Question Tag: Profit Sharing

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  • 20 Marks

TAX – May 2015 – L2 – SB – Q4 – Taxation of Partnerships and Sole Proprietorships

Calculate the chargeable income of each partner before and after the admission of a new partner and determine the basis period.

The Managing Partner of Aarinola Sunkanmi & Co., a firm of Estate Surveyors and Valuers based in Lagos, has invited you to calculate the Chargeable income of each of the firm’s partners after the admission of Mariam in 2014.

The information relating to the Partnership are as follows:

(a) The firm makes up its accounts up to 31 December of each year.

(b) Extracts from the books of account for the year ended 31 December 2014, are listed below:

Description Amount (₦)
Net profit for the year 1,380,000
Depreciation 450,000
Capital Allowances for the year 366,300
Balancing Allowance 72,500
Balancing Charge 75,480
Profit on sale of fixed assets 77,500
Legal expenses for successfully defending one of the partners for professional misconduct 14,000

(c) Other information:

(i) The THREE partners are Aarinola, Olasunkanmi and Murphiefe.

(ii) Profit sharing ratio is as follows:

  • Aarinola: 2
  • Olasunkanmi: 1
  • Murphiefe: 1

(iii) Aarinola and Murphiefe received ₦15,000 each as interest on loan per annum.

(iv) Salaries paid to each partner are as follows:

  • Aarinola: ₦140,000 per annum
  • Olasunkanmi: ₦60,000 per annum
  • Murphiefe: ₦60,000 per annum

(v) Olasunkanmi ceased to be a partner on 30 June 2014. Mariam was admitted on 1 July 2014. Mariam’s salary was fixed at ₦60,000 per annum. She also received interest on capital of ₦10,000 per annum.

(vi) Included in travelling expenses is the sum of ₦12,000 paid towards the annual vacation of Aarinola, the Principal Partner.

(vii) On Mariam’s admission in July 2014, the profit sharing ratio was changed to:

  • Aarinola: 10
  • Murphiefe: 7
  • Mariam: 3

Required:

a. Compute the Chargeable Income of each partner: i. Prior to admission of Mariam (9 Marks)
ii. Post-admission of Mariam (9 Marks)

b. State the basis period for the existing partners. (2 Marks)

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  • 20 Marks

TAX – May 2022 – L2 – SA – Q2 – Personal Income Tax (PIT)

Compute the personal income tax assessable for each partner in a partnership, considering legal fees, capital allowances, and profit-sharing.

You attended an interview for employment as Assistant Manager (Tax) in a professional firm. The following were presented to you to proffer solutions:

Mariam, Ola, Jude and Co., a firm of quantity surveyors, makes up its accounts to December 31 of each year. The following details were extracted from the firm’s accounting books in respect of the year ended December 31, 2019:

Item Amount (N)
Net profit for the year 1,540,000
Legal expenses for successfully defending one of the partners for alleged professional misconduct 100,000
Depreciation 360,000
Profit on sale of property, plant and equipment 4,220
Balancing charge 10,400
Balancing allowance 6,900
Capital allowances for the year 300,000

Additional information:

  1. Profit sharing ratio agreed by the partners: Mariam 2, Ola 3, Jude 5
  2. Mariam, Ola, and Jude received N7,400 each per annum as interest on loan to the firm
  3. Salaries paid to each of the partners are:
    • Mariam: N240,000
    • Ola: N200,000
    • Jude: N220,000

Required:
Compute the personal income tax assessable for each partner for the relevant year of assessment.

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  • 15 Marks

BL – Nov 2011 – L1 – SB – Q5 – Partnership Law

Discussing the required minimum contents of a partnership agreement and legal considerations in a dispute.

(a) “It is not necessary for any two or more persons who intend to enter into a partnership to enter into any formal agreement. Where, however, they decide to do so, such agreements must have certain minimum contents.”

State any SIX of these minimum contents. (6 Marks)

(b) Femi and Solape entered into an agreement to contribute equal amounts to buy books. They purchased the books and shared them between themselves for sale. Subsequent to the initial purchase, however, Femi purchased books alone. Solape demanded that she share equally with Femi the profit made from the sale of the books, but Femi refused on the ground that Solape had not contributed towards the purchase of the books. Solape threatened to institute a court action for one half of the profit made on the sale of the books, claiming a partnership agreement. The written agreement between them was for sharing of the books purchased, not for sharing of the profit.

You are required to advise the parties. (9 Marks)

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  • 1 Marks

FA – Nov 2011 – L1 – SA – Q4 – Partnership Accounts

This question calculates the profit share between partners.

What is the profit to be shared by the partners for the year?
A. N104,000
B. N108,000
C. N114,400
D. N120,000
E. N126,000

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  • 5 Marks

FA – Nov 2020 – L1 – SB – Q6a – Partnership Accounts

Explain the general rules under articles of partnership.

In the absence of any express agreement between partners in a firm, outline
six general rules to be applied in resolving issues between the partners.
(5 Marks)

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  • 15 Marks

FA – Nov 2012 – L1 – SB – Q5 – Accounting Concepts

Prepare joint venture accounts between Taiwo and Kehinde and the memorandum joint venture account.

Taiwo and Kehinde entered into a joint venture to acquire packaging materials for table water production and to sell them to table water producers. They agreed to share joint venture profits or losses in the ratio 3:2, respectively.

At the outset, Taiwo sent Kehinde a cheque of N200,000 for his participation in the venture. They sold all the goods and recorded the following cash transactions:

Taiwo (N) Kehinde (N)
Revenue 320,000 210,000
Traveling expenses 32,700 46,300
Advertising 10,300 9,100
Stall rent 8,500 7,000
Wages of casual helper 4,800 –
Sundry expenses 5,900 2,900
Purchases 160,000 110,000

Settlement between the co-venturers took place by cheque.

Required:

a. Prepare the Joint Venture with Kehinde Account in the ledger of Taiwo. (5 Marks)
b. Prepare the Joint Venture with Taiwo Account in the ledger of Kehinde. (5 Marks)
c. Prepare the Memorandum Joint Venture Accounts. (5 Marks)

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  • 1 Marks

FA – Nov 2012 – L1 – SA – Q28 – Partnership Accounts

Identifying the new profit-sharing ratio when a new partner is admitted.

Sanni and Ajayi are in partnership, sharing profits or losses equally. If Kunle is admitted as a new partner to take one-fifth as his share, what is the new profit or loss sharing ratio?

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  • 1 Marks

BL – May 2013 – L1 – SA – Q13 – Partnership Law

This question tests the method of sharing profits where no agreement exists.

In a partnership, where there is no agreement on sharing of profits, how do the partners share the profit?

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  • 1 Marks

FA – May 2013 – L1 – SA – Q35 – Partnership Accounts

This question asks for a partner’s share of the profit or loss on realisation.

What is Hassan’s share of profit or loss on realisation?

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  • 1 Marks

FA – May 2013 – L1 – SA – Q14 – Partnership Accounts

This question is about the profit share of a partner.

Bola, Emeka, and Sule are partners trading under the name BES Enterprises. They share profits or losses in the ratio of 3:2:1 respectively. The partnership made a net profit of N840,000 for the year ended 30 April 2013. What is Bola’s share of profit?

A. N300,200
B. N360,200
C. N361,000
D. N361,200
E. N362,100

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  • 15 Marks

FA – May 2014 – L1 – SB – Q4 – Partnership Accounts

Admission of a new partner, profit sharing, and preparation of capital and current accounts.

Biggy and Smallie were in partnership, sharing profits and losses in the ratio 2:1. They agreed to admit Fanny into the partnership from 1 January 2012. Fanny is to introduce N140,000, out of which N130,000 is to be his fixed capital. He is to receive a commission of N30,000 per annum in addition to a share of profit. The new profit-sharing ratio is 2:2:1 to Biggy, Smallie, and Fanny, respectively. Other provisions of the Partnership Deed are:

(i) Debit balance in current accounts at the beginning of the year is to attract 5% interest.
(ii) Goodwill is valued at N150,000. No account for goodwill is to be retained in the partnership books.
(iii) Details of the existing partners’ fixed capital and current accounts for the purpose of the agreement are:

Partner Fixed Capital (N) Current Account (N)
Biggy 360,000 100,000
Smallie 240,000 (60,000) DR

(iv) The draft final accounts for the year ended 31 December 2012, before taking into account Fanny’s commission and interest on partners’ current accounts, revealed a profit of N347,000.
(v) The drawings made by the partners are:

Partner Drawings (N)
Biggy 95,000
Smallie 45,000
Fanny 73,900 (including commission)

You are required to prepare:

a. A statement showing the sharing of profit for the year ended 31 December 2012. (5 Marks)
b. The Partners’ capital and current accounts for the year ended 31 December 2012. (10 Marks)

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  • 1 Marks

FA – May 2014 – L1 – SA – Q18 – Partnership Account

Determines the new profit-sharing ratio after admitting a new partner.

Chuks and Bala are in partnership, sharing profit or loss in the ratio 2:1. If Bode is admitted as a new partner to take one-fifth as his share of profit or loss, while the old partners retain their old ratios, what should be the new profit or loss sharing ratio of the Partners?
A. Chuks = 8/15, Bala = 4/15, Bode = 1/5
B. Chuks = 6/15, Bala = 5/15, Bode = 1/5
C. Chuks = 7/15, Bala = 6/15, Bode = 1/5
D. Chuks = 8/15, Bala = 4/15, Bode = 3/15
E. Chuks = 8/15, Bala = 9/15, Bode = 3/15

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  • 1 Marks

FA – May 2014 – L1 – SA – Q15 – Partnership Account

Calculates a partner's share of profit based on given ratios.

A, B, and C are in partnership sharing profits in the ratio of 5:4:2, respectively. In the year ended 31 March 2013, C’s share of profit was N180,000. What is A’s share of profit for the year?
A. N360,000
B. N400,000
C. N450,000
D. N550,000
E. N600,000

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  • 8 Marks

FA – Nov 2015 – L1 – SB – Q5b – Partnership Accounts

Prepare a statement showing the sharing of profit in a partnership.

Question:
b. Biggy and Smallie were in partnership, sharing profits and losses in the ratio 2:1. They agreed to admit Fanny into the partnership from January 1, 2014. Fanny is to introduce N140,000 out of which N130,000 is to be his fixed capital. He is to receive a commission of N30,000 per annum in addition to a share of profit. The new profit-sharing ratio is 2:2:1 to Biggy, Smallie, and Fanny, respectively. Other provisions of the Partnership Deed are:

i. Debit balance in current accounts at the beginning of the year is to attract 5% interest.
ii. Goodwill is valued at N150,000. Goodwill is not to be retained in the partnership books.
iii. Details of the existing partners’ fixed capital and current accounts for the purpose of the agreement are:

Partner Fixed Capital (N) Current Account (N)
Biggy 360,000 100,000
Smallie 240,000 60,000 (DR)

iv. The draft final accounts for the year ended December 31, 2014, before taking into account Fanny’s commission and interest on partners’ current accounts, revealed a profit of N347,000.
v. The drawings made by the partners are:

Partner Drawings (N)
Biggy 95,000
Smallie 45,000
Fanny 73,900 (including commission)

Required:
Prepare a statement showing the sharing of profit of the partnership for the year ended December 31, 2014.

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  • 20 Marks

FA – Nov 2021 – L1 – SB – Q2 – Partnership Account

This question involves partnership accounting with a new partner's admission, requiring the preparation of the profit or loss appropriation account and partners' current accounts.

Bala and Ade had been together in partnership for several years in plastic manufacturing, sharing profits and losses in the ratio of 3:2 after charging salaries of N3,000,000 p.a. each.

On September 1, 2020, Ngozi was admitted into the partnership on the following terms:

  1. That she paid N2,800,000 to the partnership as her capital contributions; and
  2. She would be entitled to a salary of N2,700,000 per annum and a 20% share of profits after charging all salaries.

Bala and Ade are to continue their old profit sharing ratios and Ngozi’s 20% share of profits is guaranteed at a minimum of N1,500,000 per annum by the old partners.

On December 31, 2020, the following balances were extracted from the partnership books of Bala, Ade, and Ngozi:

Accounts N’000
Capital Accounts:
Bala 28,000
Ade 18,000
Current Accounts:
Bala 4,800
Ade 2,000
Ngozi 2,800
Revenue 272,000
Purchases 190,000
Wages 20,000
Salaries 25,000
General Expenses 10,000
Plant and Machinery 25,000
Motor Vehicles 15,000
Receivables 20,000
Telephone Expenses 3,750
Payables 24,350
Inventory January 1, 2020 15,000
Allowances for Bad Debts 1,500
Bank Balance 17,100
Drawings:
Bala 6,600
Ade 5,000
Ngozi 1,000

Additional information:

  1. Allowances for doubtful debts should be maintained at 5% of receivables.
  2. Inventory at December 31, 2020, was valued at N12,000,000.
  3. Depreciation on plant and machinery is 20% per annum and on motor vehicles is 25% per annum.

You are required to: a. Prepare the statement of profit or loss and appropriation account for the year ended December 31, 2020, accounting for Ngozi on a pro-rata time basis. (12 Marks)
b. Prepare the partners’ current account for the same period. (8 Marks)

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  • 20 Marks

FA – Nov 2022 – L1 – SB – Q2 – Partnership Accounts

This question requires the preparation of a statement of profit or loss and appropriation account and partners’ current accounts.

Bala and Ade had been together in partnership for several years in plastic manufacturing, sharing profits and losses in the ratio of 3:2 after payment of salaries of N3,000,000 p.a. to each partner.

On September 1, 2020, Ngozi was admitted into partnership on the following terms:

  • (a) She paid N2,800,000 to the partnership as her capital contribution; and
  • (b) She would be entitled to a salary of N2,700,000 per annum and a 20% share of profits after charging all salaries.

Bala and Ade are to continue their old profit-sharing ratios, and Ngozi’s 20% share of profits is guaranteed at a minimum of N1,500,000 per annum by the old partners.

On December 31, 2020, the following balances were extracted from the partnership books of Bala, Ade, and Ngozi:

You are informed that:

  • (i) Allowances for doubtful debts should be maintained at 5% of receivables.
  • (ii) Inventory at December 31, 2020, was valued at N12,000,000.
  • (iii) Depreciation on plant and machinery is 20% per annum, and on motor vehicles, it is 25% per annum.

You are required to prepare the following:
a. Statement of profit or loss and appropriation for the year ended December 31, 2020, accounting for Ngozi on a pro-rata time basis. (12 Marks)
b. Partners’ current accounts for the above period. (8 Marks)

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  • 12 Marks

BL – May 2021 – L1 – SB – Q1c – Partnership Law

Dispute between partners over profit-sharing entitlement and registered partnership implications.

Oguche and Agoro have been friends for twenty-five years. They agreed to trade together by contributing money to buy textile materials from Aswani market in Lagos, Aba market in Abia State, and Sabongari market in Kano. The two friends have been buying the materials and sharing them for sale in towns and villages in Oyo State, Nigeria. Recently, Agoro bought textile materials from Kano when he visited his political associates in that city. Agoro resold the materials at a huge profit, and when Oguche became aware of that fact, he approached Agoro, demanding a share in the profit of the resale, basing his entitlement on the argument that they are partners. Agoro has refused to share the profit with Oguche, and the latter has approached you for advice.

Required:
i. Advise Oguche on whether or not he is entitled to a share in the profit that Agoro made. (6 Marks)

ii. Would you have advised Oguche differently if the two friends had a registered partnership under the name and style “Oguche and Agoro Ventures”? (6 Marks)

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  • 6 Marks

BL – Nov 2023 – L1 – SB – Q1b – Partnership Law

Advises on the legal position regarding a partnership dispute over the sharing of profits from palm oil fruit sales.

Ulokoagah, Etseosomi, and Ulekhia, farmers in Ilogboda, Edo State, agreed to carry on a business of buying palm oil fruits for milling, selling the product, and sharing whatever profits they made from the business. The three of them contributed ₦5,000 each as working capital. Etseosomi, thereafter, bought palm oil fruits with his own money, which he milled and sold at a profit. Ulokoagah and Ulekhia are demanding a share of Etseosomi’s profits, which the latter has rejected. The farmers have come to you for advice.

Required:
State the legal position and advise the farmers. (6 Marks)

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  • 1 Marks

FA – May 2021 – L1 – SA – Q11 – Partnership Accounts

Determine a partner's share of profit when minimum profit guarantee is in place.

Ajani, Bala, and Okon are in partnership sharing profit in ratio 5:4:2. During the period, the partnership made a profit of ₦18,200,000 after deducting partners’ salary and interests on capital. Ajani and Bala guaranteed Okon a minimum share of profit of ₦3,800,000. How much is Ajani’s share of the profit?

A. ₦4,472,727
B. ₦6,400,000
C. ₦6,618,181
D. ₦7,781,818
E. ₦8,000,000

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