- 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.
Question
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:
- Allowances for doubtful debts should be adjusted to 10% of trade receivables.
- Accrued expenses for the period:
- Utility N400,000;
- Postage and communication N200,000.
- Prepaid expenses for the period:
- Rent and rates N600,000;
- Staff cost N300,000.
- 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.
- 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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