Capital Account - Prim 305 110,000 -

Profit and loss sharing by the agreed

multiple ratios

4. Profit and loss sharing, providing the interest on capital and / or salary, bonus first, the
remaining will be shared by the agreed ratio

This method of profit and loss sharing will apply the interest on capital, also knowledge,
capability and participation for operations of each partner first, then the remaining profit and loss will be
shared by the agreed ratio, with many cases as follow:

Accounting for Partnership Page 57

4.1 Profit and loss sharing with interest on capital to partners
4.2 Profit and loss sharing with salary to partners
4.3 Profit and loss sharing with bonus to partners
4.4 Profit and loss sharing with interest on capital, salary and bonus
The reason of providing interest on capital to partners is all partner contributions in the partnership
are not equal. The partners may agree to pay interest on capital as compensation for the investment
Each partner may have different capability and participation in the operations, also the type of work may
be different. Salary for partners will be part of profit sharing not expense, since all partners are owner not
employee.
For partnership operated in Thailand, partners may treat salary to partners as operating expenses in
order to lower the income tax of the partnership.
Each time that the partnership pay salary to partners, withholding tax must be deducted and delivered
within the set time frame. The entries will be Dr Salary to Partners, Cr Cash. The salary account is the
expense of the partnership under the section of administrative expenses of the Income Statement.
Some partner may participate for the partnership as a manager, the partners may agree to provide
bonus for the managing partner. Normally, the bonus allowance will be as percentage of the net profit.
Bonus allowance shall be clearly agreed and stated in the Partnership Agreement. Bonus allowance may
be from the net profit before bonus or net profit after bonus.

Example 6
On January 1, 25x1 Punpun and Prim agreed to form a partnership. Punpun contributed THB

300,000 and Prim contributed THB200,000. They agreed to share the profit and loss by the capital ratio.
The partnership has a periodic ending at December 31. The operations result for 25x1 is a net profit of
THB 200,000
Requirements Demonstrate the profit and loss sharing for the following cases:

1. Profit and loss sharing with interest on capital
2. Profit and loss sharing with salary allowance to partners
3. Profit and loss sharing with bonus allowance to partners
4. Profit and loss sharing with interest on capital, salary and bonus allowances

Accounting for Partnership Page 58

Case 1 Profit and loss sharing with interest on capital

Assume the partners had the profit and loss sharing agreement as follow:

1. Interest on capital at 12% per annum for all partners

2. Remaining net profit and loss will be shared equally

The calculation will be:

Punpun Prim Total

Interest on capital at 12% per annum 36,000 24,000 60,000

Remaining net profit shared equally 70,000 70,000 140,000

Total 106,000 94,000 200,000

Fixed Capital Method

General Journal Page…..…..
Credit
25x1 Transactions A/C Debit
MD No. 106,000 -
94,000 -
Dec 31 Profit and Loss 303 200,000 -

Current Capital - Punpun 304

Current Capital - Prim 305

Profit and loss sharing, with interest on

capital,

the remaining shared equally

Alternative Capital Method

General Journal Page…..…..

25x1 Transactions A/C Debit Credit
MD No.

Dec 31 Profit and Loss 303 200,000 -
Capital Account - Punpun 301 106,000 -
Capital Account - Prim 302 94,000 -

Profit and loss sharing, with interest on
capital,

the remaining shared equally

Accounting for Partnership Page 59

Case 2 Profit and loss sharing with salary allowance for partners

Assume the partners had the profit and loss sharing agreement as follow:

1. Salary allowance for Punpun- the managing partner THB 2,000 per month

2. Remaining net profit and loss will be shared at the ratio of 3 : 2

The calculation will be:

Punpun Prim Total

Salary for Punpun 24,000 - 24,000

Remaining net profit shared at 3 : 2 105,600 70,400 176,000

Total 129,600 70,400 200,000

Fixed Capital Method

General Journal Page…..…..

25x1 Transactions A/C Debit Credit
MD No.

Dec 31 Profit and Loss 303 200,000 -

Current Capital - Punpun 304 129,600 -

Current Capital - Prim 305 70,400 -

Profit and loss sharing, with salary for

partners,

, the remaining shared at 3 : 2

Alternative Capital Method

General Journal Page…..…..

25x1 Transactions A/C Debit Credit
MD No.

Dec 31 Profit and Loss 303 200,000 -
Capital Account - Punpun 304 129,600 -

Capital Account - Prim 305 70,400 -
Profit and loss sharing, with salary for
partners,

, the remaining shared at 3 : 2

Accounting for Partnership Page 60

Case 3 Profit and loss sharing with bonus for partners

Assume the partners had the profit and loss sharing agreement as follow:
1. Bonus for the managing partner at 15% of net profit before bonus expense
2. Remaining net profit and loss will be shared equally
- In case calculate bonus from net profit before bonus expense
Bonus = 15/100 x 200,000
= THB 30,000

The calculation will be: Punpun Prim Total
30,000 - 24,000
Bonus for Punpun 85,000 170,000
Remaining net profit shared at 3 : 2 115,000 85,000 200,000
85,000
Total

Fixed Capital Method

General Journal Page…..…..

25x1 Transactions A/C Debit Credit
MD No.

Dec 31 Profit and Loss 303 200,000 -
Current Capital - Punpun 304
305 115,000 -
Current Capital - Prim 85,000 -
Profit and loss sharing, with bonus for Profit

and loss sharing, with bonus for the managing
partner, the remaining shared equally

Accounting for Partnership Page 61

Alternative Capital Method

General Journal Page…..…..

25x1 Transactions A/C Debit Credit
MD No.

Dec 31 Profit and Loss 303 200,000 -
304
Capital Account - Punpun 305 115,000 -
Capital Account - Prim 85,000 -

Profit and loss sharing, with bonus for Profit
and loss sharing, with bonus for the managing

partner, the remaining shared equally

- In case calculate bonus at 15% of net profit after bonus expense, the calculation will be:
Let Bonus = B
B = 15% x (net profit –B)
B = 15/100 x (200,000 – B)
100 B = 3,000,000 – 15 B
115 B = 3,000,000
B = 3,000,000 / 115
Bonus = 26,087 *

Bonus for Punpun Punpun Prim Total
Remaining net profit shared equally 26,087.00 - 26,087
86,956.50 173,973
Total 113,043.50 86,956.50 200,000
Note * Decimal rounded 86,956.50
The journal entry will be

Accounting for Partnership Page 62

Fixed Capital Method

General Journal Page…..…..

25x1 Transactions A/C Debit Credit
MD No.

Dec 31 Profit and Loss 303 200,000 -
304
Current Capital - Punpun 305 113,043 50
Current Capital - Prim 86,956 50

Profit and loss sharing, with bonus for the
managing partner, the remaining shared

equally

Alternative Capital Method

General Journal Page…..…..

25x1 Transactions A/C Debit Credit
MD No.

Dec 31 Profit and Loss 303 200,000 -
Capital Account - Punpun 304
Capital Account - Prim 305 113,043 50
86,956 50
Profit and loss sharing, with bonus for the
managing partner, the remaining shared
equally

Accounting for Partnership Page 63

Case 4 Profit and loss sharing with interest on capital, salary and bonus for partners

Assume the partners had the profit and loss sharing agreement as follow:

1. Interest on capital for partners at 12% of the opening capital

2. Salary for Punpun - the managing partner at THB 2,000 per month

3. Bonus for the managing partner at 15% of net profit

4. Remaining net profit will be shared equally

The calculation will be:

Punpun Prim Total

Interest on Capital at 12% per annum 36,000 24,000 60,000

Salary for Punpun 24,000 - 24,000

Bonus for Punpun 30,000 - 24,000

Remaining net profit shared equally 43,000 43,000 86,000

Total 133,000 67,000 200,000

Accounting for Partnership Page 64

Using either the Fix Capital Method or the Alternative Capital Method

General Journal Page…..…..
Credit
25x1 Transactions A/C Debit
MD No. 36,000 -
24,000 -
Dec 31 Profit and Loss 303 60,000 -
Capital – Punpun
Capital - Prim

Interest on capital at 12% per annum

Profit and Loss 24,000 -
Capital – Punpun
24,000 -
Salary for Punpun

Profit and Loss 30,000 -
Capital – Punpun
30,000 -
Bonus for Punpun

Profit and Loss 86,000 -
Capital – Punpun
Capital - Prim 43,000 -
43,000 -
Remaining net profit equally shared

OR Using a compound entries as follow 200,000 -
Profit and Loss
133,000 -
Capital – Punpun 67,000 -
Capital - Prim
Profit and loss sharing as agreed

Accounting for Partnership Page 65

Summary of Journal Entries for a Partnership

Transaction Fixed Capital Method Alternate Capital Method

1. Initial investment and additional Dr. Cash / Assets Dr. Cash / Assets

investments of cash or other assets Cr. Capital – A Cr. Capital –A
2. Withdrawals Capital – B Capital – B

3. Draws for Personal Use Dr. Capital – A Dr. Capital – A
Capital – B Capital – B
Cr. Cash / Assets Cr. Cash / Assets

Dr. Current Capital – A Dr. Current Capital – A
Current Capital – B Current Capital – B
Cr. Cash / Assets Cr. Cash / Assets

4. Transactions during the accounting - -
period recorded as of a sole propriety

5. At the accounting period ending date, the profit and loss sharing will be:

5.1 Appropriate all profit and loss Dr. Profit and Loss Dr. Profit and Loss
- Case of net profit Cr. Current Capital – A Cr. Capital – A
Current Capital – B Capital – B

- Case of net loss Dr. Current Capital – A Dr. Current Capital – A
Current Capital – B
Current Capital – B Cr. Profit and Loss

Cr. Profit and Loss

5.2 Appropriate part of profit and loss

- Case of net profit Dr. Profit and Loss Dr. Profit and Loss
Cr. Retained Earnings Cr. Retained Earnings

- Case of net loss Dr. Retained Earnings Dr. Retained Earnings
Cr. Current Capital – A Cr. Capital – A
Current Capital – B Capital – B

Dr Retained Earnings Dr Retained Earnings
Cr Profit and Loss Cr Profit and Loss

Dr. Current Capital – A Dr Capital – A
Current Capital – B Capital – B
Cr Retained Earnings Cr Retained Earnings

Accounting for Partnership Page 66

Example 10
B K Partnership has some transactions during the year 25x1 as follow:

Jan 1 Formation of the partnership. B. contributed THB 450,000 of cash, K. contributed
THB 200,000 of cash, and Office Equipment with the fair market value of THB
50,000

Feb 2 K. had additional investment THB 200,000 of cash
Jul 31 B. drew THB 20,000 of cash for personal use. K. took inventory with cost of

THB 5,000 for personal use
Nov 15 B. withdrew THB 40,000 of cash
Dec 31 The operation for the year resulted in net profit of THB 200,000 - THB 50,000 of

which to be retained for the business. The remaining profit to be shared equally
From above information, the journal entries using the fixed capital method will be:

General Journal Page…..…..

25x1 Transactions A/C Debit Credit
MD No.

Jan 1 Cash 101 450,000 -
Capital - B 301 450,000 -

B. contributed of cash

Cash 101 200,000 -
Office Equipment 105 50,000 -
302 250,000
Capital – K.
K. contributed of cash and office
equipment

Feb 2 Cash 101 200,000 -
Capital - K 302 200,000

K. had additional investment of cash

Accounting for Partnership Page 67

General Journal Page…..…..
Credit
25x1 Transactions A/C Debit
MD No. 20,000 - 20,000 -

Jul 31 Current Capital – B. 304
Cash 101

B drew the cash for personal use

Current Capital - K 305 5,000 -
Inventory / Sales 103 5,000 -

K. took inventory for personal use

Nov 15 Capital - B 301 40,000 -
Cash 101 40,000 -

B. withdrew of cash

Dec 31 Profit and Loss 303 200,000 -
Retained Earnings 306 200,000 -

Closing Profit and Loss to Retained Earnings

Retained Earnings 306 150,000 -
Current Capital - B 304 75,000 -
Current Capital - K 305 75,000 -

Appropriated profit to the partners equally

Accounting for Partnership Page 68

Capital’s B No 301

25x1 Transactions Post Dr. 25x1 Transactions Post Cr.
MD Ref MD Ref

Nov 15 Cash J.1 40,000 Jan 1 Cash J.1 450,000
450,000
Dec 31 Ending Balance  410,000

450,000

25x2

Jan 1 Beginning Balance  410,000

Capital’s K. No 302

25x1 Transactions Post Dr. 25x1 Transactions Post Cr.
MD Ref MD Ref

Dec 31 Ending Balance  450,000 - Jan 1 Cash J.1 200,000 -

Office Equipment J.1 50,000 -

Feb 2 Cash J.1 200,000 -

450,000 - 450,000 -

25x2

Jan 1 Beginning Balance  450,000 -

Current Capital’s B No

25x1 Transactions Post Dr. 25x1 Transactions Post Cr.
MD Ref MD Ref

Jul 31 Cash J.1 20,000 - Dec 31 Retained Earnings J.1 75,000 -

Dec 31 Ending Balance  55,000 -

75,000 - 75,000 -

25x2

Jan 1 Beginning Balance  55,000 -

Accounting for Partnership Page 69

Current Capital’s K No

25x1 Transactions Post Dr. 25x1 Transactions Post Cr.
MD Ref MD Ref

Jul 31 Inventory J.1 5,000 - Dec 31 Retained Earnings J.1 75,000 -

Dec 31 Ending Balance  70,000 -

75,000 - 75,000 -

25x2

Jan 1 Beginning Balance  70,000 -

Retained Earnings No

25x1 Transactions Post Dr. 25x1 Transactions Post Cr.
MD Ref MD Ref

Dec 31 Current Capital’s B J.1 75,000 - Dec 31 Profit and Loss J.1 200,000 -

Current Capital’s K J.1 75,000 - (Income Summary)

Ending Balance  50,000 -

200,000 - 200,000 -

25x2

Jan 1 Beginning Balance  50,000 -

Accounting for Partnership Page 70

Reporting Partners’ Equity in the Statement financial position

Reporting partners’ equity in the Statement financial position using the fixed capital method, the

Current Capital is separate from the capital account. Part of the Statement financial position demonstrated

will be according to type of the partnership:

1. Ordinary Partnership which does not registered as juristic person may report the Current

Capitals after the capital accounts under the section of Partners’ Equity as in the example

Bua Kaew Partnership

Statement financial position (Part of)

As of December 31, 25x1

Liabilities and Partners’ Equity

Partners’ Equity

Capital - B 410,000

Capital – K 450,000 860,000

Current Capital - B 55,000

Current Capital – K 70,000 125,000

Retained Earnings 50,000

2. Registered Ordinary Partnership and Limited Partnership having the balance of Current

Capital on debit side to be reported as current liabilities under the section of Account Payable and Loans

from Partners as the example What are the reasons of
changes in the capital of the
B K Partnership partners ?

Statement financial position (Partial)

As on December 31, 25x1

Liabilities and Partners’ Equity

Account Payable and Loans from Partners

Current Accuont - B 55,000

Current Accuont - K 70,000 125,000

Partners’ Equity

Capital – B 410,000

Capital – K 450,000 860,000

Retained Earnings 50,000

Accounting for Partnership Page 71

Statement of Changes in Partners’ Equity

Statement of change in partners’ equity or statement of capital is prepared to show the detail of

changes in the capital of each partner during the period. It will show the beginning balance plus

transactions of capital increase and minus transactions of capital reduction. Also show the ending balance.

In case of the fixed capital method, the capital and Current Capitals will be separately reported

Bua Kaew Partnership

Statement of Changes in Partners’ Equity

For the year ended December 31, 25x1

Capital Current Capital Retained Total

B K B K Earnings

Beginning Balance Jan 1 450,000 250,000 - - - 700,000

Plus Additional - 200,000 - - - 200,000

Investment

Net Profit 75,000 75,000 50,000 200,000

450,000 450,000 75,000 75,000 50,000 1,100,000

Less Withdrawals 40,000 - - - - 40,000

Draws for personal use - - 20,000 5,000 - 25,000

Ending Balance Dec 31 410,000 450,000 55,000 70,000 50,000 1,035,000

In case using the alternate capital method, all transactions will be in the capital accounts

Bua Kaew Partnership

Statement of Changes in Partners’ Equity

For the year ended December 31, 25x1

Unit : THB

Capital - B Capital - K Retained Total

Beginning Balance Jan 1 450,000 250,000 Earnings 700,000
Plus Additional Investment - 200,000 - 200,000
- 200,000
Net Profit 75,000 75,000 1,100,000
525,000 525,000 50,000 40,000
Less Withdrawals 40,000 50,000 25,000
Draws for personal use - 1,035,000
20,000 -
Ending Balance Dec 31 465,000 5,000 -
520,000 50,000

Accounting for Partnership Page 72

Summary

Profit and loss sharing of a partnership will be as agreed in the partnership agreement. If there was no
agreement, Thai law rules that profit and loss will be shared by the capital ratio. Journal entries of the
partnership using the fixed capital method and the alternate capital method. The profit and loss
appropriation by the capital ratio, agreed ratio, appropriate with salary, interest on capital and bonus for the
partners. Partners’ equity in the Statement financial position, comprise of capital account and Current
Capital

Accounting for Partnership Page 73

Chapter 4

The Financial Statements of Partnership

Outline

1) What is Financial Statement
2) Purpose of Financial Statement
3) Underlying Assumptions in Preparation and Presentation of Financial Statement
4) Components of Financial Statement
5) Qualitative Characteristics of Financial Statement
6) Preparation of Financial Statement complying with laws on Limited Partnership
7) Income Tax of Partnership

Learning Objectives

1. Able to explain the meaning of financial statement
2. Able to tell the purpose of financial statement
3. Able to tell the assumptions in preparation and presentation of financial statement
4. Able to tell the components of financial statement
5. Able to explain the qualitative characteristics of financial statement
6. Able to prepare a financial statement complying laws on limited partnership
7. Able to calculate the income tax of partnership
8. Having work habit of organized, careful, honesty, discipline, punctuality, and good attitude

towards the accounting profession

Accounting for Partnership Page 74

Chapter 4

The Financial Statements of Partnership

Introduction

At the end of an accounting period, after the
adjusting entries to all account, closing revenues and
expenses accounts to profit and loss or retained earnings,
the entity will prepare and present the financial statements
to their partners and the outsiders. The financial statements
of partnership prepared and presented comprises an income
statement, a statement of financial position (balance sheet), and a statement of changes in partners’
capital. There may be other statements for decision-making of the management and economic
decision-making of the users of financial statements. The preparation of financial statements will use
the assumptions according to the accounting framework : the accrual basis of accounting, and the going
concern basis; also to comply with Thai Accounting Standard Issue 1 (revised BE 2552) ‚Presentation
of Financial Statement‛ announced by the Federation of Accounting Professions (Under the Royal
Patronage of His Majesty the King) [FAP] and the Notification of the Department of Business
Development ‚Compendium of Financial Statements (BE 2554)‛.

The Meaning of Financial Statements

Thai Accounting Standard Issue 1 (revised BE 2552) ‚Presentation of Financial
Statement‛ announced by FAP described the meaning of the financial statements as financial
statements prepared to serve requirement of the users of financial statements, who are not in the
position to demand the business to prepare the modified statements according to their specific
requirement.

The Accounting Framework of FAP described the financial statements as financial
statements prepared with the objective to provide information about the financial position, financial
performance, and cash flows of an entity that is useful to a wide range of users in making economic
decisions.

Accounting for Partnership Page 75

The Accounting Act BE 2543 described the financial statements as follow:
Financial Statement is a report on result of operation, financial position, or changes in

financial position, whether presented as a statement of financial position, an income statement, a
statement of retained earnings, a statement of cash flows, a statement of changes in shareholders’
equity, a supplementary or a note to financial statements, or other explanatory notes indicated as an
integral part of the financial statement

TIP
Assumptions for preparation and presentation of financial statement are accrual basis of accounting
and going concern basis
Financial Statement is a financial report which provide the information about the financial status of
the entity at the end of a day, the result of operation and the cash flows of a period.
Arunee Yangtara ET AL described the financial statement as the financial report prepared from the
financial information recorded during a period.
From above descriptions, financial statement is a financial report prepared to present the financial
status and financial performance in the forms of statement of financial position (balance sheet), income
statement, and other statements for decision-making of management and users of the financial
statement.

Purpose of Financial Statement

1. Financial statement is prepared in order to provide information about financial status,
operation result, and cash flows of the entity that is useful to a wide range of users in
making economic decisions.

2. Financial statement prepared as the above objective can serve common requirement of
most users of the financial statement. However, financial statement does not provide
all kind of information required for economic decision since most of information in
financial statement are result of financial impact from historical events and financial
statement may not present non financial information.

3. Financial statement presents result of administration of the management or
responsibility of the management in managing resources of the entity. Users of the
financial statement can evaluate the result of administration or responsibility of the

Accounting for Partnership Page 76

management for their economic decisions. Such economic decisions may cover the
decision to sell or hold the investment in the entity, or decision of appointing new
management or change the management.

Assumptions in Preparation and Presentation of Financial Statement

In order that the financial statement of an entity can achieve the above objectives, the
accounting framework establishes 2 assumptions for preparation of financial statement as follow:

1. Accrual Basis of Accounting, any accounting transaction and
event shall be recognized when happened regardless of when cash or cash
equivalents received or paid. Transactions will be entered and presented in the
financial statement of relevant periods. Financial statement prepared according
to the accrual basis of accounting not only provides information about historical transactions of cash
received and paid, but also provides information about obligations that the entity may have to pay or to
receive of cash in the future. Therefore, financial statement can provide information about historical
transactions and events which is useful to users in making economic decisions.

2. Going Concern Basis, financial statement is prepared
with the assumption that the entity will continue to operate indefinitely,
without intention or necessity to liquidate or significantly decrease the
size of operation. In case that the entity has such intention or necessity,
the financial statement must be prepared using other criteria which
must be disclosed in the financial statement.

Accounting for Partnership Page 77

Components of Financial Statement

Thai Accounting Standard Issue 1 ‚Presentation of Financial Statement (Revised BE
2552)‛ said that a complete set of financial statements comprises:

1. A statement of financial position as at the ending date
2. A comprehensive income statement for the period
3. A statement of changes in equity for the period
4. A statement of cash flows for the period
5. Notes to financial statement comprising significant accounting policies and other

explanatory information
6. A statement of financial position as at the beginning of the earliest comparative period,
when an entity applies an accounting policy retrospectively or makes a retrospective restatement of
items in its financial statements, or when it reclassifies items in its financial statements due to the
accounting framework.
A complete set of financial statements comprises a balance sheet, an income statement, a statement of
changes in financial position (which may be presented in many forms such as statement of cash flows
or statement of funds), notes to financial statements, other supplementary notes and explanatory
materials to complete the financial statements.
From above information, it can be summarized that a complete set of financial statements
consists of a statement of financial position, a comprehensive income statement, a statement of changes
in equity, a statement of cash flows, accounting policies and notes to financial statements.
Therefore, the financial statements to be discussed onwards in this chapter 4 will be a statement of
financial position (balance sheet) and an income statement.

Qualitative Characteristics of Financial Statements

Qualitative characteristics of financial statements are characteristics that cause the
information in financial statements be useful for users. There are 4 qualitative characteristics of
financial statements as follow:

1. Understandability. The information must be readily understandable to users of the
financial statements. Accounting framework has an assumption that the users of the financial
statements have a reasonable understanding of business and economic activities and accounting and are

Accounting for Partnership Page 78

willing to study the information. Information that are complex but relevant to economic decision-
making should not be excluded from the financial statements merely on the grounds that it may be too
difficult for certain users to understand.

2. Relevance. To be useful, information must be relevant to the decision-making of
users. Information influences economic decision-making when it helps the users in evaluating the past,
present or future events, or in confirming, or correcting, their past evaluations.

The relevance of information is affected by its nature and materiality Materiality means
transactions or events that if the users do not have may lead to a different decision. Materiality depends
on the size of the item or error in the particular circumstances, which have to be considered case by
case. Information is considered material if its omission or misstatement influences the economic
decisions of the users of financial statements.

3. Reliability. To be useful, information must also be reliable. Reliable information is
free from material error and bias and can be depended upon by the users to represent faithfully that
which it either purports to represent or expected to represent. Reliability consists of 5 sub
characteristics as follow:

3.1 Faithful Representation. To be reliable, information must represent faithfully the
transactions and other events it either purports to represent or expected to represent

3.2 Substance Over Form. Information are accounted for and presented in accordance
with their substance and economic reality and not merely their legal form.

3.3 Neutrality. To be reliable, the information contained in financial statements must
be neutral, or free from bias. Financial statements are not neutral if, by the
selection or presentation of information, they influence the decision-making or
judgment of the users in order to achieve a predetermined result or outcome of the
entity.

3.4 Prudence. Entity is usually facing economic uncertainty, we need to be cautious
and prudent to counter the uncertainty. The preparers of financial statements have
to make estimates requiring judgment. The practice is assets and income are not
overstated and liabilities and expenses are not understated.

3.5 Completeness. Information in financial statements must be complete within the
bounds of materiality and cost. The preparers of financial statements must consider
the preparation cost against the benefit and significance of the information

Accounting for Partnership Page 79

.
4. Comparability. Users must be able to compare the financial statements of an entity

through time in order to identify trends in its financial position and performance. Users must also be
able to compare the financial statements of different entities in order to evaluate their relative financial
positions, performances and changes in financial position. Therefore, the measurement and display of
the financial effect of like transactions and events must be carried out in a consistent way either over
times for an entity, or of the same period for different entities of the same business type.

Preparation of Financial Statements according to the laws on Limited Partnership

Limited partnerships and registered ordinary partnerships registered under the
Commercial Code have duty to prepare annual financial statements and submit them to either the
Bureau of Business Information, Department of Business Development, or the Provincial Office of
Business Development within 5 months after the closing date even the operation not yet started or
temporary ceased. A violation is an offense liable to a fine of not exceed fifty thousand baht.

According to the Notification of the Department of Business Development, Ministry of
Commerce dated September 28, 2011 ‚Compendium of Financial Statements BE 2554‛, the person
charged with the accounting duty must prepare financial statements according to format 1. In case that
the nature or conditions of business has no transaction to display under any item, such item can be
omitted.

Financial statement of registered partnership : format 1 consists of:
1. A statement of financial position
2. A statement of income , Income statement
3. Notes to the financial statements

1. Statement of Financial Position is the financial

report prepared according to the general accepted accounting principles to
present the financial position of the entity at any date. Whether the entity
has what kind of assets and liabilities and at what amount and how much
is the capital. Financial statements of a partnership are prepared as of a sole proprietorship, with the
exception of the registered partnership to be prepared according to the notification of the department of
business development, which demands for a minimum line items requirement.

Accounting for Partnership Page 80

The section of equity must be presented with detail changes in the capital of each partner as follow:

 Capital of each partner at formation date
 Capital increase or withdrawal
 Profit and loss sharing for each partner
 Draw for personal use of each partner
 Capital of each partner at ending date

Transactions of change in capital of each partner may be summarized in the statement of
changes in partners’ entity or statement of capital, presented as supplementary to the statement of
financial position.

Statement of changes in partners’ equity or statement of capital is prepared to present the
details of change in each partner’s capital due to capital increase, withdrawal, profit and loss sharing
during the accounting period. The total of each partner’s capital then will be presented under the
section of partners’ equity of the balance sheet. The details of each partner therefore need not to be
presented in the statement of capital.
Example

Entity Name…………………

Statement of Changes in Partners’ Equity

For the year ended …………………………..

Mr. A Mr. B Total

Capital as at Jan 1, 25x1 Xxx Xxx Xxx

Add Additional Investment Xx Xx Xx

Profit Sharing Xx Xx Xx

Xxx Xxx Xxx

Less Drawing Xx Xx Xx

Capital as at Dec 31, 25x1 Xxx Xxx Xxx

Accounting for Partnership Page 81

Statement of financial position can be presented using 2 forms:
1.1 Accounting Form look like T shape, split into 2 sides. The left hand side displays

the assets section, and the right hand side displays the liabilities and partners’ equity
sections.
1.2 Report Form Assets will be displayed in the upper part, liabilities and partners’
equity will be in the lower part.

2. Income Statement is the financial report prepared to present the result of operation

the entity for a period. It summarizes that when comparing revenues and expenses of the period, what
will be the net profit or net loss. Preparation of statement of
income of a partnership is different from that of other firm: it will
present the details of profit and loss appropriation for each
partner according to the ratio in the partnership agreement after
the statement of income, for example:

 Interest on capital provision
 Salary provision for partners
 Bonus provision for partner
 Profit and loss sharing of the remaining after provisions of salary, interest on capital and

bonus
 Total profit and loss sharing for each partner

Income Statement may be classified into 2 types:
2.1 Income statement, expenses by nature
2.2 Income statement, expenses by function which can be presented in 2 formats:

2.2.1 Single-step income statement displays all revenues under revenue section and
all expenses under expense section. The difference between total revenues
and total expenses is the net profit or net loss.

2.2.2 Multiple-step income statement is the statement that presents revenue and
expense of each category to show the profit or loss step by step.

Accounting for Partnership Page 82

3 Notes to the Financial Statements are after the financial statements, present

accounting policies of the entity and other information that cannot be presented in the financial

statements.

Format of Financial Statement of Registered Partnership

Format 1

Financial Statements

Of

Registered Partnership

Statement of Financial Position

Assets

Unit : baht

Note 25x2 25x1

1. Current Assets

1.1. Cash and Cash Equivalents X,xxx X,xxx

1.2. Temporary Investments X,xxx X,xxx

1.3. Trade and other Receivables X,xxx X,xxx

1.4. Short-term Loans X,xxx X,xxx

1.5. Inventories X,xxx X,xxx

1.6. Other Current Assets X,xxx X,xxx

Total Current Assets Xx,xxx Xx,xxx

2. Non-current Assets

2.1. Available-for-sale Investments X,xxx X,xxx

2.2. Investments in Associates X,xxx X,xxx

2.3. Investments in Subsidiaries X,xxx X,xxx

2.4. Investments in Joint Ventures X,xxx X,xxx

2.5. Other Long-term Investments X,xxx X,xxx

2.6. Long-term Loans X,xxx X,xxx

2.7. Investment Property X,xxx X,xxx

2.8. Non-current Assets Classified as Held for Sale X,xxx X,xxx

2.9. Property, Plant and Equipment X,xxx X,xxx

2.10. Intangible Assets X,xxx X,xxx

2.11. Deferred Income Tax Assets * X,xxx X,xxx

2.12. Other Non-current Assets X,xxx X,xxx

Total Non-current Assets X,xxx X,xxx

Total Assets X,xxx X,xxx

Accounting for Partnership Page 83

Liabilities and Partners’ Equity 25x2 Unit : baht
X,xxx 25x1
Note X,xxx X,xxx
3. Current Liabilities X,xxx X,xxx
X,xxx X,xxx
3.1. Bank Overdrafts and Short-term Borrowings from Financial X,xxx X,xxx
Institutions X,xxx X,xxx
X,xxx X,xxx
3.2. Trade and Other Payables X,xxx X,xxx
3.3. Current Portion of Long-term Liabilities X,xxx X,xxx
3.4. Short-term Borrowings X,xxx X,xxx
3.5. Current Income Tax Payable X,xxx
3.6. Short-term Provisions X,xxx
3.7. Other Current Liabilities X,xxx X,xxx
X,xxx X,xxx
Total Current Liabilities X,xxx X,xxx
4. Non-current Liabilities X,xxx X,xxx
X,xxx X,xxx
4.1. Long-term Borrowings Xx,xxx X,xxx
4.2. Deferred Tax Liabilities * Xx,xxx
4.3. Employee Benefit Obligations X,xxx
4.4. Long-term Provisions X,xxx X,xxx
4.5. Other Non-current Liabilities X,xxx X,xxx
X,xxx X,xxx
Total Non-current Liabilities X,xxx X,xxx
Total Liabilities X,xxx
5. Partners’ Equity
5.1. Partner’ Capital
5.2. Un-appropriated Retained Earnings
5.3. Other Components of Partners’ Equity
Total Partners’ equity
Total Liabilities and Partners’ Equity

* In case of using the financial reporting standards for non public accountable entity (NPAE)

Accounting for Partnership Page 84

Income Statement By Nature Unit : baht
Registered Partnership 25x2 25x1
Income Statement X,xxx X,xxx
X,xxx X,xxx
Note X,xxx X,xxx
1. Revenue from Sales or Revenue from Rendering Revenue X,xxx X,xxx
2. Other Income X,xxx X,xxx
X,xxx X,xxx
Total Revenues X,xxx X,xxx
3. Changes in Inventories of Finished Goods and Work in Progress X,xxx X,xxx
4. Work Performed by the Entity and Capitalized X,xxx X,xxx
5. Raw Materials and Consumables Used X,xxx X,xxx
6. Employee Benefits Expense X,xxx X,xxx
7. Depreciation and Amortization Expense X,xxx X,xxx
8. Other Expenses X,xxx X,xxx

Total Expenses X,xxx X,xxx
9. Profit (Loss) Before Finance Costs and Income Tax Expenses X,xxx X,xxx
10. Finance Costs (Interest Expense)
11. Profit (Loss) Before Income Tax Expense
12. Income Tax Expense
13. Net Profit (Loss)

Accounting for Partnership Page 85

Income Statement By Function (Single-Step) Unit : baht
25x2 25x1
Note X,xxx X,xxx
1. Revenues X,xxx X,xxx
X,xxx X,xxx
1.1. Revenue from Sales or Revenue from Rendering of Services X,xxx X,xxx
1.2. Other Income
X,xxx X,xxx
Total Revenues X,xxx X,xxx
2. Expenses X,xxx X,xxx
X,xxx X,xxx
2.1. Cost of Goods Sold or Cost of Rendering Services X,xxx X,xxx
2.2. Selling Expenses X,xxx X,xxx
2.3. Administrative Expenses X,xxx X,xxx
2.4. Other Expenses X,xxx X,xxx
X,xxx X,xxx
Total Expenses X,xxx X,xxx
3. Profit (Loss) Before Finance Costs and Income Tax Expenses
4. Finance Costs
5. Profit (Loss) Before Income Tax Expense
6. Income Tax Expense
7. Net Profit (Loss)

Accounting for Partnership Page 86

Income Statement By Function (Multiple-step)

Note Unit : baht
25x2 25x1
1. Revenue from Sales or Revenue from Rendering Services X,xxx X,xxx
2. Cost of Goods Sold or Cost of Rendering Services X,xxx X,xxx
3. Gross Profit (Loss) X,xxx X,xxx
4. Other Income X,xxx X,xxx
5. Profit (Loss) Before Expenses X,xxx X,xxx
6. Selling Expenses X,xxx X,xxx
7. Administrative Expenses X,xxx X,xxx
8. Other Expenses X,xxx X,xxx
9. Total Expenses X,xxx X,xxx
10. Profit (Loss) Before Finance Costs and Income Tax Expenses
11. Finance Costs X,xxx X,xxx
12. Profit (Loss) Before Income Tax Expense X,xxx X,xxx
13. Income Tax Expense X,xxx X,xxx
14. Net Profit (Loss)
X,xxx X,xxx
X,xxx X,xxx

Notes to the Financial Statements
Notes to the financial statement must comply with the financial reporting standards for non public
accountable entity; comprises 2 parts
1. Summary of significant accounting policies
2. Other explanatory notes

Accounting for Partnership Page 87

Income Tax of Partnership

An unregistered partnership is treated like a sole proprietorship, to file the personal income tax if the
income reaches the minimum criteria set by the Revenue Code. While a partnership registered as
ordinary juristic or limited has to pay the corporate income tax from the net profit.

Income Tax Rate of Juristic Partnership
1) Any juristic partnership with registered capital at the accounting period ending date over five

million baht, total revenue of over thirty million baht is granted a tax rate reduction in accordance
with the Royal Decree (Issue 530) ‚The Reduction and Exemption of Income Tax, BE 2554‛,
issued under the Revenue Code. Corporate income tax of company or juristic partnership from net
profit of the period shall be reduced for 3 accounting periods from 30% to 23% and 20% as the
following details:

For the accounting period started on or after January 1, 2012 the corporate income tax rate is
reduced to 23% of net profit
For the two consecutive accounting periods started on or after January 1, 2013 the corporate
income tax rate is 20% of net profit
2) Juristic partnership of small and medium enterprises scale (SMEs), with registered capital at the
ending period of not over five million baht. Corporate income tax rates from net profit of the
period is reduced in accordance with the Royal Decree (Issue 530) ‚The Reduction and Exemption
of Income Tax, BE 2554‛, issued under the Revenue Code as the following details:

Accounting for Partnership Page 88

Corporate Income Tax Changes according to

the Royal Decree (Issue 530), BE 2563

Rates for Income Tax Financial Year 2554 Financial Year 2555 Financial Year 2556-2562 Financial Year 2563
Calculation
Net Profit Tax Net Profit Tax Net Profit Tax Net Profit Tax
1. Normal Case Rate Rate Rate
2. Reduction Case Rate

2.1 tax related SME. Total net profit 30% Total net profit 23% Total net profit 20% Total net profit 20%
company/juristic
partnership with registered Net profit Net profit Net profit Net profit -
and paid up capital at the
ending date not over 5 0 – 300,000
million baht
From over 150,000 to 15% From over 15% From over 15% From over 15%
150,000 to 1 20%
1 million baht 150,000 to million baht 300,000 to 3
From over 1 million to 25% 1 million baht
million baht

3 million baht

Over 1 million 23% Over 1 million Over 3 million 20%
baht baht
Over 3 million baht 30% baht

2.2 Company listed in Total revenues must not be over 30 million baht to apply this tax rate
(Tax related SME)
Stock Exchange of Total net profit
25% Total net profit 23% Total net profit 20% Total net profit 20%

Thailand

Note : from www.taxthai.com

Calculation

Corporate Income Tax = Net Profit x Corporate Income Tax Rate

Net profit in the income statement is the result of operation reported to the partners. However, net
profit for tax purpose has to comply with requirements stated in the Revenue Code, Article 65(2) and
Article 65(3). If the bookkeeping of the entity is in different format from that required by law, the net
profit must be adjusted to the tax base net profit.
The calculation of income tax to be discussed later in this chapter 4 will apply the rate of 20% for the
financial year 2012, and use the presented net profit without any adjusting. Further details to be
discussed in the higher class.

Accounting for Partnership Page 89

File a Tax Return and Payment
A partnership registered as a juristic has duty to file tax return twice a year:
1. Tax prepayment to be filed using Form CIT 51 and paid within 2 months after the end of the first

six months of accounting period.
2. Tax payment to be filed using Form CIT 50and paid within 150 days after the accounting period

ending date.

Example. Income statement by function (single-step)

AW Limited Partnership
Income Statement

For the year ended 31 December, 25x6

Revenues Revenue from Sales (Sheet 1) Unit : Baht
Expenses Interest Income 980,500
Total Revenues 5,000
600,000 985,500
Cost of Sales (Sheet 2) 23,000
Selling Expenses (Sheet 3) 216,000 839,000
Administrative Expenses (Sheet 4)
Total Expenses

Profit Before Finance Costs and Income Tax Expenses 146,000
Finance Costs (Interest Payment) 4,500
Profit Before Income Tax Expense
Income Tax Expense (20%) 142,000
Net Profit 28,400
113,600

Accounting for Partnership Page 90

Profit Sharing at the end of statement Saeng Utai Total
6,000 4,800 10,800
Salary 7,000 10,000 17,000
Interest on capital 8,580 - 8,580
Bonus 10% 38,610 38,610 77,220
Remaining profit equally shared 60,190 53,410 113,600

Total

Example. Income statement by function (multiple-step)
AW Limited Partnership
Income Statement

For the year ended December 31, 19x2 or 2xx2

Revenue from Sales (Sheet 1) 23,000 Unit : Baht
Less Cost of Sales (Sheet 2) 216,000 980,500
Gross profit 600,000
Add Other Income -: Interest Earned 380,500
Profit Before Expenses 5,000
Less Selling Expenses (Sheet 3) 385,500

Administrative Expenses (Sheet 4) 239,000
Total Expenses 146,000
Profit Before Finance Costs and Income Tax Expenses
Less Finance Costs (Interest Expenses) 4,500
Profit Before Income Tax Expense 142,000
Less Income Tax Expense (20%) 28,400
Net Profit 113,600

Accounting for Partnership Page 91

Profit Sharing at the end of statement A W Total
Salary 6,000 4,800 10,800
Interest on capital 7,000 10,000 17,000
Bonus 10% 8,580 - 8,580
Remaining profit equally shared 38,610 38,610 77,220
60,190 53,410 113,600
Total

Sheet 1 Details of Revenue from Sales
Revenue from Sales

Sales Sales Return 4,500 1,000,000
Less Sales Discount 15,000
19,500
Net Sales 980,500

Sheet 2 Details of Cost of Goods Sold

Beginning Inventories 438,000 360,000
Add Purchase 2,500
436,500
Freight In 440,500 796,500
196,500
Less Purchase Return 2,400 4,000 600,000
Purchase Discount 1,600

Total Goods available for sale
Less Ending Inventories
Cost of Goods Sold

Sheet 3 Details of Selling Expenses

Freight Out Expense 8,000
Advertising Expense 15,000
Total Selling Expenses 23,000

Accounting for Partnership Page 92