Accounting 9706 AS Level

Question 1

Deeti and Neel have been in partnership for some years sharing profits and losses equally.
Interest on capital has been at 5%. Depreciation on equipment has been provided monthly at a
rate of 10% per annum on the straight line basis.
On 1 January 2009 their balance sheet was as follows:

$ $ $
Non-current assets
Equipment 50000
Accumulated depreciation 40000 10000

Current assets
Inventory 22000
Trade receivables 17000
Cash and cash equivalents 6000
45000
Current liabilities
Trade payables 9000
Accrued rent 500 9500
Net current assets (working capital) 35500
45500
Capital accounts
Deeti 24000
Neel 18000 42000
Current accounts
Deeti 7000
Neel (3500) 3500 45500

Deeti and Neel wished to expand their business and on 1 July 2009 they admitted Armand into
the partnership.

Armand owned premises which he transferred to the partnership on that date at an agreed
valuation of $100 000. This comprised $65 000 for the land and $35 000 for the buildings.

The partnership ceased to rent premises on 30 June 2009 and sold all the existing equipment on
that date.

The partnership bought new equipment on 1 July 2009 for its new building, taking out a 6%
bank loan of $40 000 on that date to finance the purchase in part.
It was agreed from 1 July 2009 that
1. The three partners would share profits equally.
2. Armand would have an annual salary of $16 000.
3. The rate of interest on capital would increase to 8%.
4. Buildings would be depreciated monthly at a rate of 2% per annum.
5. The rate of depreciation on equipment would remain unchanged.
6. Goodwill at 1 July 2009 was valued at $18 000 but was not to be retained in the books.
Accounting 9706 AS Level

A summary of the cash book for the year showed the following:

6 months to 6 months to
30 June 2009 31 December 2009
$ $
Receipts from customers 191 000 237 000
Payments to suppliers 102 000 119 000
Rent paid 3 500 –
Other costs 51 000 57 000
Proceeds of sale of equipment 6 500 –
Purchase of equipment – 62 000
Drawings:
Deeti 11 000 12 000
Neel 15 000 14 000
Armand – 18 000

Other information was as follows:

At 30 June 2009 At 31 December 2009
Inventory (stock) 21 000 28 000
Trade receivables (debtors) 14 000 24 000
Trade payables (creditors) 12 000 20 000

During April 2009 a bad debt of $1000 was written off.

REQUIRED
a. Prepare the partners’ capital accounts in columnar 31 December 2009. Format for the
year ended.
b. Prepare income statements and appropriation accounts for each of the 6 month periods
ended 30 June 2009 and 31 December 2009
c. Prepare the partners’ current accounts in columnar format for the year ended 31
December 2009.
d. Using the figures given, state one advantage and one disadvantage arising from Deeti
and Neel’s decision to expand by admitting Armand into the partnership.

Class Practice Page |2 Partnership Changes

Accounting 9706 AS Level

Question 2

Adam, Basharat and Chandra have been in partnership for many years. The terms of the
partnership agreement are:
Profits and losses are shared by the partners in the ratio of 3:2:1.
Partners receive interest on capital of 8% per annum.
Chandra receives an annual salary of $12 000.
On 1 January 2012 the balances on the partners’ capital and current accounts were:

Capital account Current account

$ $
Adam 40 000 7 940
Basharat 27 500 4 675
Chandra 49 000 3 825

On 30 September 2012 Adam retired from the partnership. At that date goodwill was valued
at $90 000 and goodwill was not to appear in the books. The partnership assets were also
revalued and were found to be $24 000 above their book value.

The terms of the partnership were changed as follows:

1 Profits and losses to be shared equally.
2 Chandra would no longer receive a salary.
3 Basharat would receive an annual salary of $10 000.
4 Interest on capital would be charged at 4% per annum.
Adam agreed to transfer an amount from his capital account to a loan account. He would
receive annual interest of $5 000 on the loan. This was equal to an interest rate of 10% per
annum on the loan. He drew the remaining balance in cash.

REQUIRED
(a) Prepare the partners’ capital accounts for the year ended 31 December 2012.
Additional information
The gross profit for the year ended 31 December 2012 was $250 000. This was earned on an
equal basis throughout the year. Expenses accrued evenly throughout the year as follows:
$
Salaries 110 000
Rent 16 000
Electricity 7 000
Sundry expenses 28 500

No adjustment had been made for the following:

Inventory valued at cost price of $10 000 was found to be severely damaged and had no
value.
Rent of $4 000 had been prepaid and an unpaid electricity bill of $1 500 is to be accrued.
REQUIRED
(b) Prepare the partnership income statement and appropriation account for the 9 month
period to 30 September 2012 and the 3 month period to 31 December 2012.
(c) Prepare the partners’ current accounts for the year ended 31 December 2012.
Accounting 9706 AS Level

Question 3

Alan, Brian and Clive have been in partnership for several years sharing profits in the ratio
3: 2: 1, after charging an annual salary for Alan of $18 000 and interest on capital of 6% per
annum.

Financial statements are prepared to 30 June.

Additional information:
1 The capital account balances on 1 July 2010 were:
$
Alan 42 500
Brian 32 000
Clive 28 000

2 Alan retired on 31 December 2010. Dilip was admitted to the partnership on this date.
3 Dilip introduced fixed capital of $50 000. Brian also contributed a further $50 000 fixed
capital.
4 It was decided that the profit sharing ratio for Brian, Clive and Dilip would be 2: 1: 1 after
charging an annual salary for Dilip of $10 000 and interest on capital of 6% per annum.
5 The following adjustments were made on 31 December 2010:
Goodwill was valued at $132 000 for the purposes of the change in partnership and the
following revaluations were made:
NBV Revalued amount
$ $
Non-current Assets 350 000 300 000
Trade Receivables 242 000 216 000
Trade Payables 83 000 73 000

Goodwill is not to be retained in the books of account.

6 Any balance on Alan’s capital account on the date of retirement is to be transferred to his
current account.
Required
a. Prepare partners’ capital accounts in columnar form for the year ended 30 June 2011.
The current account balances on 1 July 2010 were:
Alan $16 852 Cr
Brian $7 482 Dr
Clive $11 743 Cr

The partners made drawings in their profit sharing ratios. The total drawings were:
$30 000 on 31 December 2010 (immediately prior to the partnership change)
$20 000 on 30 June 2011

The net profit for the year ended 30 June 2011 was $48 000 and this accrued evenly
throughout the year. Any final balance owed to Alan is to be paid through the bank account.

REQUIRED:
b. Prepare an appropriation account for the year ended 30 June 2011.
c. Prepare partners’ current accounts in columnar form for the year ended 30 June 2011.
d. Identify two possible advantages and two possible disadvantages to Brian and Clive
admitting Dilip to the partnership on the retirement of Alan.