1 AS Partnership F/A's

Chapter 6
Partnership Final Accounts

CSS-O/A Levels-Accounts Department

 2 AS Partnership F/A's

1 Alec and Jean were in partnership with capitals of $90 000 and $60 000 respectively.

On 1 June 2012 Alec had a debit balance on his current account of $2900 and Jean had a
credit balance on her current account of $3100.

On 31 May 2013 Alec had a credit balance on his current account of $3000 and Jean had a
credit balance on her current account of $340.

The partnership agreement stated:

1 Interest on capital is payable at 5% per annum.

2 Interest on drawings is charged at 8% per annum.

3 Annual partnership salaries were Alec $14 000 and Jean $12 000.

4 Profits and losses are to be shared in the ratio of capital invested.

Alec withdrew $20 000 and Jean $22 000 during the year.

REQUIRED

(a) Prepare the current account of each partner for the year ended 31 May 2013. [10]
(b) Calculate the profit for the year ended 31 May 2013 before appropriation. [6]
(c) Explain the term goodwill. [4]
On 1 June 2013 Alec and Jean agreed to admit Chris as a new partner. It was agreed that
Chris would pay cash into the business for goodwill.

Goodwill was valued at $36 000.

In addition Chris also introduced a motor vehicle valued at $12 150 and inventory of $5850.
The partners agreed that profits and losses are to be shared between Alec, Jean and Chris
in the ratio of 3:2:1. No goodwill account is to be maintained on the books.

REQUIRED

(d) Prepare the capital accounts of Alec, Jean and Chris after Chris’s admission to the
partnership. [10]
[ W13 P22 Q2 ] [Total: 30]

CSS-O/A Levels-Accounts Department

 3 AS Partnership F/A's

2 Tania and Sue are in partnership. The following balances have been taken from their books of
account at 31 January 2015. $
Revenue 163 400
Insurance 13 260
Wages 6 500
Rent received 10 400
Rates paid 9 500
Provision for doubtful debts 174
Office expenses 28 200
Capital
Tania 120 000
Sue 80 000

Additional information

1 On 31 January 2015, insurance prepaid amounted to $6400 and wages accrued amounted
to $8500.

2 Rent received is for the period 1 February 2014 to 28 February 2015.

3 Office expenses include $470 for use of Tania’s home telephone.

4 The provision for doubtful debts is to be maintained at 3% of trade receivables.

On 31 January 2015 the trade receivables totalled $7800.

5 Fixtures and fittings are depreciated at 10% per annum using the straight-line method.
Fixtures and fittings cost $7500.

6 Motor vehicles cost $60 000. Accumulated depreciation at 31 January 2014 was $35 000. No
vehicles were bought or sold during the year. Vehicles are depreciated at 20% using the
reducing balance method.

7 Computer equipment was valued at $5700 on 1 February 2014. A new computer costing
$1800 was purchased during the year. There were no sales of computer equipment during
the year. On 31 January 2015 the computer equipment was valued at $6200.
REQUIRED
(a) Prepare the partnership’s income statement for the year ended 31 January 2015. [10]
Additional information
On 1 February 2014 the balance on Tania’s current account was $5000 (credit).
On 31 January 2015, the balance on her current account was $71 068 (credit). She withdrew
$5000 during the year.
The partnership agreement provides for the following:
1 Partners are permitted to withdraw up to a maximum of 5% of capital invested.
2 Interest on drawings is charged at a rate of 7% on the annual drawings.
3 Interest on capital is payable at 4% per year.
4 Tania receives a salary of $1450 per month.
5 Profits and losses are shared in the ratio of capital invested.
REQUIRED
(b) Prepare Tania’s current account for the year ended 31 January 2015 to identify her share of
profit for the year. [5]
[W15 P23 Q2] [Total: 15]

CSS-O/A Levels-Accounts Department

 4 AS Partnership F/A's

3 Tom and Jerry are in partnership. They do not have a formal partnership agreement.

The following information is available for the partnership for the year ended 30 November 2015:

$
Capital account balances at 30 November 2015
Tom 90 000
Jerry 54 000
Current account balances at 1 December 2014
Tom 18 000 Credit
Jerry 10 800 Debit
Drawings for the year
Tom 8 000
Jerry 2 800
Profit from operations 12 600
Loan from partner account
Tom 24 000

Tom made the loan to the partnership on 1 December 2014.

Profits had accrued evenly and drawings had been taken evenly throughout the year.

Additional information

Tom and Jerry prepared a formal partnership agreement to take effect from 1 September 2015.
The terms of the agreement were:

1 Interest on capital was to be at a rate of 8% per annum.

2 Interest on drawings was to be at a rate of 3% per annum based on the annual drawings.

3 Tom was to be paid a salary of $16 216 per annum.

4 Profits and losses were to be shared in the ratio 3 : 2 respectively.

5 Loan interest was to be paid at a rate of 4% per annum.

REQUIRED
(a) Calculate the profit before appropriation for the nine months ended 31 August 2015 and the
three months ended 30 November 2015.
[3]
(b) Prepare the appropriation account for the nine months ended 31 August 2015 and the three
months ended 30 November 2015. [6]
(c) Prepare the current accounts for Tom and Jerry for the year ended 30 November 2015. [8]
Additional information
The partnership is considering expansion and will need to purchase additional non-current assets
at a cost of $60 000.
REQUIRED
(d) State the difference between capital and revenue expenditure. [2]
(e) Identify and explain one accounting concept relating to depreciation. [3]
(f) (i) Discuss two possible sources of finance which could be us ed to fund the purchase of
the additional non-current assets. [6]
(ii) Recommend the most appropriate source of finance for the partnership. Justify your
answer. [2]
[W16 P22 Q1] [Total: 30]

CSS-O/A Levels-Accounts Department

 5 AS Partnership F/A's

4 Carlos and Erika have been in partnership for several years and prepare their financial
statements to 31 July.

At 1 August 2016 the following information related to non-current assets was available.

$
Plant and machinery
Cost 65 000
Provision for depreciation 5 000
Motor vehicles
Cost 18 000
Provision for depreciation 3 600

During the year ended 31 July 2017 the following took place.

1 On 1 November 2016, the partnership purchased a new machine for $7500.

2 On 1 December 2016 a machine was sold for $6800. The machine had been purchased for
$10 000 on 1 May 2015.

3 On 1 February 2017 a new motor vehicle was purchased for $14 000.

4 The accounting policies in respect of depreciation are:

Plant and machinery is depreciated using the straight-line method at 10% per annum.

Motor vehicles are depreciated using the reducing balance method at 20% per annum.

A full year’s depreciation is charged in the year of purchase and none in the year of
disposal.

5 No adjustments have yet been made for depreciation or disposal of the machine.

The profit for the year ended 31 July 2017 before any adjustments was $37 490.
REQUIRED
(a) Calculate the revised profit before appropriation for the year ended 31 July 2017. [5]
Additional information
The terms of the partnership agreement are as follows:
1 Annual partnership salaries: Carlos $10 000 and Erika $15 000.
2 Interest on capital: 3% per annum.
3 No interest is to be paid on drawings up to $20 000. Interest at a rate of 6% is to be
charged on any drawings in excess of $20 000.
4 Profits and losses are to be shared in the ratio of the capital invested.
The following information is also available at 31 July 2017.
$
Capital account:
Carlos 84 000
Erika 28 000
Drawings:
Carlos 15 000
Erika 25 000
REQUIRED
(b) Prepare the partnership appropriation account for the year ended 31 July 2017. [4]

CSS-O/A Levels-Accounts Department

 6 AS Partnership F/A's

Additional information
On 31 July 2016 the balances on the partners’ current accounts were:

$
Carlos 1 300 credit
Erika 250 debit

REQUIRED

(c) Prepare the current accounts for the year ended 31 July 2017. [5]
Additional information
The following information is also available:
31 July 2017 31 July 2016
$ $
Credit sales 385 000 327 500
Credit purchases 172 000 153 000
Inventory 6 535 10 800
Bank overdraft 16 100 1 200
Other receivables 34 126
Other payables 586 248

Trade receivables collection period 46 days 31 days

Trade payables payment period 36 days 39 days
REQUIRED

(d) Calculate the following at 31 July 2017:

(i) Trade receivables [2]

(ii) Trade payables [2]
(e) Assess the working capital position of the partnership at 31 July 2017. [4]
(f) Advise the partners of three ways in which they could improve the cash position of the
business. [3]
Additional information
Carlos and Erika are considering converting the partnership into a limited company.
REQUIRED

(g) Advise the partners whether or not they should take this course of action. Justify your
answer. [5]
[S18 P23 Q1] [Total: 30]

CSS-O/A Levels-Accounts Department

 7 AS Partnership F/A's
Alac and Jean

1 (a)
Current accounts
Alec Jean Alec Jean
$ $ $ $
Balance 2 900 (1) Balance 3 100 (1)
Drawings 20 000 22 000 (1) Interest on capital 4 500 (1) 3 000 (1)
Interest on drawings 1 600 (1) 1 760 (1) Salaries 14 000 12 000 (1)
Balance c/d 3 000 340 Share of profit 9 000 (1of) 6 000 (1of)
27 500 24 100 27 500 24 100
Balance b/d 3 000 340

Marker Note:
Drawings and Salaries – 1 mark for both figures.
Share of profit must be in ratio of 3:2 for (of).
[10]

(b) Calculation of profit for the year ended 31 May 2013 before appropriation.

$
Share of profit 15 000 (1of) from (a)
Salary 26 000 (1)
Interest on capital 7 500 (1of)

48 500
LESS
Interest on drawings 3 360 (1of)

Profit for the year 45 140 (2cf/1of)

An anchor figure must be present for any marks to be awarded. [6]

(c) Goodwill is an intangible asset (1). It arises from the location (1) reputation (1) and customer
loyalty (1). It represents the value of the business in excess of (1) the book value of its net
assets (1). [4]

(d)
Capital accounts
Alec Jean Chris Alec Jean Chris
$ $ $ $ $ $
Goodwill 18 000 (1) 12 000 (1) 6 000 (1) Balance b/d 90 000 60 000
Balance c/d 93 600 62 400 48 000 Goodwill 21 600 (1) 14 400 (1)
Cash 36 000 (1)
Vehicle 12 150 (1)
Inventory 5 850 (1)

111 600 74 400 54 000 111 600 74 400 54 000

Balance b/d 93 600 62 400 48 000 (2cf/1of)

Marker Note:
Award 0 marks for Balance b/d is not brought down. [10]

[Total: 30]

CSS-O/A Levels-Accounts Department

 8 AS Partnership F/A's

Tania And Sue

2 (a) Income statement for the year ended 31 January 2015

$ $
Revenue 163 400
Add rent received (10400 / 13 × 12) 9 600
173 000 (1)
LESS
Insurance (13260 – 6400) 6 860 (1)
Wages (6500 + 8500) 15 000 (1)
Rates 9 500
Provision for doubtful debts (174 to 234) 60 (1)
Office expenses (28200 – 470) 27 730 (1)

Depreciation:
Fixtures and fittings 750 (1)
Motor vehicles 5 000 (1)
Computer equipment 1 300 (1) 66 200

Profit for the year 106 800 (1of)

[10]
(b) Current account – Tania
$ $
Int on drawings 350 (1) Balance 5 000
Drawings 5 000 (1) Int on capital 4 900 (1)
Balance c/d 71 068 Salary 17 400 (1)
Profit share 49 218

76 418 76 418
Balance b/d 71 068 (1)

[5]

CSS-O/A Levels-Accounts Department

 9 AS Partnership F/A's

Tom and Jerry

3 (a)
9 months 3 months
$ $
Profit from operations 9450 3150 (1 for both profits)
Less loan interest: 900 240
Profit before appropriation 8550 (1) 2910 (1)

Workings: [3]

(b)
Tom and Jerry
Appropriation Account for the year ended 30 November 2015

9 months 3 months
$ $ $
Profit before appropriation 8 550 2 910
Interest on drawings:
Tom 60
Jerry 21 81 (1)

Salary: Tom (4 054) (1)

Interest on capital:
Tom (1 800)
Jerry (1 080) (2 880) (1)
Remaining profit / loss 8 550 (3 943) (1) OF for
Split of remaining profit / loss: both
Tom 4 275 (1)OF (2 366) (1)OF
Jerry 4 275 both (1 577) both
8 550 (3 943)

[6]

(c)
Current accounts

Tom Jerry Tom Jerry

Balance b/d 10 800 Balance b/d 18 000
Interest on drawings 60 21 (1)OF Salary 4 054 (1) OF
Drawings 8 000 2 800 (1) Interest on capital 1 800 1 080 (1) OF
Loss 2 366 1 577 (1)OF Loan interest 1 140 (1) OF
Profit share 4 275 4 275 (1) OF
Balance c/d 18 843 Balance c/d 9 843
29 269 15 198 29 269 15 198
Balance b/d 9 843 Balance b/d 18 843 (1) OF

[8]

CSS-O/A Levels-Accounts Department

 10 AS Partnership F/A's

(d) Capital expenditure is expenditure on non-current assets (1) with an expected life of more
than 12 months (1) Max 1
Revenue expenditure is expenditure on running costs to generate income / day-to-day
operating expenses (1) Max 1 [2]

(e) Consistency (1)

• to assist comparisons of performance between years. (1)
• using the same depreciation method each year. (1)
OR
Prudence (1)
• avoid overstating profits / net assets (1)
• charging depreciation as an expense and so not overstating profits (1)
OR
Accruals / matching (1)
• match the cost of an asset with the income generated from its use (1)
• matching wear and tear of the asset against the reduction in value (1) [3]

(f) (i) Possible options could include:

• External loan
• Partner’s loan
• Introduce new partner
• Partner introduces additional capital
• Sale of unused non-current assets
• Hire purchase

Award 1 mark for identifying source plus max 2 marks for development (max 3 marks per
source)

For example
Bank loan (1)
Has to be paid back with interest at either a fixed or variable rate (1). May require
security / collateral to cover the possibility of loan default (1).

Introduce new partner (1)

Would introduce capital which doesn’t need to be repaid (1). The partner would however
expect a share of the profits (1). [6]

(ii) 1 mark for a decision about the source of funding and max 1 mark for any justification of
the outcome. [2]

[Total: 30]

CSS-O/A Levels-Accounts Department

 11 AS Partnership F/A's

4 Carlos and Erika

(a) $ $ 5
Profit for year before adjustments 37 490
Less:
Depreciation – Plant and machinery W1 6 250 (1)
– Motor vehicles W2 5 680 (1)
Loss on sale W3 1 200 (1)
13 130
Revised profit before appropriation 24 360 (2)CF(1)OF

W1: Depreciation plant and machinery

= 65 000 +7500 – 10 000 ×10% = 6250

W2: depreciation motor vehicles

= 18 000 – 3600 = (14 400 + 14 000) × 20% = 5680

W3: Loss on sale

(10 000 – 2000) = 8000 – 6800 = 1200

CSS-O/A Levels-Accounts Department

 12 AS Partnership F/A's

(b) Carlos and Erika 4

Appropriation account for the year ended 31 July 2018

Revised profit for the year 24 360

Add: Interest on drawings

Carlos –
Erika 300 300 (1)

Less: Interest on capital

Carlos (2 520)
Erika (840) (3 360) (1)

Less: Salary
Carlos (10 000)
Erika (15 000) (25 000) (1)

Loss (3 700)

Share of loss Carlos (2 775) }

Erika (925) }(1)OF
(3 700)

Revised profit must be candidate’s own figure from 1(a) to be awarded OF share of loss mark.

CSS-O/A Levels-Accounts Department

 13 AS Partnership F/A's

(c) Carlos and Erika 5

Current accounts
$ $ $ $
Carlos Erika Carlos Erika
Balance b/d 250 Balance b/d 1 300
Drawings 15 000 25 000 * Interest on capital 2 520 840 (1)OF
Interest on – 300 (1)OF Salaries 10 000 15 000 * (1)
drawings
Share of loss 2 775 925 (1)OF Balance c/d 3 955 10 635

17 775 26 475 17 775 26 475

Balance b/d 3 955 10 635 (1)OF

* Drawings/salaries both must be correct for 1 mark.

(d)(i) 4
( 46 × $385 000) (1) = $48 521 (1)
365

(d)(ii)
( 36 × $172 000) (1) = $16 964 (1)
365

CSS-O/A Levels-Accounts Department

 14 AS Partnership F/A's

(e) Positive working capital. (1) 4

The trade receivables collection period has deteriorated from 31 days to 46 days which could increase the possibility of bad
debts. (1)

The trade payables payment period has decreased by 3 days suggesting that creditors are being paid faster than they need to
be or less credit has been extended by suppliers. (1)

Cash flow problems may result. (1)

The above may have led to the increased bank overdraft and associated bank interest. (1)

There may be less effective credit control in place/may not be carrying out adequate credit referencing checks on new
customers. (1)

Max 4 marks

(f) The partners could reduce their salaries. (1) 3

The partners could reduce their drawings. (1)

Additional capital could be introduced by the existing partners. (1)

A new partner, or partners, could be admitted to the partnership. (1)

A loan could be negotiated. (1)

The partnership could dispose of surplus/unused non-current assets. (1)

Max 3 marks
Accept other valid points

CSS-O/A Levels-Accounts Department

 15 AS Partnership F/A's

(g) Remaining as a partnership 5

Disadvantages:

The partners usually have unlimited liability

Profits need to be shared with other partners

There is the possibility of disputes between the partners

Decisions made by one partner are legally binding on the others

Partnership will need to be dissolved if partner dies

1 mark per valid point

Max 2 marks

Becoming a limited company

Disadvantages:

Potential loss of control as additional shareholders invest

There will be costs associated with setting up the company

More detailed financial information

Available for public scrutiny

1 mark per valid point

Max 2 marks

1 for decision

Accept other valid points

CSS-O/A Levels-Accounts Department