Benny, Sammy and Jenny

Partnership appropriation account for the year ended 31 January 2022

01.02.2021 01.09.2021
to to
31.08.2021 31.01.2022
£ £
Profit for the year (W1) 58 625 41 875

Less
Salary: Sammy (W2) 14 350 10 250

Interest on capital (W3) (W4)

Benny 1 575 1 310
Sammy 2 940 1 490
Jenny 125

--------- ---------
Profit available for distribution 39 760 28 700

Share of Profits (W5)

Benny 19 880 10 045
Sammy 19 880 11 480
Jenny 7 175

Question 2
Workings:
W1
Profit for the year as at 31.08.2021 = £100 500 x 7/12 = £58 625
Profit for the year as at 31.31.2022 = £100 500 x 5/12 = £41 875

W2
Salary – Sammy as at 31.08.2021 = £24 600 x 7/12 = £14 350
Salary – Sammy as at 31.01.2022 = £24 600 x 5/12 = £10 250

W3
Interest on capital: Benny, Sammy
Benny £45 000 x 6% x 7/12 = £1 575
Sammy £84 000 x 6% x 7/12 = £2 040

W4
Interest on capital: Benny, Sammy, Jenny
Benny £45 000 + £25 500 + (£27 000 - £18 900) = £78 600
£78 600 x 4% X 5/12 = £ 733

Sammy £84 000 + (£27 000 - £21 600) = £89 400

£89 400 x 4% x 5/12 = £1 490

Jenny (£21 000 - £13 500) x 4% x 5/12 = £125

W5
Share of profits: Benny and Sammy
Benny £39 760 x 50% = £19 880
Sammy £39 760 x 50% = £19 880

Share of profits: Benny, Sammy and Jenny

Benny £28 700 x 35% = £10 045
Sammy £28 700 x 40% = £11 480
Jenny £28 700 x 20% = £7 175
(a) (i) Goodwill is in intangible asset that represent the reputation built up by
the business., equalling to the difference between the sale price of the
business and the net value of the assets less liabilities.

(ii) Examples of goodwill include location, quality products,

skilled/experienced staff, brand, reputation, loyal customers

(iii) Reasons include: it is difficult to value or to estimate of cost; the value

of
goodwill can fluctuate; it also goes against prudence concept as assets
may be overstated until it is realised.

(iv) Profit/loss for the year: no effect (goodwill is asset)

Bank overdraft: no effect

(c) Regarding Jenny’s proposal to combine the capital and current account in this
partnership, it is preferred to reject such as idea due to the following reasons:

 if capital injections and share of profits are kept separate, it enables more
accurate calculation for the appropriation account.

 Capital account is preferred to be kept fixed – for easier calculation of interest on

capital

 If current account is kept fluctuating, it is easier for the partners to know what
their annual earnings were for the financial year

 Some partners may wish to show the excess/surplus for their share of profit
which has not been withdrawn.

 Also, with a fixed capital account and fluctuated current account, it is easier to
tell that Jenny has withdrawn more than she is entitled to, and it is a fact that can
be hidden from other partners if both accounts are combined. It is illustrated
below:
Drawings Share of profits*
£ £
Benny 26 000 32 810
Sammy 35 000 60 390
Jenny 10 000 7 300
As shown above, it is quicker to find the information for the financial statement
which should include the amount invested in the partnership by each partner if
the capital and current accounts are separated.
1(a) Unrealised profit included in inventory on 31 Dec 2019
= Unrealised profit included in inventory (1 Jan 2019) – changes in provision for
provision for unrealised profit
= £40 000 - £15 000
= £25 000

(b) Rate of factory profit

= Unrealised profit / (Inventory of finished good – Unrealised profit) x 100%
= 25 000 / (125 000 – 25 000) x 100%
= 25%