Topic: Partnership Accounts (Including Profit Sharing, Capital and Current Accounts)

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FR – May 2017 – L2 – SB – Q3 – Partnership Account

Advise Bode Limited on accounting treatment for impairment, borrowing costs, and reclassification to investment property in accordance with IAS 36, IAS 23, and IAS 40.

Question

You are a financial reporting consultant. The management of Bode Limited, a well-diversified company with branches in all states of the federation, has some transactions for which it requires advice. Bode Limited has a financial accountant who is not yet a qualified accountant. These transactions are as follows:

Impairment of Assets: Bode Limited recognized a cash-generating unit during the year ended December 31, 2015, comprising:
- Property, plant, and equipment: N4,050 million
- Goodwill: N450 million
- Other assets: N2,700 million
  Total carrying amount: N7,200 million
The management estimated the recoverable amount of the cash-generating unit at N6,300 million as of December 31, 2015. The financial accountant understands some provisions of IAS 36 on asset impairment but is uncertain about how to allocate impairment across these assets within the unit.
Borrowing Costs: On January 1, 2015, Bode Limited borrowed N300 million to fund the construction of two assets, expected to take a year to complete. The funds were drawn on January 1 and were allocated as follows, with the remaining funds invested temporarily:
- Asset X: N50 million on January 1, N50 million on July 1
- Asset Y: N100 million on January 1, N100 million on July 1
  The loan interest rate is 9% per annum, and surplus funds can be invested at a rate of 7% per annum.
Investment Property Reclassification: The company’s head office in Abuja, previously owner-occupied, was vacated and let out on June 30, 2015, due to a cost-saving decision to move operations to a nearby branch office. The property, initially recognized under IAS 16 at a cost of N37.5 million with a 50-year useful life, was revalued to N52.5 million by an independent valuer as of December 31, 2015. Bode Limited’s accounting policy for investment properties is to use the fair value model.

Required:
Write a memo advising Bode Limited on the accounting treatments for each transaction in their financial statements. Provide relevant calculations where necessary.

Answer

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Tags: Borrowing Costs, IAS 23, IAS 36, IAS 40, Impairment of Assets, Investment Property

Topic: Partnership Accounts (Including Profit Sharing, Capital and Current Accounts)
Series: MAY 2017

FA – May 2012 – L1 – SB – Q2 – Partnership Accounts

Partnership business dissolution with the necessary ledger accounts.

Question

Tap, Sea, Air, and River are in partnership business sharing profits and losses in the ratio 8:5:4:3, respectively. Their Statement of Financial Position was as follows as at 1 January 2009:

On the date of the statement, the business was brought to an end, and the assets realized as follows:

Assets Realized	N’000
Motor Vehicles	60,000
Plant and Machinery	60,000
Furniture and Fittings	52,500
Inventories	15,300
Accounts Receivable	9,450

Dissolution expenses amounted to N22,500,000. Air became bankrupt and could only pay 40k for every N100 owed. The other partners were solvent, and the amount was collected from Air’s administrator. Cash was returned to or received from partners as appropriate.

You are required to:
(a) State the ways in which the amount owed by Air will be absorbed by the other partners. (3 Marks)
(b) Show the necessary ledger accounts to close the partnership’s books.

Answer

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Tags: Dissolution, Ledger Accounts, Partnership Business
Level: Level 1

Topic: Partnership Accounts (Including Profit Sharing, Capital and Current Accounts)
Series: MAY 2012

FA – May 2012 – L1 – SA – Q8 -Partnership Accounts

Identifying actions taken during the admission of a partner.

Question

Which of the following is NOT an action for admission of a partner during the year?

A. Preparing the financial statements up to the date of admission
B. Determining goodwill, if any, at that date
C. Preparing a statement of account
D. Preparing a statement of financial position
E. Partners will decide if goodwill should be maintained in books or not.

Answer

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Tags: Financial Statements, Goodwill, Partnership
Level: Level 1

Topic: Partnership Accounts (Including Profit Sharing, Capital and Current Accounts)
Series: MAY 2012

FA – May 2012 – L1 – SA – Q6 – Partnership Accounts

Calculating the value of goodwill in a partnership.

Question

The profits of ABC Partnership firm for 5 years ended 31 December 2011 were as follows:

Year Profits
2007 N15,000,000
2008 N9,000,000
2009 N4,500,000
2010 N7,500,000
2011 N10,500,000

The firm intends to admit a new partner on 1 January 2012. What is the value of goodwill where the partners have decided to value goodwill at 4 years’ purchase of the average super profit over the last 5 years based on normal profits of N3,000,000 per annum?

A. N6,300,000
B. N9,300,000
C. N25,200,000
D. N25,300,000
E. N25,350,000.

Answer

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Tags: Goodwill, Partnership Valuation, Super Profit Method
Level: Level 1

Topic: Partnership Accounts (Including Profit Sharing, Capital and Current Accounts)
Series: MAY 2012

FA – Nov 2011 – L1 – SB – Q4 – Partnership Accounts

This question addresses the partnership agreement terms and dispute resolution between partners.

Question

Segun and Sola went into partnership on 1 January 2009. The partnership agreement specifies that both partners should maintain Capital Accounts without Current Accounts. Each partner will be entitled to salary of N240,000 per annum and interest of 10% on capital at the end of the year. Profits and losses are to be shared equally after salaries and interest on capital have been taken into account.
Sola introduced capital of N1,000,000 on 1 January 2009 and N200,000 on 1 January 2010. He withdrew N360,000 from the business in 2009 and N480,000 in 2010.
Segun introduced capital of N400,000 on 1 January 2009. He withdrew N105,000 from the business in 2009 and N161,200 in 2010. The partnership did not keep proper books of accounts in 2009 and 2010.

However, the assets and liabilities of the partnership for the two years ended 31
December 2010 are as follows:

You are required to
Prepare in vertical format, the comparative Balance Sheets and Capital Accounts of the partners at the end of 2009 and 2010 based on the above information.

Answer

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Tags: Partnership Accounting, Partnership Agreement
Level: Level 1

Topic: Partnership Accounts (Including Profit Sharing, Capital and Current Accounts)
Series: NOV 2011

FA – Nov 2011 – L1 – SA – Q9 – Partnership Accounts

This question asks about the major difference between the income statement of a partnership and that of a sole trader.

Question

What is the major difference between the income statement of a partnership and that of a sole trader?

Answer

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Tags: Partnership Accounting, Sole Trader Accounting
Level: Level 1

Topic: Partnership Accounts (Including Profit Sharing, Capital and Current Accounts)
Series: NOV 2011

FA – Nov 2011 – L1 – SA – Q9 – Partnership Accounts

This question asks how the cost of raw materials consumed is calculated in a manufacturing account.

Question

Which of the following formulae determines the cost of raw materials consumed in a Manufacturing Account?
A. Opening stock plus purchases less closing stock
B. Purchases plus closing stock less opening stock
C. Cost of raw materials available plus closing stock
D. Cost of raw materials available plus opening stock
E. Opening stock plus net purchases less closing stock

Answer

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Tags: Cost of Raw Materials, Manufacturing Account
Level: Level 1

Topic: Partnership Accounts (Including Profit Sharing, Capital and Current Accounts)
Series: NOV 2011

FA – Nov 2011 – L1 – SA – Q5 – Partnership Accounts

Partnership Accounting, Profit Sharing

Question

What is A’s share of profit?
A. N76,000
B. N76,200
C. N76,267
D. N76,300
E. N80,000

Answer

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Tags: This question calculates a partner’s share of the profit in a partnership.
Level: Level 1

Topic: Partnership Accounts (Including Profit Sharing, Capital and Current Accounts)
Series: NOV 2011

FA – Nov 2011 – L1 – SA – Q4 – Partnership Accounts

This question calculates the profit share between partners.

Question

What is the profit to be shared by the partners for the year?
A. N104,000
B. N108,000
C. N114,400
D. N120,000
E. N126,000

Answer

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Tags: Partnership Accounting, Profit Sharing
Level: Level 1

Topic: Partnership Accounts (Including Profit Sharing, Capital and Current Accounts)
Series: NOV 2011

FA – Nov 2020 – L1 – SB – Q6b – Partnership Accounts

Prepare the revaluation account, partners' capital accounts, and the statement of financial position.

Question

b. Emeka has been in business as a Japan spare part dealer. The last statement of financial position of his business as at September 30, 2019, is given below:

	N’000	N’000
Equity
Capital	1,000
Retained earnings	130
	1,130
Drawings	(60)
	1,070
Non-current assets:
PPE		1,100
Current assets:
Inventories		190
Trade payables		40
Bank		45
	1,375	1,375

On October 1, 2019, he agreed with Bode to join him, and the new business will trade under the name and style EmBo Ventures.

Terms of the new business:

Bode is to contribute capital of N1,250,000 for an equal share of profits.
The firm will take over the assets and liabilities of Emeka at their book values, except for:
- PPE: N1,250,000
- Inventories: N175,000
The partners will maintain equal capital, and any shortfall in Emeka’s capital should be made good by credit from revaluation or through additional funds.

Required:

Prepare for EmBo Ventures: i. Revaluation account (5 Marks)
ii. Partners’ capital accounts (5 Marks)
iii. Statement of financial position as at October 1, 2019 (5 Marks)

(Total: 15 Marks)

Answer

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Tags: Capital Accounts, Partnership, Revaluation, Statement of Financial Position
Level: Level 1

Topic: Partnership Accounts (Including Profit Sharing, Capital and Current Accounts)
Series: NOV 2020

FR – May 2017 – L2 – SB – Q3 – Partnership Account

Advise Bode Limited on accounting treatment for impairment, borrowing costs, and reclassification to investment property in accordance with IAS 36, IAS 23, and IAS 40.

Question

Impairment of Assets: Bode Limited recognized a cash-generating unit during the year ended December 31, 2015, comprising:
- Property, plant, and equipment: N4,050 million
- Goodwill: N450 million
- Other assets: N2,700 million
  Total carrying amount: N7,200 million
The management estimated the recoverable amount of the cash-generating unit at N6,300 million as of December 31, 2015. The financial accountant understands some provisions of IAS 36 on asset impairment but is uncertain about how to allocate impairment across these assets within the unit.
Borrowing Costs: On January 1, 2015, Bode Limited borrowed N300 million to fund the construction of two assets, expected to take a year to complete. The funds were drawn on January 1 and were allocated as follows, with the remaining funds invested temporarily:
- Asset X: N50 million on January 1, N50 million on July 1
- Asset Y: N100 million on January 1, N100 million on July 1
  The loan interest rate is 9% per annum, and surplus funds can be invested at a rate of 7% per annum.
Investment Property Reclassification: The company’s head office in Abuja, previously owner-occupied, was vacated and let out on June 30, 2015, due to a cost-saving decision to move operations to a nearby branch office. The property, initially recognized under IAS 16 at a cost of N37.5 million with a 50-year useful life, was revalued to N52.5 million by an independent valuer as of December 31, 2015. Bode Limited’s accounting policy for investment properties is to use the fair value model.

Required:
Write a memo advising Bode Limited on the accounting treatments for each transaction in their financial statements. Provide relevant calculations where necessary.

Answer

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Tags: Borrowing Costs, IAS 23, IAS 36, IAS 40, Impairment of Assets, Investment Property

Topic: Partnership Accounts (Including Profit Sharing, Capital and Current Accounts)
Series: MAY 2017

FA – May 2012 – L1 – SB – Q2 – Partnership Accounts

Partnership business dissolution with the necessary ledger accounts.

Question

Tap, Sea, Air, and River are in partnership business sharing profits and losses in the ratio 8:5:4:3, respectively. Their Statement of Financial Position was as follows as at 1 January 2009:

On the date of the statement, the business was brought to an end, and the assets realized as follows:

Assets Realized	N’000
Motor Vehicles	60,000
Plant and Machinery	60,000
Furniture and Fittings	52,500
Inventories	15,300
Accounts Receivable	9,450

You are required to:
(a) State the ways in which the amount owed by Air will be absorbed by the other partners. (3 Marks)
(b) Show the necessary ledger accounts to close the partnership’s books.

Answer

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Tags: Dissolution, Ledger Accounts, Partnership Business
Level: Level 1

Topic: Partnership Accounts (Including Profit Sharing, Capital and Current Accounts)
Series: MAY 2012

FA – May 2012 – L1 – SA – Q8 -Partnership Accounts

Identifying actions taken during the admission of a partner.

Question

Which of the following is NOT an action for admission of a partner during the year?

Answer

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Tags: Financial Statements, Goodwill, Partnership
Level: Level 1

Topic: Partnership Accounts (Including Profit Sharing, Capital and Current Accounts)
Series: MAY 2012

FA – May 2012 – L1 – SA – Q6 – Partnership Accounts

Calculating the value of goodwill in a partnership.

Question

The profits of ABC Partnership firm for 5 years ended 31 December 2011 were as follows:

Year Profits
2007 N15,000,000
2008 N9,000,000
2009 N4,500,000
2010 N7,500,000
2011 N10,500,000

A. N6,300,000
B. N9,300,000
C. N25,200,000
D. N25,300,000
E. N25,350,000.

Answer

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Tags: Goodwill, Partnership Valuation, Super Profit Method
Level: Level 1

Topic: Partnership Accounts (Including Profit Sharing, Capital and Current Accounts)
Series: MAY 2012

FA – Nov 2011 – L1 – SB – Q4 – Partnership Accounts

This question addresses the partnership agreement terms and dispute resolution between partners.

Question

However, the assets and liabilities of the partnership for the two years ended 31
December 2010 are as follows:

You are required to
Prepare in vertical format, the comparative Balance Sheets and Capital Accounts of the partners at the end of 2009 and 2010 based on the above information.

Answer

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Tags: Partnership Accounting, Partnership Agreement
Level: Level 1

Topic: Partnership Accounts (Including Profit Sharing, Capital and Current Accounts)
Series: NOV 2011

FA – Nov 2011 – L1 – SA – Q9 – Partnership Accounts

This question asks about the major difference between the income statement of a partnership and that of a sole trader.

Question

What is the major difference between the income statement of a partnership and that of a sole trader?

Answer

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Tags: Partnership Accounting, Sole Trader Accounting
Level: Level 1

Topic: Partnership Accounts (Including Profit Sharing, Capital and Current Accounts)
Series: NOV 2011

FA – Nov 2011 – L1 – SA – Q9 – Partnership Accounts

This question asks how the cost of raw materials consumed is calculated in a manufacturing account.

Question

Answer

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Tags: Cost of Raw Materials, Manufacturing Account
Level: Level 1

Topic: Partnership Accounts (Including Profit Sharing, Capital and Current Accounts)
Series: NOV 2011

FA – Nov 2011 – L1 – SA – Q5 – Partnership Accounts

Partnership Accounting, Profit Sharing

Question

What is A’s share of profit?
A. N76,000
B. N76,200
C. N76,267
D. N76,300
E. N80,000

Answer

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Tags: This question calculates a partner’s share of the profit in a partnership.
Level: Level 1

Topic: Partnership Accounts (Including Profit Sharing, Capital and Current Accounts)
Series: NOV 2011

FA – Nov 2011 – L1 – SA – Q4 – Partnership Accounts

This question calculates the profit share between partners.

Question

What is the profit to be shared by the partners for the year?
A. N104,000
B. N108,000
C. N114,400
D. N120,000
E. N126,000

Answer

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Tags: Partnership Accounting, Profit Sharing
Level: Level 1

Topic: Partnership Accounts (Including Profit Sharing, Capital and Current Accounts)
Series: NOV 2011

FA – Nov 2020 – L1 – SB – Q6b – Partnership Accounts

Prepare the revaluation account, partners' capital accounts, and the statement of financial position.

Question

b. Emeka has been in business as a Japan spare part dealer. The last statement of financial position of his business as at September 30, 2019, is given below:

	N’000	N’000
Equity
Capital	1,000
Retained earnings	130
	1,130
Drawings	(60)
	1,070
Non-current assets:
PPE		1,100
Current assets:
Inventories		190
Trade payables		40
Bank		45
	1,375	1,375

On October 1, 2019, he agreed with Bode to join him, and the new business will trade under the name and style EmBo Ventures.

Terms of the new business:

Bode is to contribute capital of N1,250,000 for an equal share of profits.
The firm will take over the assets and liabilities of Emeka at their book values, except for:
- PPE: N1,250,000
- Inventories: N175,000
The partners will maintain equal capital, and any shortfall in Emeka’s capital should be made good by credit from revaluation or through additional funds.

Required:

Prepare for EmBo Ventures: i. Revaluation account (5 Marks)
ii. Partners’ capital accounts (5 Marks)
iii. Statement of financial position as at October 1, 2019 (5 Marks)

(Total: 15 Marks)

Answer

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Tags: Capital Accounts, Partnership, Revaluation, Statement of Financial Position
Level: Level 1