CARIBBEAN EXAMINATIONS COUNCIL

1985

PRINCIPLES OF ACCOUNTS PAPER II GNERAL PROFICIENCY

Answer ALL questions in Section I and TWO questions from Section II.
Begin EACH answer on a separate page
Keep ALL parts of EACH answer together
Silent electronic calculators may be used, but ALL necessary working should be clearly
shown.

SECTION I
Answer all questions in this section.
Joe and Jill are trading in partnership with capital of $20 000 and $25 000
respectively. Profit and losses are shared in the ratio !: 4 respectively. The
balance sheet for this partnership is given below:
Joe and Jill
Balance Sheet
as at June 30, 2000
Capital
Joe
Jill
Debtors

Motor Vehicles
Stock

$20 000
25 000
8 500
$45 000

Creditors
Accrued Expenses

8 500
700

Cash at Bank
Cash in Hand

$20 000
$15 000
7 500
3

200
34 200

9 200
54 200

54 200

On July 1, 2000 a new partner, Tim, is introduced and he brings in capital of

$12 000. Profits and losses after admission are to be shared among Joe, Jill and
Tim in the ratio 1: 2: 2 respectively.
(a) Show the journal entries to record the admission of Tim who paid in his
capital as stated above, together with a premium of $7 500 to the
partnership bank account. The premium is shared in the profit and loss

ratio and the partners agree to leave the money in the business to assist
the working capital position.
( 5 marks)
(b) Prepare the ledger accounts using the information in part (a) above given that
the old partners asked that their share of the premium be paid to them
and not left in the business.
( 8 marks)
(c) Draw up the new Balance Sheet taking into consideration that Tim is unable
to pay the premium in cash. It was agreed that a Goodwill account of
$45 000 would be created and divided between Joe and Jill in the same
proportion in which they shared profits.
( 8 marks)
(d) Compare the Balance Sheet of June 30, 2000 with that of July 1, 2000 and
state
(i)
(ii)
(iii)

why the liquidity position has changed

how the new profit sharing ration would affect partner Jill
how the Goodwill would affect the new Balance Sheet. ( 3 marks)