ACC 202: FINANCIAL ACCOUNTING II

Accounting for Partnerships

TUTORIAL QUESTIONS

Question One

A, B, and C carried on a retail business in partnership. The partnership agreement

provides that:
1. The partners are to be credited at the end of each year with salaries of Tshs 1,000/= to
A, and Tshs 500/= each to B and C., and with interest at the rate of 5% p.a. on the
balances at the credit of their respective capital a/c at the commencement of the year.
2. No interest is to be charged on drawings.
3. After charging partnership salaries and interest on capital, profits and losses are to be
divided in the proportion: A 50%; B 30%; C 20%; with the proviso, however, that C’s
share in any year (exclusive of salary and any interest) shall not be less than Tshs
1,000/=, any deficiency to be borne in profit sharing ratio by the other two partners.

The trial balance of the firm at December 31, 1997 was as:
Dr Cr
Partner’s Capital accounts
Balance January 1, 1997 A 8,000
B 5,000
C 3,000
Partner’s Current accounts
Balance January 1, 1997 A 1.600
B 1,200
C 800
Sales 46,500
Trade creditors 3,700
Shop fitting at cost 3,600
Shop fittings – provision for depreciation January 1, 1997 1,400
Free hold premises – cost 6,000
Leasehold premises – purchases during the year 4,500
Purchases 28,000
Leasehold premises – additions and alterations 2,500
Stock on hand January 1, 1997 4,200
Salaries and wages 6,400
Office and trade expenses 4,520
Rent, rates and insurance 1,050
Professional charges 350

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Debtors 2,060
Provision for doubtful debts January 1, 1997 50
Balance at bank 4,370
Drawings – other than monthly payments
A 1,700
B 1,100
C 900
71,250 71,250
You are given the following additional information:
1. Stock on December 31, 1997 was valued at Tshs 3,600
2. A debt of Tshs 60/= is to be written off and the provision against the remaining
debtors should be 5%.
3. Salaries and wages include the following monthly drawings by the partners: A – Tshs
50/=; B – Tshs 30/=; and C – Tshs 25/=.
4. Partners had during the year been supplied with goods from stock and it was agreed
that these should be charged to them as follows: A – Tshs 60/= and B Tshs 40/=.
5. On December 31 rates paid in advance and office and trade expenses owing were
Tshs 250/= and Tshs 240/= respectively.
6. Depreciation of shop fitting is to be provided at 5% p.a. on cost.
7. Professional charges include Tshs 250/= fees paid in respect of the acquisition of the
leasehold premises, which fees are to be capitalised.
8. The cost of and the additions and alterations to the leasehold premises were to be
written off over 25 years, commencing on January 1 in the year in which the premises
were acquired.
You are required to prepare:
a) The trading and profit and loss a/c for the year ended December 31, 1997
b) The balance sheet as on that date, and
c) Partner’s current accounts in columnar form for the year ended December 31, 1997.

Question Two

The trial balance of A and B partnership as on 30th June 1984 is given below:

Dr Cr

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Net fixed assets 600,000
Stock on 1/7/1983 50,000
Current assets (excluding stock) 270,000
Purchases 800,000
Operating expenses 100,000
Sales 1,400,000
Capital account A 120,000
B 140,000
Current liabilities 25,000
Current accounts A 40,000
B 60,000
Drawings A 15,000
Loan from B (at 10% p.a) 50,000

Notes:

1. Stock on 30th June 1984 was Tshs 70,000/=

2. Partnership agreement provided for:
a. distribution of profit and loss in the ratio of 2:3 to A and B respectively
b. A to be entitled to a salary of Tshs 2,000/= per month, three months salaries
already paid and have been reflected in operating expenses.
c. Capital account to carry interest at 5% per annum.
d. Drawings to be charged 10% interest per annum, drawings were made on 1st
January 1984.
e. B is to guarantee share of profit to A of Tshs 200,000
3. Operating expenses in addition includes Tshs 3,000/= commission of B, which was
agreed upon, and loan interest for the whole year. The loan was given t o the firm at
more than the market interest.

Required:

Prepare trading and profit and loss and Appropriation account for the year ended 30th
June, 1984 and a balance sheet as on that date of the A and B partnership.

Question Three

Provided below is a balance sheet of the firm of Aye and Bee whose profit sharing ratio
is 2:1. Chris is admitted into the partnership, to fifth share of profit. Chris introduces one

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quarter of the combined capitals of Aye and Bee after adjustment for goodwill. At this
date, the value of unrecorded goodwill was Tshs 12,000/=. The profit sharing ratio of the
old partners in the firm between themselves is to remain as before.

Aye and Bee in Partnership

Balance sheet as at 30.6.2005

Tshs Tshs Assets Tshs Tshs

Capital Accounts Buildings 15,750
A 25,500 Machinery 9,225
B 10,500 24,975
36,000
Stock 13,500
Debtors 8,550
Cash at bank 900
Creditors 11,925 22,950
47,925 Total assets 47,925

Required:

Consider each case separately:

1. Assume Chris brings in the required amount of cash and that goodwill account is
maintained; show the relevant journal entries and the balance sheet after Chris’s
admission.
2. Assume no goodwill account is maintained and Chris introduces Tshs 9,600/= as his
capital and Tshs 2,400 for his share of goodwill; show the relevant journal entries and
the balance sheet after Chris’s admission.

Question Four

Ally and Ben are in partnership sharing profit and loss at 3:1. In November, they
admitted Nicole into the firm. It was agreed that Nicole should introduce Tshs 26,000/=.
The new profit ratio was agreed to be 5:4:1. The balance sheet before the admission of
Nicole was as follows:
Net Assets Tshs. 220,000
Capital Accounts
A 120,000
B 100,000 220,000

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Goodwill was valued to Tshs 60,000/=. However, this valuation was not included in the
above assets.

Required:

Show partners accounts and balance sheets after Nicole’s admission under each of the
following possibilities:
a. When goodwill account is maintained;
b. When goodwill account is not maintained.

Question Five

X, Y and Z, sharing profits and losses equally, had been trading for many years and Z
decided to retire as at 31st December, 2004, on which date the balance sheet of the firm
was as under:
Tshs Tshs
Fixed assets
Freehold premises 8,000
Plant and equipment 4,000
Patents 6,000
18,000
Current assets
Stock 5,000
Debtors 6,000
Cash 3,000
14,000
Less Creditors 8,000
6,000
24,000
Capital accounts

X 10,000
Y 8,000
Z 6,000
24,000
The value of the goodwill was agreed at Tshs 8,000/=.
The freehold premises had increased in value as a result of general economic conditions,
the value being agreed at Tshs 11,000/=. Plant and patents were respectively revalued at
Tshs 3,600/= and Tshs 5,300/= and it was also agreed to provide 5% in respect of

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debtors, it having been the practice in the past only to write off bad debts actually
incurred.
Show the adjusted balance sheet of the firm, and the amount to which Z would be entitled
under the following alternative assumptions:
1. the ongoing partners wish to retain the assets in the balance sheet at their revised
valuations;
2. the assets are to be reflected in the balance sheet at their previous valuations

Question Six

A, B, and C sharing profits in the ratio 3:2:1 found it necessary to end their partnership
on 31st May, 1997 when their machinery was destroyed in an accident and since its
insurance cover had lapsed two months earlier, only Tshs 140, 000/= could be realized
from its salvage. Trial balance extracted on this date was as follows:

Tshs Tshs
Capital Account – A 1,500
-B 1,500
-C 1,000
Current Account – A 150
-B 20
-C 50
Net profit – for 11 months to 31 May 300
Bank overdraft 448
Machinery (NBV) 1,920
Equipment 800
Stock 1,664
Personal ledger balances 1,868 686
B’s loan 900
Cash in hand 2
6,404 6,404

Equipment was disposed off at Tshs 480,000/= and stock in trade Tshs 1,025,000/=,
while debtors realized only Tshs 1,082,000/=. Expenses of realization amounted to Tshs
75,000/=.

Required:

a. Close the books of the partnership.

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b. Same as above, but “A” has no private assets to discharge his indebtedness.

Question Seven

The firm of Jay, Essy and Arr decide to form a limited company, J, S &R Ltd, and
transfer the business thereto. Their balance sheet is as follows:

J, S, & R
Balance sheet as at 30 June
Tshs Tshs
Capital Accounts Plant and Property 40,900
J 25,000 Furniture and Fittings 1,500
S 15,000 Stock in trade 19,500
R 10,000 Debtors 68,830
Less Provision 2,000 66,830
Creditors 63,300 Cash at bank 4,500
Loan on Mortgage 20,000 Cash in hand 70
133,300 133,300

They share profits in the following ratio 4:3:2 the purchase consideration was Tshs
85,000/= (the company taking over all the assets and liabilities except the loan on
mortgage) and was payable as to Tshs 25,000/= in cash, Tshs 20,000/= in 5% mortgage
debentures and Tshs 40,000/= in ordinary shares. Expenses amounting to Tshs 600/=
were payable by the firm.

Required:

Assuming the transactions to have been carried through, and the loan on mortgage repaid,
close the books of the firm, the debentures and shares being divided between the partners
in the following proportions: Jay one-half, Essy one-quarter, and Arr one-quarter.