Question 2

2 Jack and Kelly are in partnership. They share profits and losses in the ratio of 2 : 5 respectively.
The partners decided to admit Liam as a partner with effect from 1 July 2018.

The partnership’s statement of financial position immediately prior to Liam’s admission was as
follows.

Jack and Kelly

Summarised statement of financial position
at 30 June 2018
$
Assets
Non-current assets 91 400
Current assets 21 700
Total assets 113 100
Capital and liabilities
Capital accounts
Jack 33 000
Kelly 71 000
Current liabilities 9 100
Total capital and liabilities 113 100

The partners do not maintain separate current accounts.

The following was agreed.

1 Assets were revalued upwards by $21 000.

2 Goodwill was valued at $52 500. No goodwill account was to be maintained in the
partnership’s books of account.

3 In the future profits and losses would be shared in the ratio Jack : Kelly : Liam, 2 : 5 : 3
respectively.

4 The balances of the partners’ capital accounts immediately after Liam’s admission should
total $120 000 and be in the same ratio as the profit sharing ratio.

Each partner would either pay funds into, or withdraw funds from, the business bank account
in order to achieve this requirement.

REQUIRED

(a) Prepare the partners’ capital accounts to record Liam’s admission as a partner on the next
page.

© UCLES 2018 9706/22/O/N/18

© UCLES 2018

Partners’ Capital Accounts

Jack Kelly Liam Jack Kelly Liam

$ $ $ $ $ $
9706/22/O/N/18

9
[6]
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 Question 3
10

3 Miguel and Bernard are in partnership, sharing profits and losses in the ratio 2 : 3 respectively.

The statement of financial position for the business at 31 May 2018 has been provided.

$
Non-current assets 175 000
Current assets
Inventory 60 000
Trade receivables 48 000
108 000
Total assets 283 000
Capital and liabilities
Capital accounts
Miguel 100 000
Bernard 145 000
245 000
Current liabilities
Bank overdraft 12 000
Trade payables 26 000
38 000
Total capital and liabilities 283 000

The partners admitted Eddy to the business on 1 June 2018. The following information is also
available.

1 Eddy introduced non-current assets valued at $40 000 and cash of $50 000.

2 The new profit-sharing ratio will be 5 : 3 : 2 for Miguel, Bernard and Eddy respectively.

3 Goodwill was valued at $40 000 and will not be retained in the books of account.

4 Non-current assets at 31 May 2018 were revalued at $210 000.

5 Inventory at 31 May 2018 had a net realisable value of $45 000.

6 A provision for irrecoverable debts of 5% of trade receivables at 31 May 2018 was made.

REQUIRED

(a) Prepare, on the next page, the partners’ capital accounts on 1 June 2018 following the
admission of Eddy.

35000
© UCLES 2019 9706/22/O/N/19
·
© UCLES 2019

Capital accounts

Miguel Bernard Eddy Miguel Bernard Eddy

$ $ $ $ $ $

g
9706/22/O/N/19

11
00

Workings:
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[6]
 12

Additional information

On 1 October 2018 the following changes in the terms of the partnership were agreed by the
partners.

1 All the cash introduced by Eddy was converted to a loan at an interest rate of 6% per annum.

2 Eddy would also receive a salary of $12 000 per annum.

3 The profit-sharing ratio was changed to 2 : 2 : 1 for Miguel, Bernard and Eddy respectively.

It was agreed that no adjustment for goodwill was required.

The draft profit for the year ended 31 May 2019, before interest on loan, was $39 000. This had
accrued evenly throughout the year.

REQUIRED

(b) Prepare the appropriation account for the year ended 31 May 2019.

[5]

=
© UCLES 2019 9706/22/O/N/19
 Question 4 &
11

3 Paul and Angela are in partnership sharing profits and losses in the ratio of 3:2 respectively. No
separate current accounts are maintained.

On 1 May 2017, Rachael was admitted into the partnership.

(a) (i) State two advantages to existing partners of introducing a new partner.

[2]

(ii) State two disadvantages to existing partners of introducing a new partner.

[2]

© UCLES 2018 9706/22/F/M/18 [Turn over

 ⑨
12

A summarised statement of financial position at 30 April 2017 before the admission of Rachael is
as follows:
$
Non-current assets 225 000
Cash and cash equivalents 7 450
Other current assets 61 500
293 950
Capital accounts:
Paul 145 000
Angela 95 000
Current liabilities 53 950
293 950

The following information is available:

1 Rachael paid $75 000 as capital into the partnership bank account.
2 Goodwill was valued at $50 000. No goodwill account was to be maintained in the books of
account.
3 Non-current assets were revalued at $270 000.
4 Current assets (excluding cash and cash equivalents) were revalued at $40 500.
5 Current liabilities were revalued at $45 950.
6 Paul, Angela and Rachael will share profits and losses in the ratio 5:3:2 respectively.

REQUIRED

(b) Calculate the profit or loss from revaluation on 1 May 2017 when Rachael was admitted.
Show how this is divided between the partners.

Profit or loss from revaluation

Division between partners

[2]

(c) Prepare, on the next page, the partners’ capital accounts on 1 May 2017 after the admission
of Rachael.

© UCLES 2018 9706/22/F/M/18

© UCLES 2018

Capital Accounts

Paul Angela Rachael Paul Angela Rachael

$ $ $ $ $ $
9706/22/F/M/18

13
[5]
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 14

(d) Explain why an adjustment for goodwill may be made when a new partner joins a business.

[2]

(e) State two factors that may result in the creation of goodwill for a business.

[2]

[Total: 15]

© UCLES 2018 9706/22/F/M/18

 Question 5 2

&1 Ann, Jan and Tan are in partnership sharing profits and losses equally. They provide the
following information.

1 Statement of financial position at 1 January 2013.

Assets $ $
Non-current assets
Land and buildings 130 000
Motor vehicles 25 000
155 000

Current assets
Inventory 15 000
Trade receivables 30 000
45 000
000000
Total assets 200 000

Capital and liabilities

Capital accounts: Ann 40 000
Jan 40 000
Tan 30 000
110 000

Current accounts: Ann 5 000 Ev

Jan 2 000 Ev
Tan (4 000)
3 000

Non-current liabilities
Loan: Tan 50 000

Current liabilities
Trade payables 25 000
Bank overdraft 12 000
37 000
Total liabilities 200 000

2 Summary of the business bank account for the year ended 31 December 2013.

Bank account
$ $
Receipts from customers 85 000 Payments to suppliers 55 000
Payments for business expenses 20 500
Drawings – Ann 5 000
– Jan 8 000
– Tan 2 000
#R
3 At 31 December 2013 amounts outstanding from credit customers were $20 000 and
amounts due to credit suppliers were $30 000.
P
2/D BIF
sales = 85000 + 20000 =
30000 = 75000

Purchases = 55000 + 30000 - 25000 = 60000

© UCLES 2014 9706/41/M/J/14
 3

4 The partners were unable to value their inventory at 31 December 2013. However, products
are sold at a uniform gross profit margin of 40%.

5 The partnership agreement stated that there were to be no partners’ salaries, interest on
capital or interest on drawings. However, Tan is paid interest on his loan at 4% per annum.

REQUIRED

(a) Prepare the income statement for the year ended 31 December 2013. [9]

(b) Prepare Tan’s current account at 31 December 2013. [4]

Additional information

On 1 January 2014 Tan retired from the partnership. It was agreed that Tan would take a motor
vehicle at a value of $5000. He agreed to leave $20 000 of his loan in the partnership with any
money owed to him being paid from the business bank account. At that date land and buildings
were revalued at $160 000. Goodwill was valued at £18 000 but would not be retained in the
books of account.

Ann and Jan would now share profits and losses in the ratio of 2:1.

REQUIRED

(c) Prepare the partners’ capital accounts to record all of these adjustments and Tan’s retirement
from the partnership. [11]

Revenue 75000

op .
Inv
45000
A J A5π
Purchases
60008
Current A 1500
21- Inv
- -

B17 40000 40000 30000

?
(3000k (5000) Goodwill wo 12000 6000 Goodwill 6000 Good
-

.
9 [75000X 40%] 6000
30000
Vehicle
E Expenses
-
-
5000 Rew Gain 10000 10000 10000
Bank - -
69500
Business exp 20500 Loan
2/d 44000 50000 -
-
-
30000
Int on Loan 2000
(22500] 56000 56000 76000 56000 5600076000
profit for the year 700

- have of Profit
1) Retiring partners current account balance is transferred
Aan 2500 to capital account
Jan 2508 2) if a retiring partner has given loan, the loan balance is
#an 25007500 also transferred to capital account.

© UCLES 2014 9706/41/M/J/14 [Turn over

 Question 6
⑨
5

2 Abdul, Barry and Chandra are in partnership sharing profits and losses in the ratio 3:2:1. No
current accounts are maintained.

The following information is available.

Statement of Financial Position at 30 April 2015

$
Assets
Non-current assets
Property 500 000
Equipment 132 000
Vehicles 150 000
782 000
Current assets
Inventories 38 000
Trade receivables 1 000
Cash and cash equivalents 66 000
105 000
Total assets 887 000
Capital
Abdul 441 000
Barry 294 000
Chandra 147 000
882 000
Liabilities
Current liabilities
Trade payables 5 000
Total capital and liabilities 887 000

Chandra decided to retire at the close of business on 30 April 2015 and the following was agreed:
1 Goodwill was valued at $180 000 and was not to be retained in the books.
2 Chandra was to be paid $60 000 from the business bank account.
3 Any money still due to Chandra will be treated as a long-term loan to the new partnership of
Abdul and Barry.

4 Abdul and Barry will continue to trade and will share profits and losses in the ratio 3:2.

REQUIRED

(a) Prepare the partners’ capital accounts at 30 April 2015. [10]

(b) Prepare the opening statement of financial position of the new partnership of Abdul and Barry
at 1 May 2015. [5]

Additional information

Chandra wishes to invest the $60 000 which he received from the partnership. He is considering
acquiring a debenture or convertible loan stock.

REQUIRED

(c) Explain what is meant by a debenture and convertible loan stock highlighting the major
difference between them. [5]

=
© UCLES 2015 >
9706/43/M/J/15 [Turn over
 Question 6 9
!
3 Amit, Wang and Susi have been trading in partnership for several years and prepare their
financial statements annually to 31 March. They have never had a partnership agreement.

REQUIRED

(a) State four provisions which would apply in the absence of a partnership agreement.

1
No interest on capital

2 No interest is charged on drawings

3 No salary, bonus or commission to partner

4 Partners will share profit and loss equally

5. Interest on loan from partner at 5% per annum.

[4]

↓
!
!
!
!
!
!
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!
!
!
Question 3(b) is on the next page.

© UCLES 2017 9706/22/M/J/17 [Turn over!

 Retirement of existing partner
10

I
!
! Additional information

The statement of financial position for the partnership at 31 March 2016 was as follows:

Amit, Wang and Susi

Statement of Financial Position at 31 March 2016

$
Assets
Non-current assets
Freehold premises 109 000
Fixtures and fittings 64 900
173 900
Current assets
Trade receivables 14 500
Bank account 5 600
20 100
Total assets 194 000

Capital and liabilities

Capital accounts
Amit 40 000
Wang 40 000
Susi 40 000
120 000

Current accounts
Amit 27 600
Wang 18 500
Susi 22 200
68 300
Current liabilities
Trade payables 5 100
Other payables 600
5 700
Total capital and liabilities 194 000

On 1 April 2016 Amit retired from the partnership and the following was agreed:

1 Goodwill was valued at $42 000. A goodwill account is not to be maintained in the books of
account.

2 Assets were revalued at the following amounts:

$
Freehold premises 120 000
Fixtures and fittings 62 200
Trade receivables 13 700

3 Amit received $15 000 from the partnership bank account. The remaining balance owed to
him was left as an interest-free loan to the partnership to be repaid by 31 March 2021.

4 Wang and Susi agreed to continue in partnership and to share profits and losses equally.

© UCLES 2017 9706/22/M/J/17!

Important point

A retiring partner’s current account balance will be transferred to his capital account.
 11
!
REQUIRED
(b) Prepare the partners’ capital accounts to record the retirement of Amit from the partnership.
Amit, Wang and Susi
Capital accounts

[6]

Additional information
Amit has recently advised the partners that he is having financial difficulties. He has asked Wang
and Susi for the payment of the balance on his loan account as soon as possible.
REQUIRED
(c) Advise Wang and Susi whether or not they should agree to Amit’s request. Justify your
answer.

1) Early repayment will lead to liquidity and cashflow problems. The partners may
have to borrow some amount or to further contribute capital or to bring a new
partner.
2) As per agreement partners are under no obligation to pay earlier.

3) On ethical grounds partners should make early payment so Amit can overcome
his problems.

4) Partners can sell and lease back non current assets to repay loan.

5) partners should investigate whether Amit concerns are serious.

6) Negotiate with Amit for partial repayment

[5]

[Total: 15]

© UCLES 2017 9706/22/M/J/17 [Turn over!

 Question 7 2
⑨
1 Ashir, Bo and Chan are in partnership. The partnership agreement includes the following terms:

1 Profits and losses are shared in the ratio of the partners’ capital accounts.

2 Interest on capital is 6% per annum.

3 Interest on drawings is 5% calculated on each partner’s total annual drawings.

4 Partners’ loan interest is 12% per annum.

5 Chan receives a salary of $1000 per month.

The following information is available at 31 December 2016:

$
Capital accounts Up : 36 :
Ashir 40 000
Bo
Chan
30 000
10 000
Lib
:

Current accounts
Ashir 12 300
Bo 8 200
Chan 2 600 debit
Drawings
Ashir 15 400
Bo 12 200
Chan 16 400
Fixtures and fittings
Cost 32 400
Provision for depreciation 21 400
Motor vehicles
Cost 80 000
Provision for depreciation 48 000
Loan account Ashir 10 000
Gross profit 171 620
Operating expenses 54 960
Staff wages 32 500

Additional information

1 Operating expenses include a payment of $600 for insurance covering the 12-month period
to 31 August 2017.

2 Staff wages owing at 31 December 2016 were $860.

3 Depreciation is to be charged as follows:

Fixtures and fittings 10% per annum using the reducing balance method
Motor vehicles 20% per annum using the straight-line method

© UCLES 2018 9706/21/M/J/18

 3

REQUIRED

(a) Prepare the income statement for the partnership for the year ended 31 December 2016.
Start with the given gross profit of $171 620.

[5]

© UCLES 2018 9706/21/M/J/18 [Turn over

 4-

(b) Prepare the profit and loss appropriation account for the partnership for the year ended
31 December 2016.

[5]

(c) Prepare the partners’ current accounts for the year ended 31 December 2016 on the next
page. [7]

© UCLES 2018 9706/21/M/J/18

© UCLES 2018

Current Accounts

Ashir Bo Chan Ashir Bo Chan

Detail Detail
$ $ $ $ $ $
9706/21/M/J/18

5
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 6

Additional information
On 1 January 2017, Chan decided that he wished to retire with immediate effect. The partners
agreed that as part of his settlement, he could keep one of the motor vehicles at the net book
value of $18 000.

At that date it was agreed that the total value of goodwill was $124 000.

REQUIRED

(d) Prepare a statement to calculate the bank settlement due to, or from, Chan on his retirement.

[4]

Additional information

Following Chan’s retirement, Ashir and Bo are considering converting their business to a limited
company to continue the business.

REQUIRED

(e) State two advantages to a partnership of converting to a limited company.

[2]

© UCLES 2018 9706/21/M/J/18

 Admission of a new partner
Question 8
2
213 1/3
1 Ben and Josie have been in partnership for a number of years sharing profits and losses in the
ratio 2 : 1 respectively.

Their balance sheet at 30 April 2006 was as follows:

$ $
Fixed assets MCA
Premises 60 000
Equipment 20 000
Vehicle 18 000
98 000
Current assets
Stock/Inventury 6 000
Debtors I 4 000
Bank 2 000
12 000
Creditors /P 7 000 5 000
103 000
Partner’s 6 % loan – Josie 25 000
78 000
Capital accounts Ben 40 000 W
Josie 35 000 Ev 75 000
Current accounts Ben (z] (1 000) Debit
Josie # 4 000 Gedit 3 000
78 000

Cash 30000

On 1 May 2006 they admitted Melvyn to the partnership. Cap til Al 30000
.

Melvyn introduced $30 000 cash as his capital. The partners agreed the following asset
revaluations:

$
Premises 100 000 -
60000 = + 40000
Equipment 15 000 -
20000 = 6) 5000
Vehicle 10 000 >
-

18000 = 16 8000 27000 RevGain

Goodwill 21 000

It was further agreed that goodwill would not appear in the new partnership’s books of account.
Any adjustments were to be made through the partners’ capital accounts.
3 : 2 : 2
The partners would in future share profits and losses in the ratio Ben 3, Josie 2 and Melvyn 2.

REQUIRED

(a) Prepare capital accounts at 1 May 2006 immediately after Melvyn’s entry to the partnership.
[10]
13000 Revaluation Al 40000

Zuipment 5000 Premises 40000

vehicle 8008

RevGain 27000

3 800
© UCLES 2007 9706/04/O/N/07
40000 40000