- 20 Marks
FA – Nov 2023 – L1 – SB – Q6 – Partnership Accounts
Perform partnership accounting involving profit sharing, and preparation of capital and current accounts.
Question
ABO Partnership consists of three partners: Awka, Bwari, and Owo. The partnership agreement specifies that profits and losses are to be shared in the following manner:
- Awka: 40%
- Bwari: 30%
- Owo: 30%
The following balances are extracted from the partnership’s statement of financial position as at September 30, 2023:
| Account | Amount (₦) |
|---|---|
| Cash | 250,000 |
| Account Receivables | 400,000 |
| Inventories | 200,000 |
| Furniture and Fittings (carrying amount) | 250,000 |
| Account Payables | 120,000 |
| Loan Notes | 300,000 |
Additional Information:
i. During the year, the partnership earned a profit of ₦600,000. Interest on the loan notes is 10% per annum.
ii. Partners’ current account balances at the beginning of the year were:
- Awka: ₦150,000 (Credit Balance)
- Bwari: ₦100,000 (Debit Balance)
- Owo: ₦50,000 (Credit Balance)
iii. Partners’ salaries are as follows:
- Awka: ₦120,000
- Bwari: ₦90,000
- Owo: ₦90,000
iv. Transfers made during the year from current accounts to capital accounts:
- Awka: ₦68,000
- Bwari: ₦26,000
- Owo: ₦26,000
Assume the initial capital accounts are established according to the agreed profit-sharing ratios.
Required:
a. Show how the profits of ABO Partnership for the year ended September 30, 2023, are shared among the partners.
(6 Marks)
b. Calculate the partners’ initial capital.
(5 Marks)
c. Prepare partners’ current accounts for ABO Partnership as of September 30, 2023.
(6 Marks)
d. Prepare partners’ capital accounts for ABO Partnership as of September 30, 2023.
(3 Marks)
Find Related Questions by Tags, levels, etc.