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PARTNERSHIP

Ch. 1 0 – 1 3 Classwork Questions

2020 – 2021 DSE

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 Financial Statements for Partnerships

Question 1

Anna, Bob and Carol are in partnership, sharing profits and losses in the ratio of 2 : 2 : 1. You are given
the following information on the partnership for the year ended 31 December 2021:

(i) Net profit for the year: $350,000.

(ii) Interest on capital: 5% per annum, calculated based on the capital account balances at the
beginning of the financial year.

(ii) Interest in drawings: 10% per annum.

(iii) Carol was entitled to a salary of $100,000 per annum.

(iv) Information related to drawings:

Anna (withdrawn on 1 April 2021) $30,000
Bob (withdrawn on 1 July 2021) $50,000

(iv) Current account balances as at 1 January 2021: Anna $65,000, Bob $25,000, Carol $20,000.

(v) Capital account balances as at 1 January 2021: Anna $1,200,000, Bob $600,000, Carol $200,000.

REQUIRED

Prepare for the partnership an appropriation account for the year ended 31 December 2021.

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 Anna, Bob and Carol
Appropriation account for the year ended 31 December 2021
$ $
Net profit 350,000
Add Interest on drawings: Anna ($30,000 x 10% x 9/12) 2,250
Bob ($50,000 × 10% x 6/12 ) 2,500 4,750
354,750
Less Interest on capital: Anna ($1,200,000 × 5%) 60,000
Bob ($600,000 × 5%) 30,000
Carol ($200,000 × 5%) 10,000 100,000
Salary to partner: Carol 100,000
154,750

Balance of profit shared: Anna (2/5) 61,900

Bob (2/5) 61,900

Carol (1/5) 30,950 150,000

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Question 2

Apple, Banana and Cranberry are partners, sharing profits and losses in the ratio of 5 : 3 : 2.

The partnership agreement provides the following information:

(i) Interest on capital is to be allowed at a rate of 6% per annum on the capital account balance.
(ii) Interest on drawings is to be charged at a rate of 5%.
(iii) Banana and Cranberry are entitled to a salary of $240,000 and $200,000 per annum, respectively.

The partnership had the following balances in their books as at 31 December 2017:

$
Sales 5,300,000
Cost of goods sold 3,100,000
Operating expenses 600,000
Capital account: Apple 3,000,000
Capital account: Banana 4,000,000
Capital account: Cranberry 2,000,000
Current account: Apple 140,000
Current account: Banana (240,000)
Current account: Cranberry 200,000
Drawings: Apple 128,000
Drawings: Banana 80,000
Drawings: Cranberry 300,000
Machinery, net book value 10,000,000
Inventory 250,000
Trade receivables 750,000
Cash at bank 92,000
Trade payable 400,000
10% bank loan (repayable in 2027) 500,000

REQUIRED
(a) Prepare an income statement for the year ended 31 December 2017. (12 marks)
(b) Draw up the partners’ current accounts in columnar form. (10 marks)
(c) Prepare a statement of financial position as at 31 December 2017. (5 marks)

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(a) Apple, Banana and Cranberry
Income Statement for the year ended 31 December 2017
$ $ $
Sales 5,300,000 0.5
Less Cost of goods sold 3,100,000 0.5

Gross profit 2,200,000

Less Operating expenses 600,000 0.5

Net profit 1,600,000 0.5

Add Interest on drawings: Apple ($128,000 ´ 5%) 6,400 1

Banana ($80,000 ´ 5%) 4,000 1

Cranberry ($300,000 ´ 5%) 15,000 25,400 1

1,625,400
Less Interest on capital: Apple ($3,000,000 ´ 6%) 180,000 1

Banana ($4,000,000 ´ 6%) 240,000 1

Cranberry ($2,000,000 ´ 6%) 120,000 540,000 1

Salaries to partners: Banana 240,000 0.5
Cranberry 200,000 440,000 980,000 0.5

645,400
Balance of profit shared: Apple (5/10) 322,700 1
Banana (3/10) 193,620 1
Cranberry (2/10) 129,080 645,400 1

(b) Current
Apple Banana Cranberry Apple Banana Cranberry
2017 $ $ $ 2017 $ $ $

Jan 1 Balance b/f — 240,000 — Jan 1 Balances b/f 140,000 — 200,000 0.5 each

Dec 31 Drawings 128,000 80,000 300,000 Dec 31 Interest on 0.5 each

Dec 31 Interest on capital 180,000 240,000 120,000

drawings 6,400 4,000 15,000 Salaries to 0.5 each

" 31 Balances c/f 508,300 349,620 334,080 partners — 240,000 200,000 0.5 each

Share of profit 322,700 193,620 129,080 0.5 each

642,700 673,620 649,080 642,700 673,620 649,080

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(c) Apple, Banana and Cranberry
Statement of Financial Position as at 31 December 2017
Non-current assets $ $
Machinery, net book value 10,000,000 0.5

Current assets
Inventory 250,000
Trade receivables 750,000
Cash at bank 92,000 0.5

1,092,000
Less Current liabilities 0.5
Trade payable 400,000
Net current assets 692,000
10,692,000
Less Non-current liabilities 0.5

10% bank loan 500,000

10,192,000
Financed by:
Capital account: Apple 3,000,000 0.5
Banana 4,000,000 0.5

Cranberry 2,000,000 9,000,000 0.5

Current account: Apple 508,300 0.5

Banana 349,620 0.5

Cranberry 334,080 1,192,000 0.5

10,192,000

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Question 3 (2014 DSE Q5)

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Question 4

Chan and Li have formed a partnership, sharing profits and losses in the ratio of 3:2. The following is the

trial balance of Chan and Li as at 31 December 2016:

Chan and Li

Trial Balance as at 31 December 2016

$ $

Capital accounts:

Chan 140,000

Li 155,800

Current accounts:

Chan 1,800

Li 24,500

Net profit for the year 1,000,000

Machinery, at cost 480,000

Accumulated depreciation – Machinery, 1 January 2016 90,000

Trade receivables 900,000

10% loan from Li (borrowed on 1 July 2016) 40,000

Loan interest 1,500

Salary – Chan 60,000

Drawings – Li 7,000

1,450,300 1,450,300

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Additional information:

(i) Interests on capital and drawings were 5% and 10% per annum respectively. Li made the drawings

on 1 July 2016.

(ii) Chan was entitled to a salary of $70,000 per year.

(iii) The company paid $1,500 to Li for the loan interest. The remaining unpaid loan interest to Li had to

be recorded in the current account.

(iv) The machine was depreciated based on usage. The residual value of the machine is $3,000 with

estimated production units of 100,000. The machine had produced 60,000 units on 31 December

2016. The depreciation of the machine was not recorded in the books.

REQUIRED:

(a) Prepare a statement to calculate the adjusted net profit for the year ended 31 December 2016.

(2 marks)

(b) Prepare a profit and loss appropriation account of Chan and Li for the year ended 31 December

2016. (4 marks)

(c) Prepare the partners’ current accounts in columnar form. (5 marks)

(Total: 11 marks)

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 Marks
(a) Statement to calculate the adjusted net profit
for the year ended 31 December 2016
$ $
Net profit 1,000,000
Less: Loan interest ($40,000 ´ 10% ´ 6/12) 2,000 ½
Depreciation expense (W1) 286,200 288,200 1
Adjusted net profit 711,800 ½
(2)
(W1) Depreciation expense:
($480,000 – $3,000) × 60,000/100,000 = $286,200

(b) Chan and Li

Profit and loss appropriation account for the year ended 31 December 2016
$ $
Net profit 711,800 ½
Add: Interest of drawings
– Li ($7,000 ´ 10% ´ 6/12) 350 ½
712,150
Less: Interest on capital
– Chan ($140,000 ´ 5%) 7,000 ½
– Li ($155,800 ´ 5%) 7,790 ½
Salary
– Chan 70,000 84,790 1
627,360

Share of profit:
– Chan (3/5) 376,416 ½
– Li (2/5) 250,944 ½
627,360

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(c) Current
Chan Li Chan Li
$ $ $ $
½ Balance b/d 1,800 – Balance b/d – 24,500 ½
½ Interest of drawings – 350 Loan interest – 500 1
½ Drawings – 7,000 Salary – Chan 10,000 – 1
Balance c/d 391,616 276,384 Interest on capital 7,000 7,790 ½
Share of profit 376,416 250,944 ½
447,416 319,734 447,416 319,734

(5)
11 marks

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 Partnership Goodwill and Revaluation

Question 5

Kenny and Jacky were partners in a retail business, sharing profits and losses in the ratio of 3 : 2. Their
balance sheet as at 31 December 2010 was as follows:

Kenny and Jacky

Balance Sheet as at 31 December 2010
$ $ $
Non-current assets Capital accounts
Premises 30,000 Kenny 37,400
Furniture and fittings 40,000 Jacky 37,400
70,000 74,800
Current assets Current liabilities
Inventory 5,000 Accounts payable 7,000
Accounts receivable 4,500
Cash at bank 2,300 11,800
81,800 81,800

They decided to admit Benny as a partner with effect from 1 January 2011. Benny was required to
contribute capital of $50,000 by cheque and the new profit and loss sharing ratio for Kenny, Jacky and
Benny was 3 : 2 : 2.

On 1 January 2011, the following assets were revalued to: premises $65,000; furniture and fittings $61,000;
inventory $3,600. An allowance was to be made for doubtful accounts at 4% of accounts receivable.

Goodwill was valued to be $28,000. As the partners in the new partnership did not wish to maintain a
goodwill account, the goodwill amount was to be written off against the new partners’ capital accounts.

REQUIRED:

Draw up the revaluation account and the partners’ capital accounts (in columnar form).

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 Revaluation
$ $ $

Inventory ($5,000 – $3,600) 1,400 Premises ($65,000 – $30,000) 35,000

Allowance for doubtful accounts 180 Furniture and fittings ($61,000 – $40,000) 21,000
Profit on revaluation —

Capital: Kenny (3/5) 32,652

Capital: Jacky (2/5) 21,768 54,420

56,000 56,000

Capital

Kenny Jacky Benny Kenny Jacky Benny

$ $ $ $ $ $
Goodwill adj. (W1) ¾ ¾ 8,000 Balances b/f 37,400 37,400 ¾
Balances c/d 74,852 62,368 42,000 Bank ¾ ¾ 50,000
Goodwill adj. (W1) 4,800 3,200 ¾
Revaluation - profit 32,652 21,768 ¾
74,852 62,368 50,000 74,852 62,368 50,000

(W1)
Partner Goodwill in old ratio Goodwill in new ratio Gain (loss) from change Required adjustment
Kenny (3/5)$16,800 (3/7)$12,000 ($4,800) Cr Kenny $4,800
Jacky (2/5)$11,200 (2/7)$8,000 ($3,200) Cr Jacky $3,200
Benny — (2/7)$8,000 $8,000 Dr Benny $8,000
$28,000 $28,000
(Total 7 marks)

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Question 6 (2004 CE Q7)

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Question 7 (2016 DSE Q5)

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Question 8 (2001 CE Q9)

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Question 9 (2009 CE Q4)

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Question 10 (2010 CE Q4)

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Question 11 (2003 CE Q6)

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Question 12 (2013 DSE Q4)

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Question 13 (2018 DSE Q4)

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Question 14 (2019 DSE Q7)

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 Partnership Dissolution
Question 15 (2012 DSE Q7)

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Question 17 (2015 DSE Q5)

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Question 18 (2020 DSE Q6)

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Question 19 (2006 CE Q6)

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Question 20 (2000 CE Q9)

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Question 21 (2002 CE Q7)

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Question 22 (2005 CE Q6)

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Question 23

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Question 24 (2011 CE Q6)

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Question 25 (2021 DSE Q8)

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Question 26 (2017 DSE Q8)

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