Partnership accounts

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

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

Topic: Preparation of Partnership accounts

FA – L1 – Q81 – Preparation of Partnership accounts

Prepare capital accounts and statement of financial position for Alvin, Boris, and Gina partnership after Gina's admission, including adjustments for goodwill and revaluation.

Question

Alvin and Boris are partners in a firm sharing profits and losses in the ratio of 3:2. The Statement of financial position of the firm as on 31 March 20X9 was as under:

Assets	GH¢
Furniture and fixture	600,000
Office equipment	300,000
Motor car	375,000
Inventory	250,000
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Due to expansion in the business, Gina was admitted as a partner with effect from 1 April 20X9. Gina brought furniture worth GH¢120,000 and inventory costing GH¢80,000. She also contributed cash of GH¢150,000 plus her proportionate share of goodwill valued at two years’ purchase of the average profits of the last three years.
Following adjustments were considered necessary, at the time of admission:
(i) On 1 April 20X7, new furniture costing GH¢8,000 was purchased but wrongly debited to revenue account. The firm charges depreciation on furniture @ 10% on straight line basis.
(ii) An invoice dated 1 October 20X8 for purchase of goods amounting to GH¢24,000 has not been recorded.
(iii) Value of the sundry receivables on 31 March 20X9 is to be reduced by 6%.
The profits of the last three years, before the above adjustments were:

Year	GH¢
20X8-11	352,100
20X7-10	232,000
20X9-09	128,000

It was decided that the future profits of the firm would be shared among Alvin, Boris, and Gina in the ratio of 5:3:2 respectively.

Required:
Prepare the capital accounts of the partners and the statement of financial position of the firm on Gina’s admission as a partner.

Answer

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Tags: Adjustments, Capital accounts, Depreciation, Financial Statements, Goodwill, Partner admission, Partnership accounts, Profit-sharing ratio, Revaluation, Statement of Financial Position
Level: Level 2

Topic: Preparation of Partnership accounts, Preparing financial statements

FA – L1 – Q80 – Preparation of Partnership accounts

Prepare capital accounts for Djembo, Akwele, and Eduvie partnership after Eduvie's admission, including revaluation, goodwill, and profit allocation.

Question

Djembo and Akwele were in partnership and shared profits and losses in the ratio of 3:2 respectively. The balances on the partners’ capital accounts at July 1 20X8 were: Djembo GH₵250,000, Akwele GH₵400,000.
Due to expansion of business, Eduvie was admitted as a partner on October 1, 20X8 under the following arrangements:
(i) Assets were revalued upwards by GH₵200,000 but the revaluation was not recorded in the books.
(ii) Goodwill of the firm was assessed at GH₵300,000 and was retained in the books.
(iii) Eduvie invested GH₵500,000 as capital.
(iv) Eduvie was allowed a monthly salary of GH₵20,000 whereas Djembo and Akwele continued to receive salaries of GH₵28,000 and GH₵25,000 per month respectively, as in the past.
(v) The balance profit was to be shared: Djembo 35%; Akwele 35% and Eduvie 30%.
(vi) Mr. Atikpui was hired as manager from October 1, 20X8 at a salary equal to 5% of the profit remaining after deducting such salary but before charging partners’ salaries.
The profit for the year ended June 30, 20X9 amounted to GH₵486,000 after:
(i) Making allowance for a debt of GH₵48,000 incurred prior to July 20X8; and
(ii) providing for the partners’ salaries.
In addition to salaries, the partners withdrew the following amounts:
Djembo GH₵150,000; Akwele GH₵120,000; and Eduvie GH₵90,000

Required:
Partners’ capital accounts for the year ended June 30, 20X9.

Answer

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Tags: Capital accounts, Drawings, Financial Statements, Goodwill, Partnership accounts, Profit sharing, Revaluation, Salaries
Level: Level 1

Topic: Preparation of Partnership accounts

FA – L1 – Q78 – Preparation of Partnership accounts

Prepare capital accounts and statement of financial position for M, N, O partnership after O's retirement and T's admission, adjusting for goodwill and revaluations.

Question

M, N, and O are partners sharing profit in the ratio of their capitals. Their statement of financial position at June 30, 20X9 was as follows:

Statement of financial position as at June 30, 20X9

Assets	GH₵
Land and building	450,000
Motor cars	350,000
Equipment	95,000
Inventories	500,000
Receivables	400,000
Less: Allowance	(60,000)
	340,000
Investments	300,000
Cash in hand	65,000
Cash at bank	450,000
Total Assets	2,550,000

Capital and Liabilities	GH₵
Capital:
M	640,000
N	320,000
O	480,000
	1,440,000
Payables and accrued expenses	485,000
Loan from N	625,000
Total Capital and Liabilities	2,550,000

On July 1, 20X9, O retired. His share of the net assets of the partnership was ascertained after taking into account the following adjustments:
(i) The allowance against receivables was to be adjusted to 10% of the book value of the receivables.
(ii) Inventories were to be written down by 5%.
(iii) The investments were revalued to their market value which was GH₵ 435,000.
(iv) Investments with a market value of GH₵ 160,000 were taken over by O.
(v) A motor car having a book value of GH₵ 150,000 was taken over by O for GH₵ 200,000.
(vi) O’s share of goodwill was agreed at GH₵ 216,000.

T was admitted as a partner on the same day that O retired and on the basis of the adjusted statement of financial position. He was given one-fourth share in the profits and he bought a proportionate share of capital and goodwill by paying cash into the business. The basis of valuation of goodwill for the purpose of admission of T as a partner was the same as at the time of O’s retirement.

M and N have decided that the cash paid in by T in respect of goodwill will be taken out of the business by them in their profit-sharing ratio.

Required:
Prepare capital accounts of the partners in columnar form and the statement of financial position of the firm as at July 1, 20X9 after the admission of T, assuming that goodwill is not retained in the books of account.

Answer

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Tags: Admission, Capital accounts, Cash Payments, Financial Statements, Goodwill, Partnership accounts, Profit-sharing ratio, Retirement, Revaluation, Statement of Financial Position
Level: Level 1

Topic: Preparation of Partnership accounts

FA – L1 – Q77 – Preparation of Partnership accounts

Prepare partnership accounts for X and Y Dental Practice admitting a new partner, including goodwill valuation and capital adjustments.

Question

X and Y are partners in a dental practice who share profits and losses in the ratio of 3:2. Their statement of financial position as on June 30, 20X9 is as follows:

Assets	GH¢
Non-current assets	2,625,000
Investments	437,500
Long term receivables	875,000
Current assets	1,750,000
Total Assets	5,687,500

Capital and liabilities	GH¢
Capital account:
X	1,050,000
Y	700,000
Total Capital	1,750,000
Long term loans	1,750,000
Current liabilities	2,187,500
Total Capital and Liabilities	5,687,500

They agree to admit Z as a new partner with effect from July 1, 20X9 on the following terms and conditions:

(i) The goodwill of the firm is to be valued at 2 years’ purchase of the average profits of the firm for the last three years GH¢ (This means that the average annual profit over the last three years is to be multiplied by 2). The profits over the last three years are as follows:

Year ended June 30, 20X7: GH¢675,000
Year ended June 30, 20X8: GH¢(700,000)
Year ended June 30, 20X9: GH¢1,000,000

(ii) Goodwill will not appear in the books of the firm.

(iii) Z will bring in cash amounting to GH¢1,460,000 which includes his share of goodwill in the firm.

(iv) Assets of the firm were agreed to be revalued as follows:

Non-current assets (net of depreciation): GH₵3,100,000
Long term receivables: GH₵875,000
Current assets: GH₵1,575,000

Investments will be taken over equally by Smith and Jones at their fair market value of GH₵400,000.

(v) The new profit sharing ratio is to be 7:5:8.

Required:
(a) Prepare the following ledger accounts:

Revaluation account
Partners’ capital accounts

(b) Prepare the opening statement of financial position of the new firm as on July 1, 20X9.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Capital accounts, Financial Position, Goodwill valuation, Partnership accounts, Profit-sharing ratio, Revaluation
Level: Level 1

Topic: Preparation of Partnership accounts

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FA – L1 – Q83 – Preparation of Partnership accounts

Define books of prime entry and list four examples.

FA – L1 – Q81 – Preparation of Partnership accounts

Prepare capital accounts and statement of financial position for Alvin, Boris, and Gina partnership after Gina's admission, including adjustments for goodwill and revaluation.

FA – L1 – Q80 – Preparation of Partnership accounts

Prepare capital accounts for Djembo, Akwele, and Eduvie partnership after Eduvie's admission, including revaluation, goodwill, and profit allocation.

FA – L1 – Q78 – Preparation of Partnership accounts

Prepare capital accounts and statement of financial position for M, N, O partnership after O's retirement and T's admission, adjusting for goodwill and revaluations.

FA – L1 – Q77 – Preparation of Partnership accounts

Prepare partnership accounts for X and Y Dental Practice admitting a new partner, including goodwill valuation and capital adjustments.

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FA – L1 – Q83 – Preparation of Partnership accounts

Define books of prime entry and list four examples.

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FA – L1 – Q81 – Preparation of Partnership accounts

Prepare capital accounts and statement of financial position for Alvin, Boris, and Gina partnership after Gina's admission, including adjustments for goodwill and revaluation.

You're reporting an error for "FA – L1 – Q81 – Preparation of Partnership accounts"

FA – L1 – Q80 – Preparation of Partnership accounts

Prepare capital accounts for Djembo, Akwele, and Eduvie partnership after Eduvie's admission, including revaluation, goodwill, and profit allocation.

You're reporting an error for "FA – L1 – Q80 – Preparation of Partnership accounts"

FA – L1 – Q78 – Preparation of Partnership accounts

Prepare capital accounts and statement of financial position for M, N, O partnership after O's retirement and T's admission, adjusting for goodwill and revaluations.

You're reporting an error for "FA – L1 – Q78 – Preparation of Partnership accounts"

FA – L1 – Q77 – Preparation of Partnership accounts

Prepare partnership accounts for X and Y Dental Practice admitting a new partner, including goodwill valuation and capital adjustments.

You're reporting an error for "FA – L1 – Q77 – Preparation of Partnership accounts"

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