Partnership accounts (A Level) flashcards

Topic 15: Partnership accounts

Partnership Act 1890 defaults (section 24)

Profits and losses shared equally; no interest on capital; no salaries; no interest on drawings; 5% a year on a partner's advance beyond agreed capital, from the date of the advance.

No agreement. A partner advances $6,000 on 1 July; the year ends 31 December. Interest?

6,000 × 5% × 6/12 = $150, charged as an expense before profit is shared equally.

Profit before loan interest $42,700; a partner's loan of $9,000 at 7% for the whole year. Profit for the year?

Loan interest $630. Profit for the year $42,070.

A partner draws $7,200 on 30 September. Year end 31 December; interest on drawings 5% a year. Interest?

7,200 × 5% × 3/12 = $90. Count months from the drawing to the year end.

Profit $55,000; interest on drawings $900; interest on capital $7,500; salaries $11,000. Residual profit split 3 : 2?

55,000 + 900 − 7,500 − 11,000 = $37,400: $22,440 and $14,960.

Current account opens with a debit of $1,200. Interest on capital $2,000; profit share $18,500; interest on drawings $300; drawings $17,600. Closing?

−1,200 + 2,000 + 18,500 − 300 − 17,600 = $1,400 credit.

On admission: premises up $16,000, vehicles down $2,600, provision for doubtful debts up $400. Old ratio 3 : 2. Shares?

Revaluation profit $13,000: $7,800 and $5,200.

Kilbride and Mottram share 2 : 1; Aspinall joins and all share equally. Goodwill $27,000, not kept. Net effect?

Created 2 : 1: +18,000 and +9,000. Written off equally: −9,000 each. Net: Kilbride +$9,000; Mottram nil; Aspinall −$9,000.

Retiring partner: capital $28,000, current account debit $1,100, revaluation share $2,400, goodwill share $6,000. Amount due?

28,000 − 1,100 + 2,400 + 6,000 = $35,300. Paid in cash, by an asset, or left as a loan (a liability).

Which ratio is used for revaluation, goodwill created and goodwill written off?

Old ratio for revaluation and goodwill created; new ratio for goodwill written off.

Profit is too low to cover salaries and interest on capital. What happens?

Do not scale the salaries down: credit them in full and share the shortfall as a residual loss.