Topic: Preparation of Partnership accounts

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FA – Mar 2024 – L1 – Q2b – Preparation of Partnership accounts

Prepare the capital accounts for Armah, Siameh, and Benya following the admission of a new partner.

Question

Armah and Siameh were in partnership and shared profits and losses in the ratio of 3:2 respectively. The balances on the partners’ capital accounts at July 1, 2022, were: Armah GH¢187,500, Siameh GH¢300,000.

Due to expansion of their business, Benya was admitted as a partner on October 1, 2022, under the following arrangements:

i) The new profit-sharing ratio between Armah, Siameh, and Benya would be 35%, 35%, and 30% respectively.

ii) Benya was to introduce capital of GH¢375,000 but was unable to bring cash into the business immediately. Instead, he contributed his share of goodwill of GH¢180,000.

iii) Goodwill was valued at GH¢450,000 and was to be written off immediately after Benya’s admission. The existing partners agreed that goodwill should not be retained in the books of the partnership.

Required:

Prepare the partners’ capital accounts to reflect the admission of Benya into the partnership. (10 marks)

Answer

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Tags: Capital Accounts, Goodwill, Partnership Accounts, Profit Sharing
Level: Level 1

Topic: Preparation of Partnership accounts
Series: MAR 2024

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.

Question

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:

The partners’ cash drawings for the year under review have been debited to purchases.
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.
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)

Answer

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Tags: Drawings, Interest on Capital, Partnership Accounts, Profit and Loss Adjustment, Salaries, Statement of Financial Position
Level: Level 1

Topic: Preparation of Partnership accounts
Series: NOV 2023

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.

Question

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)

Answer

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Tags: Current Accounts, Drawings, Interest on Capital, Ledger Accounts, Partnership Accounts, Profit and Loss Appropriation, Profit Sharing, Rental Income
Level: Level 1

Topic: Preparation of Partnership accounts
Series: JULY 2023

FA – Dec 2023 – L1 – Q2 – Non-current assets and depreciation | Preparation of Partnership accounts

Calculates the cost of an asset under IAS 16 and prepares the Profit and Loss account, current accounts, and Statement of Financial Position for a partnership.

Question

a) Emma Ltd purchased an item of Property, Plant, and Equipment to be used in its new factory site. The following costs were incurred:

Item	GH¢’000
Machine cost	12,800
Delivery cost	1,280
Installation cost	1,600
Trade discount granted	640
Cost of site preparation	2,560
Architect’s fees	192
Administration expenses	1,920
Test run cost	960

Additional information:

i) The test run was to ensure that the asset was installed and working correctly without causing any air pollution. Items of inventories valued at GH¢128,000 were produced during the test run.
ii) The appropriate government agency has granted the company a license to operate the asset on the condition that the company will remove the asset at the end of the project and return the site to its former condition. This will cost the company GH¢3,200,000.

Required:
Calculate the cost of the asset in accordance with the provisions of IAS 16: Property, Plant, and Equipment. (5 marks)

b) Kojo and Owusu have been in partnership for some years as estate agents. The partnership agreement states that they share profits and losses in the ratio 3:2. Interest on capital is payable at the rate of 4% per annum; whilst interest on drawings is charged at the rate of 5% per annum. A salary of GHȼ15,000 is paid to Kojo and a salary of GHȼ10,000 is paid to Owusu.

The following Trial Balance has been extracted from the books at 31 July 2021:

Account	Dr (GH¢)	Cr (GH¢)
Sales commission received		139,100
Electricity	7,000
Wages and salaries	16,500
Repairs	9,800
General expenses	20,000
Capital accounts: Kojo		60,000
Capital accounts: Owusu		50,000
Current accounts: Kojo	2,500
Current accounts: Owusu		5,000
Office Premises	60,000
Provision for depreciation of premises		15,200
Office equipment	44,000
Provision for depreciation of office equipment		13,500
Receivables	45,000
Payables		32,000
Bank	65,000
Drawings: Kojo	20,000
Drawings: Owusu	25,000

(Dr Total: 314,800 GH¢ / Cr Total: 314,800 GH¢)

Additional information:

Electricity owing at 31 July 2021 amounted to GHȼ1,200.
Included in the general expenses is an item of office equipment purchased during the year for GHȼ5,000. This item has not yet been included in the office equipment account.
Repairs include an amount of GHȼ9,000 which relates to the extension of office premises.
Wages and salaries of GHȼ16,500 include an error of GHȼ2,000 salary paid to Kojo and GHȼ1,000 salary paid to Owusu.
Depreciation is to be provided as follows:
- Office equipment: 10% per annum on cost using the straight line method. A full year’s depreciation is provided on all office equipment held on 31 July 2021, regardless of the date of purchase.
- Office Premises: 2% per annum by the straight line method. The rate applies to the cost value at the year end, regardless of the date of any additions during the year.

Required:

i) Prepare the Statement of Profit and Loss (Profit and Loss and Appropriation Account) for the year ended 31 July 2021. (6 marks)
ii) Prepare the Current Accounts for the year ended 31 July 2021. (4 marks)
iii) Prepare the Statement of Financial Position as at 31 July 2021. (5 marks)

Answer

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Tags: IAS 16, Partnership, Plant and Equipment, Profit and Loss Account, Property, Statement of Financial Position
Level: Level 1

Topic: Non-current assets and depreciation, Preparation of Partnership accounts
Series: DEC 2023

FA – Aug 2022 – L1 – Q2 – Non-current assets and depreciation | Preparation of Partnership accounts

Preparation of ledger accounts for office equipment and disposal, calculation of profit due to a partner, and preparation of an appropriation account and current accounts for partners.

Question

a) The following Statement of Financial Position extract has been taken from the accounts of Yamfo Ltd as at 31 December 2020:

Non-current Assets	Cost (GHȼ)	Accumulated Depreciation (GHȼ)	Net Book Value (GHȼ)
Office Equipment	172,800	92,100	80,700

During the year ended 31 December 2021, the following transactions took place in relation to Office Equipment.

Disposals:

Equipment	Disposal Date	Purchase Date	Original Cost (GHȼ)	Disposal Proceeds (GHȼ)
Equipment 1	31 March 2021	1 January 2018	22,000	4,000
Equipment 2	30 June 2021	1 January 2017	30,000	5,100

Additions:

Equipment	Date of Addition	Cost (GHȼ)
Equipment 3	1 October 2021	35,000

Depreciation for Office Equipment is charged using the straight-line method based on a five-year life and an estimated residual value of 10% of the original cost. Depreciation is applied from the date the Office Equipment was bought until it was sold. All transactions were by cheque.

Required:
i) Prepare the Office Equipment ledger account for the year ended 31 December 2021.
(2 marks)

ii) Prepare the Disposal of Office Equipment ledger account for the year ended 31 December 2021.
(4 marks)

b) The following balances are in the books of a partnership as at 31 December 2021:

Account	Amount (GHȼ)
Capital accounts Badu, as at 1 January 2021	500,000
Tawiah, introduced 1 July 2021	300,000

Drawings	Amount (GHȼ)
Badu	220,000
Tawiah	100,000

Additional information:

Until 30 June 2021, Badu had run the business as a sole trader. Tawiah joined him on 1 July 2021, introducing capital of GHȼ300,000.
Under the partnership agreement, the balance of profit is to be shared between Badu and Tawiah in the ratio 3:2. No interest is to be charged on drawings. Both partners are to receive interest on their capital account balances at 5% per annum. Tawiah is to receive a salary of GHȼ40,000 per annum, but no salary is to be paid to Badu.
The profit for the year ended 31 December 2021 was GHȼ330,000. It was agreed that this profit had accrued one-third in the six months ended 30 June 2021 and two-thirds in the six months ended 31 December 2021, except for an irrecoverable debt of GHȼ30,000 charged in arriving at the profit, which was to be regarded as occurring in the six months ended 30 June 2021.

Required:
i) Calculate the amount of profit due to Badu for the six months to 30 June 2021.
(2 marks)

ii) Prepare the Appropriation Account for Badu and Tawiah for the six months ended 31 December 2021.
(6 marks)

iii) Prepare the Current Accounts for Badu and Tawiah for the year ended 31 December 2021.
(6 marks)

Answer

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Tags: Depreciation, Disposal of assets, Partnership Capital Accounts, Profit Sharing
Level: Level 1

Topic: Non-current assets and depreciation, Preparation of Partnership accounts
Series: AUG 2022

FA – April 2022 – L1 – Q2 – Bad and doubtful debt | Preparation of Partnership accounts

Preparation of bad debts, provision for bad debts accounts, and accounting for the admission and retirement of partners in a partnership.

Question

a) Nkrumah runs a small business with total annual sales of GHȼ50,000. He has been reviewing the outstanding balances on his customers’ accounts and has provided the following aged analysis of trade receivables as at 31 March 2020.

Nkrumah’s credit policy is payment within 30 days. The provision for bad debt as at 1 April 2019 was GHȼ880. Nkrumah’s policy for overdue and irrecoverable debts is to:

Write off as an irrecoverable debt any debt outstanding for over 12 months.
Create specific provision for any debts outstanding between 4 and 12 months.
Make no provision for debts up to 1 month old.
Create a general provision of 4% for all other debts.

Required:
i) Prepare and balance off the following ledger accounts for Nkrumah for the year ended 31 March 2020:

Tetteh
Abena
Irrecoverable Debts
Provision for Bad Debts
(6 marks)

ii) Prepare the Statement of Profit and Loss extract for irrecoverable debts and provision for bad debts for the year ended 31 March 2020.
(2 marks)

iii) Prepare the Statement of Financial Position extract for receivables as at 31 March 2020.
(2 marks)

b) The admission and retirement of a partner in a firm can only be done if all the existing partners have given consent unless otherwise agreed upon. At the time of admitting or retiring a partner, a new agreement is entered into and the firm is redesigned.

When a partner is admitted or retired in a partnership, some steps (procedures) are followed when accounting for his/her admission or retirement.

Required:
i) Detail the steps required when accounting for admission of a new partner.
(6 marks)
ii) Detail the steps required when accounting for the retirement of a partner.
(4 marks)

Answer

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Tags: Bad Debts, Financial Statements, Partnership Admission, Partnership Retirement, Provision for Bad Debts
Level: Level 1

Topic: Bad and doubtful debt, Preparation of Partnership accounts
Series: APR 2022

FA – April 2022 – L1 – Q1 – Preparation of Partnership accounts

Explanation of the importance of management accounts and correction of errors in a trial balance using journal entries and suspense account.

Question

a) The owner of Aspen Enterprise, as part of advice to a newly appointed Accountant, said that she should focus on the preparation of the year-end Financial Statements and not the preparation of Management Accounts.

Required:
Explain to the owner of Aspen Enterprise why Management Accounts is important.
(10 marks)

b) The trial balance of Naana Akyeaa failed to agree. The credit exceeded the debit by GHȼ5,760. The difference was placed in a suspense account. After a review, the following errors were discovered:

The total of the purchase account was undercast by GHȼ2,000.
Cash sales of GHȼ2,470 were recorded by debiting sales with GHȼ2,470 and crediting cash with GHȼ6,430.
Mr. Samson, whose debt was the subject of a specific provision for bad debt, paid his debt of GHȼ1,080 in full. The only entry made for this transaction was to credit receivables with GHȼ1,080.
An invoice for rates for GHȼ2,250 was found behind the bookkeeper’s desk. The invoice had not been accounted for.
The total of the sales returns day book was overcast by GHȼ1,280.
Discounts received of GHȼ840 was recorded by crediting receivables and debiting discounts received.
A new piece of machinery valued at GHȼ24,300 was written off to repairs in error. The depreciation policy of Naana Akyeaa is to depreciate machinery by 10% on a straight-line basis. The sole trader charges a full year’s depreciation in the year of purchase and none in the year of sale.

Required:
i) Prepare journal entries, with the appropriate narratives, necessary to correct the above errors.
(6 marks)
ii) Prepare a Suspense Account.
(4 marks)

Answer

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Tags: Correction of Errors, Journal Entries, Management Accounts, Suspense account
Level: Level 1

Topic: Preparation of Partnership accounts
Series: APR 2022

FA – Nov 2021 – L1 – Q2 – Accruals and prepayments | Preparation of Partnership accounts

Recording rent transactions and preparing financial statements related to the retirement of a partner, including revaluation and goodwill adjustments.

Question

a) Ansong is a sole proprietor whose accounting year is 1 November to 31 October. Ansong rents factory space at the cost of GHȼ10,000 per quarter, payable in advance. Payments for rent were made on 1 January, 1 April, 1 July, and 1 October during the year 2020.

Required:
i) Show the ledger entries to record the above transactions for the year ended 31 October 2020.
(4 marks)

ii) Prepare an extract for the Statement of Profit or Loss and Statement of Financial Position.
(1 mark)

b) Agyei, Bobo, and Dago have been in partnership for some years, sharing profits and losses in the ratio 3:2:1, respectively. The partnership statement of financial position as at 30 June 2020 was as follows:

Assets	GHȼ	GHȼ
Non-current assets
Premises		80,000
Office equipment		58,400
Motor vehicles		45,000
Total Non-current assets		183,400
Current assets
Inventory	28,600
Trade receivables	25,800
Bank	5,650
Total Current assets		60,050
Total assets		243,450
Capital and Liabilities
Capital accounts
Agyei	95,000
Bobo	60,000
Dago	50,000
Total Capital		205,000
Current accounts
Agyei	15,200
Bobo	7,040
Dago (debit balance)	(10,200)
Total Current accounts		12,040
Current liabilities
Trade payables		26,410
Total Capital and Liabilities		243,450

The partners have agreed that the following should take effect on 1 July 2020 upon the retirement of Dago:

Goodwill is to be valued at GHȼ60,000 and will not remain in the books of account.
Premises are to be revalued to GHȼ116,325.
Dago is to take inventory costing GHȼ8,400 and a Motor Vehicle with a net book value of GHȼ20,500 as part settlement of his capital.
A specific allowance for receivables is to be made for GHȼ5,300 owed by an individual customer. In addition, a general allowance for receivables is to be made at 5% of the remaining trade receivables.
Agyei and Bobo will continue in partnership, sharing profits and losses in the ratio 3:2.
Dago will transfer GHȼ12,000 to a loan account to be repaid in full in 2025. No loan interest will be charged on this amount.
The remaining balance from combining both Dago’s capital account and current account will be paid from the business bank account.

Required:
i) Prepare the partners’ capital accounts on 1 July 2020 to show the retirement of Dago.
(7 marks)

ii) Prepare the partnership statement of financial position as at 1 July 2020.
(8 marks)

Answer

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Tags: Goodwill, Partners' Capital Accounts, Prepayments, Rent, Retirement of Partner, Revaluation, Statement of Financial Position
Level: Level 1

Topic: Accruals and prepayments, Preparation of Partnership accounts
Series: NOV 2021

FA – May 2021 – L1 – Q2 – Accruals and prepayments | Bad and doubtful debt | Preparation of Partnership accounts

Preparation of ledger accounts for accruals and prepayments and accounts on the dissolution of a partnership.

Question

a) The following information is available from the books of Twibom Ltd.

Item	1 January 2020 (GH¢)	31 December 2020 (GH¢)
Interest received	680 Accrued	750 Accrued
General expenses	5,200 Prepaid	3,180 Accrued
Allowance for receivables	1,350	–
Receivables	45,000	56,000

During the year ended 31 December 2020, the following amounts were received or paid (all transactions were through the bank account).

Date	Transaction	Amount (GH¢)
31 March	Interest received	1,280
4 August	General expenses paid	4,500
5 December	Rent paid	27,000

The rent is due in equal monthly installments. The payment for rent covered the period from 1 January 2020 to 31 March 2021.

The allowance for receivables is to be set using the same percentage of receivables as in the previous year.

Required:
Prepare the following ledger accounts for the year ended 31 December 2020.
i) Interest Received (1 mark)
ii) General Expenses (1 mark)
iii) Rent (1 mark)
iv) Allowance for Receivables (2 marks)

b) Agbeko, Musah, and Osei had been in partnership for several years sharing profits and losses in the ratio 5:3:2. On 1 January 2021, they decided to dissolve their partnership after a disagreement. The Statement of Financial Position of the partnership as at 31 December 2020, was as follows:

Additional Information

The plant and machinery were sold for GH¢98,200.
The inventory was sold for GH¢40,500.
The Receivables realized GH¢62,000.
The motor vehicles were taken over by Agbeko at an agreed value of GH¢40,800.
The furniture and fittings were sold for GH¢50,400.
A discount of GH¢4,320 was received when payables were paid off.
The loan was repaid in full on 1 January 2021.
There were no outstanding interest payments on the loan.
Dissolution expenses amounted to GH¢3,000.

Required:
Prepare the following accounts on dissolution:
i) Partners’ capital accounts (3 marks)
ii) Realization account (7 marks)
iii) Bank account (5 marks)

Answer

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Tags: Allowance for Receivables, Capital Account, General Expenses, Interest Received, Partnership Dissolution, Realization Account, Rent
Level: Level 1

Topic: Accruals and prepayments, Bad and doubtful debt, Preparation of Partnership accounts
Series: MAY 2021

FA – Nov 2020 – L1 – Q2 – Control accounts and account reconciliations | Preparation of Partnership accounts

Question on preparing receivables and payables ledger control accounts and the opening statement of financial position for a new partnership.

Question

a) At the close of business on 31 July 2019, the following balances were extracted from the books of Kwabena Ltd, a limited liability company:

Account	Amount (GH¢)
Receivables ledger control account	47,600
Payables ledger control account	37,400

During the month of August, the following transactions occurred:

Transaction	Amount (GH¢)
Cash received from customers	31,800
Cash paid to suppliers	32,500
Sales on credit	48,200
Purchases on credit	36,500
Sales returns	1,900
Purchase returns	700
Discounts received from suppliers	400
Settlement discount claimed by customer	300
Bad debts written off	2,700
Customer and supplier accounts settled by contra	2,100

Required:
Prepare the receivables ledger control account and payables ledger control account for the month of August 2019 and hence determine the balances as at 31 August 2019.
(8 marks)

b) Makor, Degbe, and Sesenyo were in partnership sharing profits one-half, one-third, and one-sixth respectively. On 1 January 2019, they admitted Asinyo into the partnership on the following terms:

Asinyo to have one-sixth share which he purchased from Makor, paying her GH¢20,000 for that share of goodwill. Of this amount, Makor retained GH¢15,000 and put the balance into the firm as additional capital. Asinyo also brought GH¢12,500 capital into the firm.
It was agreed that the investments should be reduced to their market value of GH¢9,000 and that the plant should be reduced to GH¢14,500 as at 31 December 2018.

The Statement of Financial Position of the old firm as at 31 December 2018 was as follows:

Required:
i) Prepare the opening statement of financial position of the new firm as at 1 January 2019.
(6 marks)

ii) Prepare the capital accounts of the partners for the year to 31 December 2019.
(6 marks)

Answer

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Tags: Capital Accounts, Control Accounts, Goodwill, Partnership, Payables, Receivables
Level: Level 1

Topic: Control accounts and account reconciliations, Preparation of Partnership accounts
Series: NOV 2020

FA – Mar 2024 – L1 – Q2b – Preparation of Partnership accounts

Prepare the capital accounts for Armah, Siameh, and Benya following the admission of a new partner.

Question

Due to expansion of their business, Benya was admitted as a partner on October 1, 2022, under the following arrangements:

i) The new profit-sharing ratio between Armah, Siameh, and Benya would be 35%, 35%, and 30% respectively.

ii) Benya was to introduce capital of GH¢375,000 but was unable to bring cash into the business immediately. Instead, he contributed his share of goodwill of GH¢180,000.

Required:

Prepare the partners’ capital accounts to reflect the admission of Benya into the partnership. (10 marks)

Answer

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Tags: Capital Accounts, Goodwill, Partnership Accounts, Profit Sharing
Level: Level 1

Topic: Preparation of Partnership accounts
Series: MAR 2024

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.

Question

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:

The partners’ cash drawings for the year under review have been debited to purchases.
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.
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:

Answer

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Tags: Drawings, Interest on Capital, Partnership Accounts, Profit and Loss Adjustment, Salaries, Statement of Financial Position
Level: Level 1

Topic: Preparation of Partnership accounts
Series: NOV 2023

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.

Question

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)

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.

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)

Answer

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Tags: Current Accounts, Drawings, Interest on Capital, Ledger Accounts, Partnership Accounts, Profit and Loss Appropriation, Profit Sharing, Rental Income
Level: Level 1

Topic: Preparation of Partnership accounts
Series: JULY 2023

FA – Dec 2023 – L1 – Q2 – Non-current assets and depreciation | Preparation of Partnership accounts

Calculates the cost of an asset under IAS 16 and prepares the Profit and Loss account, current accounts, and Statement of Financial Position for a partnership.

Question

a) Emma Ltd purchased an item of Property, Plant, and Equipment to be used in its new factory site. The following costs were incurred:

Item	GH¢’000
Machine cost	12,800
Delivery cost	1,280
Installation cost	1,600
Trade discount granted	640
Cost of site preparation	2,560
Architect’s fees	192
Administration expenses	1,920
Test run cost	960

Additional information:

Required:
Calculate the cost of the asset in accordance with the provisions of IAS 16: Property, Plant, and Equipment. (5 marks)

The following Trial Balance has been extracted from the books at 31 July 2021:

Account	Dr (GH¢)	Cr (GH¢)
Sales commission received		139,100
Electricity	7,000
Wages and salaries	16,500
Repairs	9,800
General expenses	20,000
Capital accounts: Kojo		60,000
Capital accounts: Owusu		50,000
Current accounts: Kojo	2,500
Current accounts: Owusu		5,000
Office Premises	60,000
Provision for depreciation of premises		15,200
Office equipment	44,000
Provision for depreciation of office equipment		13,500
Receivables	45,000
Payables		32,000
Bank	65,000
Drawings: Kojo	20,000
Drawings: Owusu	25,000

(Dr Total: 314,800 GH¢ / Cr Total: 314,800 GH¢)

Additional information:

Electricity owing at 31 July 2021 amounted to GHȼ1,200.
Included in the general expenses is an item of office equipment purchased during the year for GHȼ5,000. This item has not yet been included in the office equipment account.
Repairs include an amount of GHȼ9,000 which relates to the extension of office premises.
Wages and salaries of GHȼ16,500 include an error of GHȼ2,000 salary paid to Kojo and GHȼ1,000 salary paid to Owusu.
Depreciation is to be provided as follows:
- Office equipment: 10% per annum on cost using the straight line method. A full year’s depreciation is provided on all office equipment held on 31 July 2021, regardless of the date of purchase.
- Office Premises: 2% per annum by the straight line method. The rate applies to the cost value at the year end, regardless of the date of any additions during the year.

Required:

Answer

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Tags: IAS 16, Partnership, Plant and Equipment, Profit and Loss Account, Property, Statement of Financial Position
Level: Level 1

Topic: Non-current assets and depreciation, Preparation of Partnership accounts
Series: DEC 2023

FA – Aug 2022 – L1 – Q2 – Non-current assets and depreciation | Preparation of Partnership accounts

Preparation of ledger accounts for office equipment and disposal, calculation of profit due to a partner, and preparation of an appropriation account and current accounts for partners.

Question

a) The following Statement of Financial Position extract has been taken from the accounts of Yamfo Ltd as at 31 December 2020:

Non-current Assets	Cost (GHȼ)	Accumulated Depreciation (GHȼ)	Net Book Value (GHȼ)
Office Equipment	172,800	92,100	80,700

During the year ended 31 December 2021, the following transactions took place in relation to Office Equipment.

Disposals:

Equipment	Disposal Date	Purchase Date	Original Cost (GHȼ)	Disposal Proceeds (GHȼ)
Equipment 1	31 March 2021	1 January 2018	22,000	4,000
Equipment 2	30 June 2021	1 January 2017	30,000	5,100

Additions:

Equipment	Date of Addition	Cost (GHȼ)
Equipment 3	1 October 2021	35,000

Required:
i) Prepare the Office Equipment ledger account for the year ended 31 December 2021.
(2 marks)

ii) Prepare the Disposal of Office Equipment ledger account for the year ended 31 December 2021.
(4 marks)

b) The following balances are in the books of a partnership as at 31 December 2021:

Account	Amount (GHȼ)
Capital accounts Badu, as at 1 January 2021	500,000
Tawiah, introduced 1 July 2021	300,000

Drawings	Amount (GHȼ)
Badu	220,000
Tawiah	100,000

Additional information:

Until 30 June 2021, Badu had run the business as a sole trader. Tawiah joined him on 1 July 2021, introducing capital of GHȼ300,000.
Under the partnership agreement, the balance of profit is to be shared between Badu and Tawiah in the ratio 3:2. No interest is to be charged on drawings. Both partners are to receive interest on their capital account balances at 5% per annum. Tawiah is to receive a salary of GHȼ40,000 per annum, but no salary is to be paid to Badu.
The profit for the year ended 31 December 2021 was GHȼ330,000. It was agreed that this profit had accrued one-third in the six months ended 30 June 2021 and two-thirds in the six months ended 31 December 2021, except for an irrecoverable debt of GHȼ30,000 charged in arriving at the profit, which was to be regarded as occurring in the six months ended 30 June 2021.

Required:
i) Calculate the amount of profit due to Badu for the six months to 30 June 2021.
(2 marks)

ii) Prepare the Appropriation Account for Badu and Tawiah for the six months ended 31 December 2021.
(6 marks)

iii) Prepare the Current Accounts for Badu and Tawiah for the year ended 31 December 2021.
(6 marks)

Answer

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Tags: Depreciation, Disposal of assets, Partnership Capital Accounts, Profit Sharing
Level: Level 1

Topic: Non-current assets and depreciation, Preparation of Partnership accounts
Series: AUG 2022

FA – April 2022 – L1 – Q2 – Bad and doubtful debt | Preparation of Partnership accounts

Preparation of bad debts, provision for bad debts accounts, and accounting for the admission and retirement of partners in a partnership.

Question

Nkrumah’s credit policy is payment within 30 days. The provision for bad debt as at 1 April 2019 was GHȼ880. Nkrumah’s policy for overdue and irrecoverable debts is to:

Write off as an irrecoverable debt any debt outstanding for over 12 months.
Create specific provision for any debts outstanding between 4 and 12 months.
Make no provision for debts up to 1 month old.
Create a general provision of 4% for all other debts.

Required:
i) Prepare and balance off the following ledger accounts for Nkrumah for the year ended 31 March 2020:

Tetteh
Abena
Irrecoverable Debts
Provision for Bad Debts
(6 marks)

ii) Prepare the Statement of Profit and Loss extract for irrecoverable debts and provision for bad debts for the year ended 31 March 2020.
(2 marks)

iii) Prepare the Statement of Financial Position extract for receivables as at 31 March 2020.
(2 marks)

When a partner is admitted or retired in a partnership, some steps (procedures) are followed when accounting for his/her admission or retirement.

Required:
i) Detail the steps required when accounting for admission of a new partner.
(6 marks)
ii) Detail the steps required when accounting for the retirement of a partner.
(4 marks)

Answer

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Tags: Bad Debts, Financial Statements, Partnership Admission, Partnership Retirement, Provision for Bad Debts
Level: Level 1

Topic: Bad and doubtful debt, Preparation of Partnership accounts
Series: APR 2022

FA – April 2022 – L1 – Q1 – Preparation of Partnership accounts

Explanation of the importance of management accounts and correction of errors in a trial balance using journal entries and suspense account.

Question

Required:
Explain to the owner of Aspen Enterprise why Management Accounts is important.
(10 marks)

The total of the purchase account was undercast by GHȼ2,000.
Cash sales of GHȼ2,470 were recorded by debiting sales with GHȼ2,470 and crediting cash with GHȼ6,430.
Mr. Samson, whose debt was the subject of a specific provision for bad debt, paid his debt of GHȼ1,080 in full. The only entry made for this transaction was to credit receivables with GHȼ1,080.
An invoice for rates for GHȼ2,250 was found behind the bookkeeper’s desk. The invoice had not been accounted for.
The total of the sales returns day book was overcast by GHȼ1,280.
Discounts received of GHȼ840 was recorded by crediting receivables and debiting discounts received.
A new piece of machinery valued at GHȼ24,300 was written off to repairs in error. The depreciation policy of Naana Akyeaa is to depreciate machinery by 10% on a straight-line basis. The sole trader charges a full year’s depreciation in the year of purchase and none in the year of sale.

Required:
i) Prepare journal entries, with the appropriate narratives, necessary to correct the above errors.
(6 marks)
ii) Prepare a Suspense Account.
(4 marks)

Answer

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Tags: Correction of Errors, Journal Entries, Management Accounts, Suspense account
Level: Level 1

Topic: Preparation of Partnership accounts
Series: APR 2022

FA – Nov 2021 – L1 – Q2 – Accruals and prepayments | Preparation of Partnership accounts

Recording rent transactions and preparing financial statements related to the retirement of a partner, including revaluation and goodwill adjustments.

Question

Required:
i) Show the ledger entries to record the above transactions for the year ended 31 October 2020.
(4 marks)

ii) Prepare an extract for the Statement of Profit or Loss and Statement of Financial Position.
(1 mark)

Assets	GHȼ	GHȼ
Non-current assets
Premises		80,000
Office equipment		58,400
Motor vehicles		45,000
Total Non-current assets		183,400
Current assets
Inventory	28,600
Trade receivables	25,800
Bank	5,650
Total Current assets		60,050
Total assets		243,450
Capital and Liabilities
Capital accounts
Agyei	95,000
Bobo	60,000
Dago	50,000
Total Capital		205,000
Current accounts
Agyei	15,200
Bobo	7,040
Dago (debit balance)	(10,200)
Total Current accounts		12,040
Current liabilities
Trade payables		26,410
Total Capital and Liabilities		243,450

The partners have agreed that the following should take effect on 1 July 2020 upon the retirement of Dago:

Goodwill is to be valued at GHȼ60,000 and will not remain in the books of account.
Premises are to be revalued to GHȼ116,325.
Dago is to take inventory costing GHȼ8,400 and a Motor Vehicle with a net book value of GHȼ20,500 as part settlement of his capital.
A specific allowance for receivables is to be made for GHȼ5,300 owed by an individual customer. In addition, a general allowance for receivables is to be made at 5% of the remaining trade receivables.
Agyei and Bobo will continue in partnership, sharing profits and losses in the ratio 3:2.
Dago will transfer GHȼ12,000 to a loan account to be repaid in full in 2025. No loan interest will be charged on this amount.
The remaining balance from combining both Dago’s capital account and current account will be paid from the business bank account.

Required:
i) Prepare the partners’ capital accounts on 1 July 2020 to show the retirement of Dago.
(7 marks)

ii) Prepare the partnership statement of financial position as at 1 July 2020.
(8 marks)

Answer

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Tags: Goodwill, Partners' Capital Accounts, Prepayments, Rent, Retirement of Partner, Revaluation, Statement of Financial Position
Level: Level 1

Topic: Accruals and prepayments, Preparation of Partnership accounts
Series: NOV 2021

FA – May 2021 – L1 – Q2 – Accruals and prepayments | Bad and doubtful debt | Preparation of Partnership accounts

Preparation of ledger accounts for accruals and prepayments and accounts on the dissolution of a partnership.

Question

a) The following information is available from the books of Twibom Ltd.

Item	1 January 2020 (GH¢)	31 December 2020 (GH¢)
Interest received	680 Accrued	750 Accrued
General expenses	5,200 Prepaid	3,180 Accrued
Allowance for receivables	1,350	–
Receivables	45,000	56,000

During the year ended 31 December 2020, the following amounts were received or paid (all transactions were through the bank account).

Date	Transaction	Amount (GH¢)
31 March	Interest received	1,280
4 August	General expenses paid	4,500
5 December	Rent paid	27,000

The rent is due in equal monthly installments. The payment for rent covered the period from 1 January 2020 to 31 March 2021.

The allowance for receivables is to be set using the same percentage of receivables as in the previous year.

Additional Information

The plant and machinery were sold for GH¢98,200.
The inventory was sold for GH¢40,500.
The Receivables realized GH¢62,000.
The motor vehicles were taken over by Agbeko at an agreed value of GH¢40,800.
The furniture and fittings were sold for GH¢50,400.
A discount of GH¢4,320 was received when payables were paid off.
The loan was repaid in full on 1 January 2021.
There were no outstanding interest payments on the loan.
Dissolution expenses amounted to GH¢3,000.

Required:
Prepare the following accounts on dissolution:
i) Partners’ capital accounts (3 marks)
ii) Realization account (7 marks)
iii) Bank account (5 marks)

Answer

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Tags: Allowance for Receivables, Capital Account, General Expenses, Interest Received, Partnership Dissolution, Realization Account, Rent
Level: Level 1

Topic: Accruals and prepayments, Bad and doubtful debt, Preparation of Partnership accounts
Series: MAY 2021

FA – Nov 2020 – L1 – Q2 – Control accounts and account reconciliations | Preparation of Partnership accounts

Question on preparing receivables and payables ledger control accounts and the opening statement of financial position for a new partnership.

Question

a) At the close of business on 31 July 2019, the following balances were extracted from the books of Kwabena Ltd, a limited liability company:

Account	Amount (GH¢)
Receivables ledger control account	47,600
Payables ledger control account	37,400

During the month of August, the following transactions occurred:

Transaction	Amount (GH¢)
Cash received from customers	31,800
Cash paid to suppliers	32,500
Sales on credit	48,200
Purchases on credit	36,500
Sales returns	1,900
Purchase returns	700
Discounts received from suppliers	400
Settlement discount claimed by customer	300
Bad debts written off	2,700
Customer and supplier accounts settled by contra	2,100

Required:
Prepare the receivables ledger control account and payables ledger control account for the month of August 2019 and hence determine the balances as at 31 August 2019.
(8 marks)

b) Makor, Degbe, and Sesenyo were in partnership sharing profits one-half, one-third, and one-sixth respectively. On 1 January 2019, they admitted Asinyo into the partnership on the following terms:

Asinyo to have one-sixth share which he purchased from Makor, paying her GH¢20,000 for that share of goodwill. Of this amount, Makor retained GH¢15,000 and put the balance into the firm as additional capital. Asinyo also brought GH¢12,500 capital into the firm.
It was agreed that the investments should be reduced to their market value of GH¢9,000 and that the plant should be reduced to GH¢14,500 as at 31 December 2018.

The Statement of Financial Position of the old firm as at 31 December 2018 was as follows:

Required:
i) Prepare the opening statement of financial position of the new firm as at 1 January 2019.
(6 marks)

ii) Prepare the capital accounts of the partners for the year to 31 December 2019.
(6 marks)

Answer

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Tags: Capital Accounts, Control Accounts, Goodwill, Partnership, Payables, Receivables
Level: Level 1

Topic: Control accounts and account reconciliations, Preparation of Partnership accounts
Series: NOV 2020

Topic: Preparation of Partnership accounts

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FA – Mar 2024 – L1 – Q2b – Preparation of Partnership accounts

Prepare the capital accounts for Armah, Siameh, and Benya following the admission of a new partner.

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

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

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Calculates the cost of an asset under IAS 16 and prepares the Profit and Loss account, current accounts, and Statement of Financial Position for a partnership.

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FA – Aug 2022 – L1 – Q2 – Non-current assets and depreciation | Preparation of Partnership accounts

Preparation of ledger accounts for office equipment and disposal, calculation of profit due to a partner, and preparation of an appropriation account and current accounts for partners.

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FA – April 2022 – L1 – Q2 – Bad and doubtful debt | Preparation of Partnership accounts

Preparation of bad debts, provision for bad debts accounts, and accounting for the admission and retirement of partners in a partnership.

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FA – April 2022 – L1 – Q1 – Preparation of Partnership accounts

Explanation of the importance of management accounts and correction of errors in a trial balance using journal entries and suspense account.

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FA – Nov 2021 – L1 – Q2 – Accruals and prepayments | Preparation of Partnership accounts

Recording rent transactions and preparing financial statements related to the retirement of a partner, including revaluation and goodwill adjustments.

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FA – May 2021 – L1 – Q2 – Accruals and prepayments | Bad and doubtful debt | Preparation of Partnership accounts

Preparation of ledger accounts for accruals and prepayments and accounts on the dissolution of a partnership.

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FA – Nov 2020 – L1 – Q2 – Control accounts and account reconciliations | Preparation of Partnership accounts

Question on preparing receivables and payables ledger control accounts and the opening statement of financial position for a new partnership.

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FA – Mar 2024 – L1 – Q2b – Preparation of Partnership accounts

Prepare the capital accounts for Armah, Siameh, and Benya following the admission of a new partner.

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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.

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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.

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FA – Dec 2023 – L1 – Q2 – Non-current assets and depreciation | Preparation of Partnership accounts

Calculates the cost of an asset under IAS 16 and prepares the Profit and Loss account, current accounts, and Statement of Financial Position for a partnership.

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FA – Aug 2022 – L1 – Q2 – Non-current assets and depreciation | Preparation of Partnership accounts

Preparation of ledger accounts for office equipment and disposal, calculation of profit due to a partner, and preparation of an appropriation account and current accounts for partners.

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FA – April 2022 – L1 – Q2 – Bad and doubtful debt | Preparation of Partnership accounts

Preparation of bad debts, provision for bad debts accounts, and accounting for the admission and retirement of partners in a partnership.

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FA – April 2022 – L1 – Q1 – Preparation of Partnership accounts

Explanation of the importance of management accounts and correction of errors in a trial balance using journal entries and suspense account.

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FA – Nov 2021 – L1 – Q2 – Accruals and prepayments | Preparation of Partnership accounts

Recording rent transactions and preparing financial statements related to the retirement of a partner, including revaluation and goodwill adjustments.

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FA – May 2021 – L1 – Q2 – Accruals and prepayments | Bad and doubtful debt | Preparation of Partnership accounts

Preparation of ledger accounts for accruals and prepayments and accounts on the dissolution of a partnership.

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FA – Nov 2020 – L1 – Q2 – Control accounts and account reconciliations | Preparation of Partnership accounts

Question on preparing receivables and payables ledger control accounts and the opening statement of financial position for a new partnership.

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