FA – L1 – Q83 – Preparation of Partnership accounts

Define books of prime entry and list four examples.

Question

(a) (i) Define book of prime entry.

(ii) Mention any four (4) books of prime entry.

(b) Farida, Jibril, and Esther are in partnership sharing profits and losses in the ratio of 5:3:2 respectively. According to the partnership agreement, partners’ capital accounts attract an interest of 20% per annum, while any drawings by a partner also attract 10% interest per annum.
The following trial balance has been extracted after the preparation of the statement of profit or loss for the period ending 31st December, 20X9.

Debit	GH¢	Credit	GH¢
Building	55,000	Capital – Farida	50,000
Furniture and Fittings	20,000	Capital – Jibril	30,000
Motor vehicle	45,000	Capital – Esther	20,000
Inventory	20,000	Payables	25,000
Receivables	20,000	Loan – Esther	20,000
Cash and bank	35,000	Current account – Farida	2,000
Current account – Jibril	5,000	Profit for the year	60,000
Current account – Esther	10,000
Total	210,000	Total	210,000

The following entries have not been recorded in the books:
(i) Salary of GH¢5,000 was paid to Esther during the period.
(ii) Farida personally paid general expenses of GH¢2,500 on behalf of the partnership.
(iii) Cash drawings made by partners: Farida GH¢500, Jibril GH¢1,500, and Esther GH¢1,200.
(iv) Interest on loan – Esther – GH¢2,000.
(v) Jibril took goods worth GH¢2,000 for personal use.
(vi) Interest on capital account. All capital accounts were to remain fixed.

You are required to prepare:
(i) Profit or loss and appropriation account.

(ii) Partners’ current account.

(iii) Farida, Jibril, and Esther Partnership

Answer

(a) (i) A book of prime entry is a record in which transactions are first entered before they are transferred to the ledger accounts.
(ii) Four books of prime entry are:

Sales day book
Purchases day book
Cash book
Journal

(B).(i) Farida, Jibril, and Esther Partnership
Profit or Loss and Appropriation Account for the year ended 31st December, 20X9

GH¢	GH¢
Profit for the year	60,000
Less: Interest on loan – Esther	(2,000)
	58,000
Add: General expenses (paid by Farida)	2,500
Adjusted profit	60,500
Less: Appropriation
Interest on capital:
Farida (20% × 50,000)	10,000
Jibril (20% × 30,000)	6,000
Esther (20% × 20,000)	4,000
	(20,000)
Salary – Esther	(5,000)
	35,500
Interest on drawings:
Farida (10% × 500)	50
Jibril (10% × (1,500 + 2,000))	350
Esther (10% × 1,200)	120
	520
	36,020
Share of profit:
Farida (5/10)	18,010
Jibril (3/10)	10,806
Esther (2/10)	7,204
	(36,020)
	0

(ii) Farida, Jibril, and Esther Partnership
Partners’ Current Account

Debit	Farida (GH¢)	Jibril (GH¢)	Esther (GH¢)	Credit	Farida (GH¢)	Jibril (GH¢)	Esther (GH¢)
Bal b/d		5,000	10,000	Bal b/d	2,000
Drawings	500	1,500	1,200	Salary			5,000
Goods		2,000		Int. on loans			2,000
Interest on Drawings	50	350	120	Gen. exp.	2,500
Balance c/d	31,510	7,956	6,884	Int. on cap.	10,000	6,000	4,000
				Share of profit	18,010	10,806	7,204
Total	32,510	16,806	18,204	Total	32,510	16,806	18,204

(iii) Farida, Jibril, and Esther Partnership
Statement of Financial Position as at 31st December, 20X9

Assets	GH¢	GH¢
Non-current assets
Building	55,000
Furniture and Fittings	20,000
Motor vehicle	45,000	120,000
Current assets
Inventory	20,000
Receivables	20,000
Cash & bank (35,000 – (500 + 1,500 + 1,200))	31,800
	71,800
Less: Current liabilities
Payables	25,000	46,800
Total assets		166,800
Financed by:
Capital accounts:
Farida	50,000
Jibril	30,000
Esther	20,000	100,000
Current accounts:
Farida	31,960
Jibril	7,956
Esther	6,884	46,800
Loan		20,000
Total equity and liabilities		166,800

Tags: Drawings, Interest on capital, Partnership accounts, Profit and loss appropriation, Salaries
Level: Level 1

Topic: Preparation of Partnership accounts

Uploader: Samuel Duah