Income Statement (Cambridge (CIE) IGCSE Accounting)

Worked Example

Tam and Pan are in partnership providing car repair services in their local area.  The following is a list of their balances for the year ended 30 June 2023.

Additional information 30 June 2023: 

• Depreciate the office equipment at 20%  per year using the straight-line method 

• On 1 July 2022, Pan loaned $5 000 to the partnership with loan interest at 5% per annum

• Pan is to receive an annual partnership salary of $12 000 

• Remaining profits and losses are shared as follows:  Tan ⅔, Pam ⅓  

• 5% interest is allowed on partners’ capital accounts

• 10% interest is charged on partners’ drawings

Prepare the income statement for Tam and Pan for the year ended 30 June 2023.

Answer

Identify which balances affect the income statement.

Deal with the additional information.

• Depreciate the machinery and equipment at 20%  per year using the straight-line method 

  • Find the year's depreciation by multiplying the cost by 20%

    • $52 000 × 20% = $10 400

• On 1 July 2022, Pan loaned $5 000 to the partnership with loan interest at 5% per annum

  • Find the year's interest by multiplying the loan amount by 5%

    • $5 000 × 5% = $250

• Pan is to receive an annual partnership salary of $12 000 

  • This does not affect the income statement

• Remaining profits and losses are shared as follows:  Tan ⅔, Pam ⅓  

  • This does not affect the income statement

• 5% interest is allowed on partners’ capital accounts

  • This does not affect the income statement

• 10% interest is charged on partners’ drawings

  • This does not affect the income statement

Prepare the income statement using the required format. Note that it is a service business so will not have a trading section.