Question Tag: Partnership Accounts

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  • 15 Marks

FR – May 2016 – L2 – Q5 – Preparation of Financial Statements

Prepare the statement of profit or loss, statement of financial position, and current accounts for Dum and Sor's partnership.

Dum and Sor were in partnership as retail traders, sharing profits and losses: Dum three quarters (3/4) and Sor one quarter (1/4). The partners were credited annually with interest at the rate of 6% per annum on their fixed capitals, but no interest was charged on their drawings. Sor was responsible for the buying department of the business, while Dum managed the head office. Sor was employed as the branch manager, and both Dum and Sor were each entitled to a commission of 10% of the net profits (after charging such commission) of the shop managed by him. All goods were purchased by the head office, and goods sent to the branch were invoiced at cost.

The following was the trial balance as at 31st December 2014:

Additional Information:

  1. Inventory on 31st December 2014 amounted to:
    • Head office: GH¢14,440
    • Branch: GH¢6,570
  2. Administrative expenses are to be apportioned between head office and the branch in proportion to sales.
  3. Depreciation is to be provided on furniture and fittings at 10% of cost.
  4. The provision for bad and doubtful debts is to be increased by GH¢50 in respect of head office receivables and decreased by GH¢20 in the case of the branch.
  5. On 31st December 2014, cash amounting to GH¢2,400 was in transit from the branch to head office and had been recorded in the branch books but not in those of the head office. Goods invoiced at GH¢800 were in transit from head office to the branch and had been recorded in the head office books but not in the branch books. Necessary adjustments are to be made in the head office books.

Required:
a) Prepare the statement of profit or loss and the appropriation account for the year ended 31st December 2014, showing the net profit of the head office and branch respectively.
b) Prepare the statement of financial position as at 31st December 2014.
c) Prepare the current accounts for head office and the branch.

a) Dum and Sor

Statement of Profit or Loss for the year ended 31st December 2014

Appropriation of Profit:

 

b) Dum and Sor

Statement of Financial Position as at 31st December 2014

 

c) Dum and Sor

Current Accounts

In the books of the Head Office:

In the books of the Branch Current Accounts:

 

Workings:

 

  1. Current Accounts:
Dum Sor
Drawings (2,500) (1,200)
Commission 900 –
Interest on capital 840 240
Share of profits 8,640 2,880
Balance c/d 7,880 1,920

2. Manager’s Commission Calculation:

3. Dum’s Commission

  • 10 Marks

FA – Mar 2024 – L1 – Q2b – Preparation of Partnership accounts

Prepare the capital accounts for Armah, Siameh, and Benya following the admission of a new partner.

Armah and Siameh were in partnership and shared profits and losses in the ratio of 3:2 respectively. The balances on the partners’ capital accounts at July 1, 2022, were: Armah GH¢187,500, Siameh GH¢300,000.

Due to expansion of their business, Benya was admitted as a partner on October 1, 2022, under the following arrangements:

i) The new profit-sharing ratio between Armah, Siameh, and Benya would be 35%, 35%, and 30% respectively.

ii) Benya was to introduce capital of GH¢375,000 but was unable to bring cash into the business immediately. Instead, he contributed his share of goodwill of GH¢180,000.

iii) Goodwill was valued at GH¢450,000 and was to be written off immediately after Benya’s admission. The existing partners agreed that goodwill should not be retained in the books of the partnership.

Required:

Prepare the partners’ capital accounts to reflect the admission of Benya into the partnership. (10 marks)

Partners’ Capital Accounts

Partners’ Capital accounts for the year to June 30, 2023

 

  • 20 Marks

FA – Nov 2023 – L1 – Q2 – Preparation of Partnership accounts

Adjust the net profit or loss of a partnership firm and prepare the revised current accounts and statement of financial position.

Adu, Boateng, and Dogbe are trading in partnership under an agreement which provides for interest on partners’ capital accounts at the rate of 10% per annum, annual salaries of GHȼ7,500 and GHȼ4,000 for Boateng and Dogbe respectively, and the balance of the profit or loss shared among Adu, Boateng, and Dogbe in the proportion 5:3:2 respectively.

Partners’ cash drawings for the year ended 30 April 2021 were as follows:

Partner Amount (GHȼ)
Adu 8,000
Boateng 5,000
Dogbe 6,000

The draft Statement of Financial Position as at 30 April 2021 of Adu, Boateng, and Dogbe is as follows:

After the preparation of the draft final accounts for the year ended 30 April 2021, which disclosed a net loss of GHȼ10,500, it was discovered that:

  1. The partners’ cash drawings for the year under review have been debited to purchases.
  2. On 1 November 2020 it was agreed that Boateng should increase his partnership capital from GHȼ25,000 by transferring to the partnership a freehold property bought by Boateng five years earlier at a cost of GHȼ10,000 and currently valued at GHȼ30,000. Although the appropriate debit entry has been made in the non-current asset account, the corresponding credit entry appeared in the profit and loss appropriation account.
  3. The partners’ salaries for the year ended 30 April 2021 have been debited to staff salaries and credited to the relevant partners’ current accounts.

The partners have now decided that an allowance for receivables should be 4% of trade receivables.

Required:

a) Compute the revised net profit or loss of the partnership for the year ended 30 April 2021. (5 marks)
b) Prepare the revised partners’ current accounts for the year ended 30 April 2021. (Note: the partners’ current accounts should commence with the balances shown in the draft partnership Statement of Financial Position as at 30 April 2021). (7 marks)
c) Redraft the Statement of Financial Position of the partnership as at 30 April 2021. (8 marks)

a) Revised Net Profit or Loss Calculation

Description Amount (GHȼ)
Net loss as per draft accounts (10,500)
Add: Cash drawings wrongly debited to purchases, and so included in the cost of sales in the trading account 19,000
Adjusted net profit before salaries 8,500
Add: Partners’ salaries wrongly charged as an expense in the Profit & Loss account (7,500 + 4,000) 11,500
Net profit before allowance for receivables 20,000
Less: Increase in the allowance for receivables (4% of GHȼ5,500) (220)
Adjusted net profit for the year 19,780

Total Marks for 2a: 5

b) Revised Partners’ Current Accounts 

c) Redrafted Statement of Financial Position as at 30 April 2021

4. Interest on extra capital
Interest on the extra capital should be provided for from 1 November 2020 until 30
April 2021 (6 months)
i.e., 6/12 x 10% x 30,000 = GHȼ1,500

  • 20 Marks

FA – July 2023 – L1 – Q2 – Preparation of Partnership accounts

Prepare a ledger account for rental income and a partnership's profit and loss appropriation account with related partners' current accounts.

a) A company owns a number of properties which are rented to tenants. The following information is available for the year ended 30 June 2021:

Date Rent in advance (GHȼ) Rent in arrears (GHȼ)
30 June 2020 140,500 5,200
30 June 2021 148,200 9,200

Cash received from tenants for the year ended 30 June 2021 was GHȼ820,400. All rent in arrears was subsequently received.

Required:

Prepare the ledger account for rental income showing the transfer to the Statement of Profit and Loss, for the year ended 30 June 2021. (5 marks)

b) Awuni, Adjetey, and Kwame are in partnership, running an evening school, and sharing residual profits and losses in the ratio 4:3:3 respectively. At 1 October 2021 their capital and current account balances were:

By formal agreement, the partners are entitled to receive interest at 5% on capital. In addition, Adjetey is paid an annual salary of GHȼ5,455 for his part in running the business.

On 1 April 2022, by mutual agreement, Kwame increased his capital by paying a further GHȼ4,000 into the partnership bank account. Awuni reduced his capital by GHȼ5,000, but kept this in the partnership as a loan bearing interest at 10% per annum. Interest on the loans, by agreement, is credited to Awuni’s current account.

The partners are allowed to take out drawings at any time during the year, but they have agreed to charge interest on such drawings. The date of taking out the drawings, the amount drawn out by each partner, and the interest payable, were as follows during the year to 30 September 2022:

Required:

i) Prepare the profit and loss appropriation account for the year ended 30 September 2022. (8 marks)
ii) Prepare the partners’ current accounts for the year ended 30 September 2022. (7 marks)

  • 20 Marks

FA – Nov 2015 – L1 – Q4 – Preparation of Partnership accounts

Define Books of Prime Entry and list examples, prepare partnership accounts including profit/loss, partners' current accounts, and statement of financial position.

(a)
i. Define Book of Prime Entry. (1 mark)
ii. Mention any four (4) Books of Prime Entry. (4 marks)

(b) Felicia, Jackson, and Elizabeth are in Partnership Sharing Profits and Losses in the ratio of 5:3:2 respectively. According to the Partnership Agreement, Partners’ Capital Accounts attract an interest of 20% per annum, while any Drawings by a Partner also attract 10% interest per annum.

The following understated Trial Balance has been extracted after the preparation of the Profit and Loss Account for the period ending 31st December 2014:

The following entries have not been recorded in the books:
i. Salary of GH¢5,000 was paid to Elizabeth during the period.
ii. Felicia personally paid General Expenses of GH¢2,500 on behalf of the Partnership.
iii. Cash Drawings made by partners: Felicia GH¢500, Jackson GH¢1,500, and Elizabeth GH¢1,200.
iv. Interest on loan – Elizabeth – GH¢2,000.
v. Jackson took goods worth GH¢2,000 for personal use.
vi. Interest on Capital Account. All Capital Accounts were to remain fixed.

You are required to prepare:
i. Profit or Loss and Appropriation Account. (7 marks)
ii. Partners’ Current Account. (3 marks)
iii. Statement of Financial Position as at 31st December, 2014 (5 marks)

(a)
i. Book of Prime Entry: Books of Prime Entry are Books in which transactions are first recorded before they are posted to the ledgers.

ii. Books of Prime Entry:

  • Petty Cash Book
  • Cash Book
  • Sales Day Book
  • Sales Returns Day Book
  • Purchase Returns Day Book
  • Purchase Day Book
  • Journal

(b) i. Profit or Loss and Appropriation Account

ii. Partners’ Current Account

iii. Statement of Financial Position as at 31st December 2014
Felicia, Jackson and Elizabeth Partnership

 

 

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