Topic: Partnership Accounts (Including Profit Sharing, Capital and Current Accounts)

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  • 15 Marks

FA – Nov 2024 – L1 – Q1 – Partnership Financial Statements

Prepare the profit or loss and appropriation account and financial position statement for a partnership at retirement and admission of partners.

Atsu, Baba, and Chawe are in partnership, providing management services, sharing profits in the ratio 5:3:2 after charging annual salaries of GH¢18,000 each. Current accounts are not maintained. On 30 June 2024, Atsu retired.

Dua was admitted on 1 July 2024 to the partnership and is entitled to 30% of the profits of the current partnership, with the balance being shared equally between Baba and Chawe.

The previous partnership trial balance as of 30 June 2024 was as follows:

Description GH¢ GH¢
Capital accounts – Atsu 12,519
Capital accounts – Baba 65,844
Capital accounts – Chawe 33,618
Trade receivables 138,615
Inventories at 1 July 2023 6,000
Operating expenses 419,166
Investment 300
Bank overdraft 33,510
Trade payables 52,218
Revenue 565,296
Total 663,543 663,543

Additional Information:

  1. Inventory remains at GH¢6,000.
  2. Full provision is required for an irrecoverable debt of GH¢3,450.
  3. Adjustments agreed by partners:
    • The investment is to be included at GH¢4,500.
    • Goodwill, which remains in the books, is valued at GH¢72,000.
  4. On 1 July 2024, GH¢30,000 due to Atsu was transferred to Dua. The balance due to Atsu is to be repaid over three years, commencing on 1 July 2024.
  5. Dua introduced cash of GH¢22,500 to the partnership.

Required:
i) Prepare the statement of profit or loss and appropriation account of the previous partnership for the year ended 30 June 2024 and a statement of financial position at that date. (9 marks)
ii) Prepare the statement of financial position for the current partnership as of 1 July 2024. (6 marks)

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  • 20 Marks

FR – May 2017 – L2 – SB – Q3 – Partnership Account

Advise Bode Limited on accounting treatment for impairment, borrowing costs, and reclassification to investment property in accordance with IAS 36, IAS 23, and IAS 40.

You are a financial reporting consultant. The management of Bode Limited, a well-diversified company with branches in all states of the federation, has some transactions for which it requires advice. Bode Limited has a financial accountant who is not yet a qualified accountant. These transactions are as follows:

  1. Impairment of Assets: Bode Limited recognized a cash-generating unit during the year ended December 31, 2015, comprising:
    • Property, plant, and equipment: N4,050 million
    • Goodwill: N450 million
    • Other assets: N2,700 million
      Total carrying amount: N7,200 million

    The management estimated the recoverable amount of the cash-generating unit at N6,300 million as of December 31, 2015. The financial accountant understands some provisions of IAS 36 on asset impairment but is uncertain about how to allocate impairment across these assets within the unit.

  2. Borrowing Costs: On January 1, 2015, Bode Limited borrowed N300 million to fund the construction of two assets, expected to take a year to complete. The funds were drawn on January 1 and were allocated as follows, with the remaining funds invested temporarily:
    • Asset X: N50 million on January 1, N50 million on July 1
    • Asset Y: N100 million on January 1, N100 million on July 1
      The loan interest rate is 9% per annum, and surplus funds can be invested at a rate of 7% per annum.
  3. Investment Property Reclassification: The company’s head office in Abuja, previously owner-occupied, was vacated and let out on June 30, 2015, due to a cost-saving decision to move operations to a nearby branch office. The property, initially recognized under IAS 16 at a cost of N37.5 million with a 50-year useful life, was revalued to N52.5 million by an independent valuer as of December 31, 2015. Bode Limited’s accounting policy for investment properties is to use the fair value model.

Required:
Write a memo advising Bode Limited on the accounting treatments for each transaction in their financial statements. Provide relevant calculations where necessary.

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  • 15 Marks

FA – May 2012 – L1 – SB – Q2 – Partnership Accounts

Partnership business dissolution with the necessary ledger accounts.

Tap, Sea, Air, and River are in partnership business sharing profits and losses in the ratio 8:5:4:3, respectively. Their Statement of Financial Position was as follows as at 1 January 2009:

           

On the date of the statement, the business was brought to an end, and the assets realized as follows:

Assets Realized N’000
Motor Vehicles 60,000
Plant and Machinery 60,000
Furniture and Fittings 52,500
Inventories 15,300
Accounts Receivable 9,450

Dissolution expenses amounted to N22,500,000. Air became bankrupt and could only pay 40k for every N100 owed. The other partners were solvent, and the amount was collected from Air’s administrator. Cash was returned to or received from partners as appropriate.

You are required to:
(a) State the ways in which the amount owed by Air will be absorbed by the other partners. (3 Marks)
(b) Show the necessary ledger accounts to close the partnership’s books.

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  • 1 Marks

FA – May 2012 – L1 – SA – Q8 -Partnership Accounts

Identifying actions taken during the admission of a partner.

Which of the following is NOT an action for admission of a partner during the year?

A. Preparing the financial statements up to the date of admission
B. Determining goodwill, if any, at that date
C. Preparing a statement of account
D. Preparing a statement of financial position
E. Partners will decide if goodwill should be maintained in books or not.

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  • 1 Marks

FA – May 2012 – L1 – SA – Q6 – Partnership Accounts

Calculating the value of goodwill in a partnership.

The profits of ABC Partnership firm for 5 years ended 31 December 2011 were as follows:

Year      Profits
2007     N15,000,000
2008     N9,000,000
2009     N4,500,000
2010      N7,500,000
2011       N10,500,000

The firm intends to admit a new partner on 1 January 2012. What is the value of goodwill where the partners have decided to value goodwill at 4 years’ purchase of the average super profit over the last 5 years based on normal profits of N3,000,000 per annum?

A. N6,300,000
B. N9,300,000
C. N25,200,000
D. N25,300,000
E. N25,350,000.

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  • 15 Marks

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

This question addresses the partnership agreement terms and dispute resolution between partners.

Segun and Sola went into partnership on 1 January 2009. The partnership agreement specifies that both partners should maintain Capital Accounts without Current Accounts. Each partner will be entitled to salary of N240,000 per annum and interest of 10% on capital at the end of the year. Profits and losses are to be shared equally after salaries and interest on capital have been taken into account.
Sola introduced capital of N1,000,000 on 1 January 2009 and N200,000 on 1 January 2010. He withdrew N360,000 from the business in 2009 and N480,000 in 2010.
Segun introduced capital of N400,000 on 1 January 2009. He withdrew N105,000 from the business in 2009 and N161,200 in 2010. The partnership did not keep proper books of accounts in 2009 and 2010.

However, the assets and liabilities of the partnership for the two years ended 31
December 2010 are as follows:

You are required to
Prepare in vertical format, the comparative Balance Sheets and Capital Accounts of the partners at the end of 2009 and 2010 based on the above information.

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  • 1 Marks

FA – Nov 2011 – L1 – SA – Q9 – Partnership Accounts

This question asks about the major difference between the income statement of a partnership and that of a sole trader.

What is the major difference between the income statement of a partnership and that of a sole trader?

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  • 1 Marks

FA – Nov 2011 – L1 – SA – Q5 – Partnership Accounts

Partnership Accounting, Profit Sharing

What is A’s share of profit?
A. N76,000
B. N76,200
C. N76,267
D. N76,300
E. N80,000

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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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  • 1 Marks

FA – May 2021 – L1 – SA – Q13 – Partnership Accounts

Understand the distribution of an insolvent partner’s deficiency among solvent partners.

Which of the following is correct about the treatment of a partner with a deficiency at the end of partnership dissolution?
i. The partner may have to pay the whole deficiency
ii. Insolvent partner’s deficiency is borne by the solvent partners in the last agreed capital
iii. Insolvent partner’s deficiency is borne by the solvent partners in the profit or loss sharing ratio

A. I and II
B. II and III
C. I and III
D. I, II, and III
E. II

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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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  • 1 Marks

FA – Nov 2023 – L1 – SA – Q6 – Partnership Accounts

Identify events leading to changes in partnership agreements

Which of the following events can lead to a change in a partnership agreement?

  • A. Introduction of additional capital by a partner
  • B. Establishment of a new marketing strategy
  • C. Admission of a new partner to the firm
  • D. Hiring of additional manager by the Partnership
  • E. Implementation of a new financial management system

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  • 20 Marks

FA – May 2023 – L1 – SB – Q4 – Partnership Accounts

Preparation of profit or loss appropriation accounts, partners’ current accounts, and statement of financial position for the partnership of Lag and Kase.

Lag and Kase were in partnership. Their first year of operation ended on December 31, 2018. On January 01, 2018, Lag made a cash contribution of N96,000,000 and a motor car valued at N28,000,000. The car cost N45,000,000 few years ago when it was purchased. Kase contributed N84,000,000 cash. The partnership constitution spelt out the following:

  1. Profit or loss sharing ratio shall be Lag 3, Kase 2.
  2. Interest on capital shall be 8% per annum.
  3. Interest on drawings shall be 6% per annum.
  4. A salary of N16,000,000 per annum shall be paid to Kase, who is an active partner.

During the year ended December 31, 2018, the business made a net profit of N58,000,000 before any appropriation and interest on a 10% N40,000,000 loan advanced by Lag to the business.

Drawings during the year were Lag N15,000,000 and Kase N18,000,000.

Required:

a. Prepare the profit or loss appropriation accounts for the year ended December 31, 2018. (8 Marks)

b. The partners’ current accounts for the year ended December 31, 2018. (5 Marks)

c. The partners’ capital accounts for the year ended December 31, 2018. (4 Marks)

d. The statement of financial position (extract) as at December 31, 2018. (3 Marks)

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  • 1 Marks

FA – May 2023 – L1 – SA – Q13 – Partnership Accounts

Identifying transactions that will increase partners’ capital account balance in a fixed capital account system.

In a partnership that maintains fixed capital accounts, which of the following transactions will increase partners’ capital account balance?

I. Profit on revaluation
II. Partners’ drawings
III. Partners’ share of goodwill
IV. Loan advanced to the business by a partner

A. I and II

B. I and III

C. II and IV

D. I and IV

E. I, III and IV

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  • 1 Marks

FA – May 2023 – L1 – SA – Q12 – Partnership Accounts

Identifying the required adjustment to remove goodwill from the books when a new partner is admitted.

Which of the following adjustments is required to remove goodwill from the books of partnership business, when a new partner is admitted?

A. Debit capital accounts of all partners in new profit-sharing ratio, credit goodwill account

B. Debit capital accounts of old partners in old profit-sharing ratio, credit goodwill account

C. Debit capital accounts of old partners in old profit-sharing ratio, credit capital accounts of all partners in new profit-sharing ratio

D. Debit capital accounts of all partners in new profit-sharing ratio, credit old partners’ capital accounts in old profit-sharing ratio

E. Credit capital accounts of all partners in new profit-sharing ratio, credit cash

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  • 1 Marks

FA – May 2023 – L1 – SA – Q11 – Partnership Accounts

Calculating the share of profit for a partner with a guaranteed minimum share.

Saka, Bako and Sule are in partnership sharing profits or losses in the ratio 3:2:1. During the year, the partnership divisible profit was N17,730,000. Saka, but not Bako, guaranteed Sule a minimum share of profit of N3,800,000. Calculate the share of profit of Saka.

A. N5,850,900

B. N6,965,000

C. N8,000,000

D. N8,020,000

E. N8,865,000

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  • 20 Marks

FA Nov 2019 – L2 – SB – Q5 – Partnership Accounts

This question involves the preparation of a profit and loss account and a statement of financial position for a partnership firm based on the given partnership agreement and trial balance.

Three brothers; Wa, Zo, and Bia are in partnership, trading under the name and style WaZoBia. The partnership agreement provides for:

% N’000
i. Annual commission payable to:
– Wa 4,000
– Bia 8,000
ii. Annual salary payable to:
– Wa 5,000
– Zo 8,000
iii. Interest on partners’ fixed capital 5%
iv. Interest on partners’ drawings 5%
v. Equal share of profit or loss (1:1:1)

The extract of the partnership balances for the period under review is as follows:

WaZoBia Trial Balance for the year ended October 31, 2019 Debit (N’000) Credit (N’000)
Partners’ capital as at November 1, 2018:
– Wa 60,000
– Zo 60,000
– Bia 50,000
Partners’ drawings:
– Wa 5,000
– Zo 4,000
– Bia 2,000
Gross profit for the year 116,000
Trade receivables 55,000
Trade payables 27,560
Irrecoverable debt 1,000
Utility 8,600
Postage and communication 3,200
Allowances for bad debt at November 1, 2018 6,000
Property, plant and machinery 270,400
Staff cost 18,360
Distribution cost 5,000
Other income 4,000
Finance cost 1,000
5% Loan notes 50,000
Inventory at October 31, 2019 6,000
Accumulated depreciation on freehold properties 16,720
Accumulated amortisation of leasehold property 2,000
Rent and rates 3,360
Cash and cash equivalent 9,360
Total 392,280 392,280

The following information is also relevant for the preparation of the financial statements:

  1. Allowances for doubtful debts should be adjusted to 10% of trade receivables.
  2. Accrued expenses for the period:
    • Utility N400,000;
    • Postage and communication N200,000.
  3. Prepaid expenses for the period:
    • Rent and rates N600,000;
    • Staff cost N300,000.
  4. PPE includes a leasehold property of N20,000,000, which is amortised over 10 years. Depreciation charge for the year on freehold PPE has been estimated to be N5,000,000.
  5. Finance cost in the trial balance includes interest paid on 5% loan notes amounting to N500,000.

Required:

a. Prepare the statement of profit or loss for the year ended October 31, 2019. (12 Marks)

b. Prepare the statement of financial position as at October 31, 2019. (8 Marks)

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  • 14 Marks

FA – May 2017 – L1 – SB – Q4b – Partnership Accounts

Prepare the capital accounts, cash account, and loan account upon the retirement of a partner and the statement of financial position of the new partnership.

Ade, Olu, and Kola are in partnership sharing profits in the ratio 3:2:1 respectively. On March 31, 2016, their statement of financial position showed:

Particulars Amount (₦’000) Amount (₦’000)
Capital accounts:
Ade 1,511
Olu 826
Kola 578
Current accounts:
Ade 1,008
Olu 551
Kola 386
Non-current assets:
Plant 1,361
Vehicle 907
Inventory 1,134
Current assets:
Receivables 1,758
Cash 550
Current liabilities: 850
Total: 5,710 5,710

On April 1, 2016, Ade retired and the following terms were agreed according to their partnership deed:

i. Goodwill was valued at ₦1,572,000 and was not to be retained in the books of the continuing partners. Olu and Kola agreed to continue sharing profits in the ratio 2:1 respectively and to maintain their current accounts.

ii. Ade should take a car with carrying amount of ₦456,000 at a valuation of ₦324,000.

iii. Ade should receive a cash payment of ₦405,000 and retain the balance in a loan account bearing interest at 12% per annum.

Required:

i. Prepare the capital accounts, cash account, and loan account in the books of the old partnership. (6 Marks)

ii. Prepare the statement of financial position of the new partnership as at April 1, 2016, after giving effect to the retirement of Ade. (8 Marks)

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