8

2 Darius and Ewan are in partnership sharing profits and losses in the ratio 5 : 3.

The following balances were extracted from the partnership books of account at 31 July 2022.

$
Bank overdraft 12 700
Capital accounts
Darius 94 300
Ewan 68 300
Fixtures and fittings 44 000
Inventory 36 200
Property at valuation 127 000
Bank loan (2025) 24 000
Trade payables 14 200
Trade receivables 6 300

On 1 August 2022, the partners agreed to admit Karim into the partnership on the following terms.

1 Karim was to introduce total capital of $48 000. This consisted of fixtures and fittings valued at
$9500 with the balance to be introduced into the partnership bank account.

2 Future profits and losses were to be shared between Darius, Ewan and Karim in the ratio
5 : 3 : 2.

3 Goodwill was to be valued at $36 800. Goodwill was not to be retained in the books of account.

4 Property was to be revalued to $135 000.

5 Obsolete inventory of $2000 was to be written off.

REQUIRED

(a) Prepare, on page 9, the partners’ capital accounts on 1 August 2022 following the admission
of Karim.

© UCLES 2022 9706/23/O/N/22

 Capital accounts

Darius Ewan Karim Darius Ewan Karim

© UCLES 2022
$ $ $ $ $ $
9

9706/23/O/N/22
Workings:

[5]

[Turn over
 10

(b) Prepare the partnership statement of financial position at 1 August 2022 following the
admission of Karim. Use the space provided on page 11 for your workings.

Darius, Ewan and Karim

Statement of financial position at 1 August 2022

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

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...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

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...................................................................................................................................................

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© UCLES 2022 9706/23/O/N/22

 11

Workings:

[6]

Additional information

Partners may allow interest on capital and charge interest on drawings.

REQUIRED

(c) State one advantage of allowing interest on capital to a:

partner ......................................................................................................................................

...................................................................................................................................................

partnership ................................................................................................................................

...................................................................................................................................................
[2]

(d) Explain one reason why a partnership may charge interest on drawings.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

............................................................................................................................................. [2]

[Total: 15]

© UCLES 2022 9706/23/O/N/22 [Turn over

 10

3 Maria and Rio have been in partnership for a number of years. They are considering admitting a
new partner.

REQUIRED

(a) State three disadvantages to the existing partners when a new partner is admitted.

1 ................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...................................................................................................................................................

3 ................................................................................................................................................

...................................................................................................................................................
[3]

Additional information

The partnership year end is 31 December. For the period 1 January to 30 September 2021, Maria
and Rio did not have a partnership agreement.

The following information is available for the year ended 31 December 2021.

The balances on the partners’ accounts on 1 January 2021 were:

$
Capital accounts
Maria 52 000
Rio 38 000
Loan account: Rio 6 000

On 1 October 2021 they admitted Sarah as a partner. Sarah introduced capital of $45 000 from
her personal savings. The partners agreed to make no adjustments for goodwill or the revaluation
of the partnership assets.

From 1 October 2021 a formal partnership agreement was prepared as follows:

1 Rio to be given interest on his loan at 8% per annum.

2 Interest to be given at 6% per annum on fixed capitals.

3 Rio to be given a partnership salary of $15 000 per annum.

4 Profits to be shared in the ratio Maria : Rio : Sarah, 2 : 1 : 2 respectively.

© UCLES 2022 9706/21/M/J/22

 11

During the year ended 31 December 2021, the partnership made a profit of $82 500 before taking
into account interest on Rio’s loan. It was assumed that the profit before interest on Rio’s loan had
accrued evenly throughout the year.

REQUIRED

(b) Prepare the appropriation account for the year ended 31 December 2021.

Maria, Rio and Sarah

Appropriation account for the year ended 31 December 2021

Maria and Rio Maria, Rio and Sarah

1 Jan–30 Sept 1 Oct–31 Dec
$ $

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

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...................................................................................................................................................

...................................................................................................................................................

............................................................................................................................................. [7]

© UCLES 2022 9706/21/M/J/22 [Turn over

 12

Additional information

Before Sarah had been admitted as a partner, she had been earning a salary of $18 000 per
annum. She had also received interest of 8% per annum on her personal savings.

REQUIRED

(c) Compare Sarah’s income as a partner with the total income she would have otherwise received
in the three months ended 31 December 2021. Support your answer with calculations.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

............................................................................................................................................. [5]

[Total: 15]

© UCLES 2022 9706/21/M/J/22

 2

1 Karen and Lee are in partnership sharing profits and losses in the ratio 2 : 3 respectively.
The following balances were available at 28 February 2022.

Trial balance at 28 February 2022

Debit Credit
$ $
Administrative expenses 6 020
Bank interest charges 180
Bank overdraft 5 910
Capital accounts
Karen 40 000
Lee 50 000
Carriage inwards 3 880
Current accounts, 1 March 2021
Karen 1 220
Lee 1 880
Drawings
Karen 17 500
Lee 19 900
Insurance 7 740
Inventory, 1 March 2021 8 250
Loan from Lee 10 000
Non-current assets
At cost 160 000
Provision for depreciation, 1 March 2021 56 000
Provision for doubtful debts, 1 March 2021 260
Purchases 151 440
Returns 2 200 3 930
Revenue 229 250
Trade payables 14 450
Trade receivables 31 210
Suspense account 820
411 020 411 020

The following information is also available.

1 On 28 February 2022, inventory had been valued at cost, $21 220. This figure included some
damaged items which had cost $1320 and had a sales value of $2480. The damaged items
could be repaired at a cost of $1300.

2 In January 2022, an error had been made recording returns inwards, $410. This amount had
been credited to the returns outwards account.

3 Insurance includes $1410 paid for the three months ended 30 April 2022.

4 The loan from Lee had been arranged on 1 November 2021. It was agreed that Lee should
be entitled to interest at 6% per annum on the loan. No entries have been made for interest
on the loan.

5 The provision for doubtful debts should be increased to $310.

6 Non-current assets are to be depreciated by 20% per annum using the reducing balance
method.

© UCLES 2022 9706/22/M/J/22

 3

REQUIRED

(a) Prepare the income statement for the year ended 28 February 2022. Use the space provided
on the next page for your workings.

Karen and Lee

Income statement for the year ended 28 February 2022

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...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

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© UCLES 2022 9706/22/M/J/22 [Turn over

 4

Workings:

[9]

(b) Prepare Lee’s current account for the year ended 28 February 2022.

Lee
Current Account

$ $

[4]

© UCLES 2022 9706/22/M/J/22

 5

Additional information

The partners have been considering making a more detailed partnership agreement to include the
following terms.

1 Interest to be charged on all drawings at 10%.

2 Karen to receive a salary of $8400 per annum.

3 Profits and losses would continue to be shared in the ratio Karen : Lee, 2 : 3 respectively.

REQUIRED

(c) Calculate the increase or decrease in Lee’s current account balance at 28 February 2022
assuming the new agreement had been in use from 1 March 2021.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

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...................................................................................................................................................

...................................................................................................................................................

............................................................................................................................................. [6]

© UCLES 2022 9706/22/M/J/22 [Turn over

 6

Additional information

Karen and Lee had also considered operating as a limited company.

REQUIRED

(d) Explain one advantage of operating as a partnership rather than a limited company.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

............................................................................................................................................. [2]

(e) Explain two advantages of operating as a limited company rather than a partnership.

1 ................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................
[4]

© UCLES 2022 9706/22/M/J/22

 7

Additional information

The partners are concerned about the business’s liquidity position.

Karen believes the problem arises because the business holds too much inventory. She suggests
that credit purchases should be reduced for the next three months to ensure inventory levels are
lowered.

REQUIRED

(f) Advise Lee whether or not he should accept Karen’s suggestion. Justify your advice.

...................................................................................................................................................

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...................................................................................................................................................

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...................................................................................................................................................

............................................................................................................................................. [5]

[Total: 30]

© UCLES 2022 9706/22/M/J/22 [Turn over

 10

3 Bipin, Feroz and Neeru have been in partnership for many years sharing profits and losses in the
ratio 3 : 1 : 2 respectively.

Feroz decided to retire from the partnership with effect from 1 January 2022. On this date the
statement of financial position was available.

Statement of financial position

$ $
Assets
Non-current assets at net book value 132 000
Current assets
Inventory 17 560
Trade receivables 10 540
Cash at bank 18 490
46 590
Total assets 178 590

Capital and liabilities

Capital accounts
Bipin 72 000
Feroz 44 300
Neeru 57 000
173 300
Current accounts
Bipin 4 240
Feroz (1 980)
Neeru (2 750)
(490)
Total capital 172 810

Current liabilities
Trade payables 5 780

Total capital and liabilities 178 590

The following information is also available.

1 Non-current assets were revalued at $155 000 and inventory was revalued at $13 160.

2 Goodwill was valued at $39 000. It was agreed that a goodwill account was not to be
maintained in the books of the partnership.

3 Bipin and Neeru agreed to remain in partnership sharing profits and losses equally.

4 On his retirement, Feroz agreed to take a non-current asset at its valuation of $15 000. He
agreed to leave the remaining amount due to him as a loan to the partnership.

REQUIRED

(a) Prepare, on the next page, the partners’ capital accounts to record the retirement of Feroz.

© UCLES 2022 9706/22/F/M/22

 Capital accounts

Bipin Feroz Neeru Bipin Feroz Neeru

$ $ $ $ $ $

© UCLES 2022
11

[7]

9706/22/F/M/22
[Turn over
 12

Additional information

Bipin and Neeru have agreed the following for the new partnership.

1 They will no longer use current accounts. Each partner’s current account balance is to be
transferred to the partner’s capital account.

2 The opening balances of their capital accounts are to reflect their new profit and loss sharing
ratio.
Neeru was to introduce or withdraw funds in order to achieve this.

REQUIRED

(b) Calculate the amount Neeru should introduce or withdraw.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................
[4]

(c) Explain one reason for valuing goodwill when a partner retires.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................
[2]

© UCLES 2022 9706/22/F/M/22

 13

(d) State two reasons why it is usual not to maintain a goodwill account in the books of a
partnership.

1 ................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...................................................................................................................................................
[2]

[Total: 15]

© UCLES 2022 9706/22/F/M/22 [Turn over

 8

2 Jack and Kelly are in partnership. They share profits and losses in the ratio of 2 : 5 respectively.
The partners decided to admit Liam as a partner with effect from 1 July 2018.

The partnership’s statement of financial position immediately prior to Liam’s admission was as
follows.

Jack and Kelly

Summarised statement of financial position
at 30 June 2018
$
Assets
Non-current assets 91 400
Current assets 21 700
Total assets 113 100
Capital and liabilities
Capital accounts
Jack 33 000
Kelly 71 000
Current liabilities 9 100
Total capital and liabilities 113 100

The partners do not maintain separate current accounts.

The following was agreed.

1 Assets were revalued upwards by $21 000.

2 Goodwill was valued at $52 500. No goodwill account was to be maintained in the
partnership’s books of account.

3 In the future profits and losses would be shared in the ratio Jack : Kelly : Liam, 2 : 5 : 3
respectively.

4 The balances of the partners’ capital accounts immediately after Liam’s admission should
total $120 000 and be in the same ratio as the profit sharing ratio.

Each partner would either pay funds into, or withdraw funds from, the business bank account
in order to achieve this requirement.

REQUIRED

(a) Prepare the partners’ capital accounts to record Liam’s admission as a partner on the next
page.

© UCLES 2018 9706/22/O/N/18

 Partners’ Capital Accounts

© UCLES 2018
Jack Kelly Liam Jack Kelly Liam

$ $ $ $ $ $
9

9706/22/O/N/18
[6]

[Turn over
 10

(b) State what is meant by the term ‘goodwill’.

[1]

(c) Explain why a partnership may make an adjustment for goodwill when they admit a new
partner.

[2]

(d) Explain why partners may agree not to maintain a goodwill account in the books of the
partnership on the admission of a new partner.

[2]

© UCLES 2018 9706/22/O/N/18

 11

Additional information

The partners forecast that profit for the year ending 30 June 2019 will be $60 000. This is an
increase of 25% on the current year’s profit. The partners believe that Liam’s admission will result
in an improved return on capital employed.

REQUIRED

(e) Advise the partners whether or not they are correct in believing that Liam’s admission will
result in an improved return on capital employed in the year ending 30 June 2019.

Support your answer with calculations.

[4]

[Total: 15]

© UCLES 2018 9706/22/O/N/18 [Turn over

 2

1 Faraz, Javed and Leah were in partnership. Their agreement included the following terms:

1 Interest on drawings to be charged at 5% on total drawings for the year.

2 Interest at 12% per annum to be provided on fixed capitals.

3 Javed to receive a salary of $9000 per annum.

4 Remaining profits and losses to be shared in the ratio Faraz, Javed and Leah, 4 : 3 : 3
respectively.

The following information was available for the year ended 31 December 2020.

Faraz Javed Leah

$ $ $
Balances at 1 January 2020
Capital accounts 80 000 60 000 50 000
Current accounts 3 400 credit 2 900 debit 1 700 debit
For the year ended 31 December 2020
Drawings 22 400 17 200 20 200

The profit for the year ended 31 December 2020, before appropriation, was $31 500.

REQUIRED

(a) State two reasons why partnership agreements sometimes include a provision to charge
interest on drawings.

1 ................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...................................................................................................................................................
[2]

© UCLES 2021 9706/22/F/M/21

 3

(b) Prepare the appropriation account for the year ended 31 December 2020.

Faraz, Javed and Leah

Appropriation account for the year ended 31 December 2020
$ $

........................................................................................... ..................... .....................

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........................................................................................... ..................... .....................

........................................................................................... ..................... .....................

[5]

© UCLES 2021 9706/22/F/M/21 [Turn over

 4

(c) Prepare Javed’s current account for the year ended 31 December 2020.

Javed
Current account

$ $

[6]

© UCLES 2021 9706/22/F/M/21

 5

Additional information

On 1 January 2021, Javed retired from the partnership. It was agreed that on this date:

1 Javed would keep some equipment for personal use. The equipment had a net book value of
$15 400 and was to be transferred to Javed at a value of $13 000.

2 Other non-current assets were to be revalued upwards by $24 000.

3 Goodwill was valued at $50 000. A goodwill account was not to be maintained in the
partnership’s books.

REQUIRED

(d) Explain the meaning of goodwill.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................
[2]

(e) Explain why a valuation of goodwill could be made when a partner retires.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................
[2]

© UCLES 2021 9706/22/F/M/21 [Turn over

 6

(f) Prepare a statement to show the amount due to Javed on his retirement from the partnership.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

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...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................
[6]

© UCLES 2021 9706/22/F/M/21

 7

Additional information

Faraz and Leah continued in partnership sharing profits and losses equally. They discussed
how best to finance the amount due to Javed on his retirement from the partnership. They are
considering two options.

Option 1: Take out a bank loan to cover the amount due.

Option 2: Admit a new partner whose capital contribution would cover the amount due.

REQUIRED

(g) Advise the partners which option they should choose. Justify your answer by discussing both
options.

...................................................................................................................................................

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...................................................................................................................................................

...................................................................................................................................................
[7]

[Total: 30]

© UCLES 2021 9706/22/F/M/21 [Turn over