Question Tag: Interest on Capital

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  • 8 Marks

FA – Nov 2015 – L1 – SB – Q5b – Partnership Accounts

Prepare a statement showing the sharing of profit in a partnership.

Question:
b. Biggy and Smallie were in partnership, sharing profits and losses in the ratio 2:1. They agreed to admit Fanny into the partnership from January 1, 2014. Fanny is to introduce N140,000 out of which N130,000 is to be his fixed capital. He is to receive a commission of N30,000 per annum in addition to a share of profit. The new profit-sharing ratio is 2:2:1 to Biggy, Smallie, and Fanny, respectively. Other provisions of the Partnership Deed are:

i. Debit balance in current accounts at the beginning of the year is to attract 5% interest.
ii. Goodwill is valued at N150,000. Goodwill is not to be retained in the partnership books.
iii. Details of the existing partners’ fixed capital and current accounts for the purpose of the agreement are:

Partner Fixed Capital (N) Current Account (N)
Biggy 360,000 100,000
Smallie 240,000 60,000 (DR)

iv. The draft final accounts for the year ended December 31, 2014, before taking into account Fanny’s commission and interest on partners’ current accounts, revealed a profit of N347,000.
v. The drawings made by the partners are:

Partner Drawings (N)
Biggy 95,000
Smallie 45,000
Fanny 73,900 (including commission)

Required:
Prepare a statement showing the sharing of profit of the partnership for the year ended December 31, 2014.

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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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  • 20 Marks

FA – Nov 2023 – L1 – Q2 – Preparation of Partnership accounts

Adjust the net profit or loss of a partnership firm and prepare the revised current accounts and statement of financial position.

Adu, Boateng, and Dogbe are trading in partnership under an agreement which provides for interest on partners’ capital accounts at the rate of 10% per annum, annual salaries of GHȼ7,500 and GHȼ4,000 for Boateng and Dogbe respectively, and the balance of the profit or loss shared among Adu, Boateng, and Dogbe in the proportion 5:3:2 respectively.

Partners’ cash drawings for the year ended 30 April 2021 were as follows:

Partner Amount (GHȼ)
Adu 8,000
Boateng 5,000
Dogbe 6,000

The draft Statement of Financial Position as at 30 April 2021 of Adu, Boateng, and Dogbe is as follows:

After the preparation of the draft final accounts for the year ended 30 April 2021, which disclosed a net loss of GHȼ10,500, it was discovered that:

  1. The partners’ cash drawings for the year under review have been debited to purchases.
  2. On 1 November 2020 it was agreed that Boateng should increase his partnership capital from GHȼ25,000 by transferring to the partnership a freehold property bought by Boateng five years earlier at a cost of GHȼ10,000 and currently valued at GHȼ30,000. Although the appropriate debit entry has been made in the non-current asset account, the corresponding credit entry appeared in the profit and loss appropriation account.
  3. The partners’ salaries for the year ended 30 April 2021 have been debited to staff salaries and credited to the relevant partners’ current accounts.

The partners have now decided that an allowance for receivables should be 4% of trade receivables.

Required:

a) Compute the revised net profit or loss of the partnership for the year ended 30 April 2021. (5 marks)
b) Prepare the revised partners’ current accounts for the year ended 30 April 2021. (Note: the partners’ current accounts should commence with the balances shown in the draft partnership Statement of Financial Position as at 30 April 2021). (7 marks)
c) Redraft the Statement of Financial Position of the partnership as at 30 April 2021. (8 marks)

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  • 20 Marks

FA – July 2023 – L1 – Q2 – Preparation of Partnership accounts

Prepare a ledger account for rental income and a partnership's profit and loss appropriation account with related partners' current accounts.

a) A company owns a number of properties which are rented to tenants. The following information is available for the year ended 30 June 2021:

Date Rent in advance (GHȼ) Rent in arrears (GHȼ)
30 June 2020 140,500 5,200
30 June 2021 148,200 9,200

Cash received from tenants for the year ended 30 June 2021 was GHȼ820,400. All rent in arrears was subsequently received.

Required:

Prepare the ledger account for rental income showing the transfer to the Statement of Profit and Loss, for the year ended 30 June 2021. (5 marks)

b) Awuni, Adjetey, and Kwame are in partnership, running an evening school, and sharing residual profits and losses in the ratio 4:3:3 respectively. At 1 October 2021 their capital and current account balances were:

By formal agreement, the partners are entitled to receive interest at 5% on capital. In addition, Adjetey is paid an annual salary of GHȼ5,455 for his part in running the business.

On 1 April 2022, by mutual agreement, Kwame increased his capital by paying a further GHȼ4,000 into the partnership bank account. Awuni reduced his capital by GHȼ5,000, but kept this in the partnership as a loan bearing interest at 10% per annum. Interest on the loans, by agreement, is credited to Awuni’s current account.

The partners are allowed to take out drawings at any time during the year, but they have agreed to charge interest on such drawings. The date of taking out the drawings, the amount drawn out by each partner, and the interest payable, were as follows during the year to 30 September 2022:

Required:

i) Prepare the profit and loss appropriation account for the year ended 30 September 2022. (8 marks)
ii) Prepare the partners’ current accounts for the year ended 30 September 2022. (7 marks)

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  • 8 Marks

FA – Nov 2015 – L1 – SB – Q5b – Partnership Accounts

Prepare a statement showing the sharing of profit in a partnership.

Question:
b. Biggy and Smallie were in partnership, sharing profits and losses in the ratio 2:1. They agreed to admit Fanny into the partnership from January 1, 2014. Fanny is to introduce N140,000 out of which N130,000 is to be his fixed capital. He is to receive a commission of N30,000 per annum in addition to a share of profit. The new profit-sharing ratio is 2:2:1 to Biggy, Smallie, and Fanny, respectively. Other provisions of the Partnership Deed are:

i. Debit balance in current accounts at the beginning of the year is to attract 5% interest.
ii. Goodwill is valued at N150,000. Goodwill is not to be retained in the partnership books.
iii. Details of the existing partners’ fixed capital and current accounts for the purpose of the agreement are:

Partner Fixed Capital (N) Current Account (N)
Biggy 360,000 100,000
Smallie 240,000 60,000 (DR)

iv. The draft final accounts for the year ended December 31, 2014, before taking into account Fanny’s commission and interest on partners’ current accounts, revealed a profit of N347,000.
v. The drawings made by the partners are:

Partner Drawings (N)
Biggy 95,000
Smallie 45,000
Fanny 73,900 (including commission)

Required:
Prepare a statement showing the sharing of profit of the partnership for the year ended December 31, 2014.

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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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  • 20 Marks

FA – Nov 2023 – L1 – Q2 – Preparation of Partnership accounts

Adjust the net profit or loss of a partnership firm and prepare the revised current accounts and statement of financial position.

Adu, Boateng, and Dogbe are trading in partnership under an agreement which provides for interest on partners’ capital accounts at the rate of 10% per annum, annual salaries of GHȼ7,500 and GHȼ4,000 for Boateng and Dogbe respectively, and the balance of the profit or loss shared among Adu, Boateng, and Dogbe in the proportion 5:3:2 respectively.

Partners’ cash drawings for the year ended 30 April 2021 were as follows:

Partner Amount (GHȼ)
Adu 8,000
Boateng 5,000
Dogbe 6,000

The draft Statement of Financial Position as at 30 April 2021 of Adu, Boateng, and Dogbe is as follows:

After the preparation of the draft final accounts for the year ended 30 April 2021, which disclosed a net loss of GHȼ10,500, it was discovered that:

  1. The partners’ cash drawings for the year under review have been debited to purchases.
  2. On 1 November 2020 it was agreed that Boateng should increase his partnership capital from GHȼ25,000 by transferring to the partnership a freehold property bought by Boateng five years earlier at a cost of GHȼ10,000 and currently valued at GHȼ30,000. Although the appropriate debit entry has been made in the non-current asset account, the corresponding credit entry appeared in the profit and loss appropriation account.
  3. The partners’ salaries for the year ended 30 April 2021 have been debited to staff salaries and credited to the relevant partners’ current accounts.

The partners have now decided that an allowance for receivables should be 4% of trade receivables.

Required:

a) Compute the revised net profit or loss of the partnership for the year ended 30 April 2021. (5 marks)
b) Prepare the revised partners’ current accounts for the year ended 30 April 2021. (Note: the partners’ current accounts should commence with the balances shown in the draft partnership Statement of Financial Position as at 30 April 2021). (7 marks)
c) Redraft the Statement of Financial Position of the partnership as at 30 April 2021. (8 marks)

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  • 20 Marks

FA – July 2023 – L1 – Q2 – Preparation of Partnership accounts

Prepare a ledger account for rental income and a partnership's profit and loss appropriation account with related partners' current accounts.

a) A company owns a number of properties which are rented to tenants. The following information is available for the year ended 30 June 2021:

Date Rent in advance (GHȼ) Rent in arrears (GHȼ)
30 June 2020 140,500 5,200
30 June 2021 148,200 9,200

Cash received from tenants for the year ended 30 June 2021 was GHȼ820,400. All rent in arrears was subsequently received.

Required:

Prepare the ledger account for rental income showing the transfer to the Statement of Profit and Loss, for the year ended 30 June 2021. (5 marks)

b) Awuni, Adjetey, and Kwame are in partnership, running an evening school, and sharing residual profits and losses in the ratio 4:3:3 respectively. At 1 October 2021 their capital and current account balances were:

By formal agreement, the partners are entitled to receive interest at 5% on capital. In addition, Adjetey is paid an annual salary of GHȼ5,455 for his part in running the business.

On 1 April 2022, by mutual agreement, Kwame increased his capital by paying a further GHȼ4,000 into the partnership bank account. Awuni reduced his capital by GHȼ5,000, but kept this in the partnership as a loan bearing interest at 10% per annum. Interest on the loans, by agreement, is credited to Awuni’s current account.

The partners are allowed to take out drawings at any time during the year, but they have agreed to charge interest on such drawings. The date of taking out the drawings, the amount drawn out by each partner, and the interest payable, were as follows during the year to 30 September 2022:

Required:

i) Prepare the profit and loss appropriation account for the year ended 30 September 2022. (8 marks)
ii) Prepare the partners’ current accounts for the year ended 30 September 2022. (7 marks)

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