Financial Statements of a Partnership (Edexcel IGCSE Accounting: Financial Statements): Exam Questions

Explain why it is advisable to draw up a partnership agreement when forming a new partnership.

Joan and Lewis are in partnership sharing profits and losses equally.

The partnership agreement provides for:

• interest of 8% per annum on opening capital balances

• an annual salary of $17000 for Lewis

• interest of 5% per annum on total drawings

• interest of 6% per annum on partnership loans.

Explain one reason why a partner may decide to provide a loan to the partnership rather than investing more capital.

The partners provided the following information.

The draft profit for the year ended 31 December 2022 was $56800 before adjusting for the following errors and omissions.

• Lewis’s annual salary had been included in staff salaries.

• Goods taken by Joan for her own use $1000

• Interest on the partnership loan.

Prepare the appropriation account for the year ended 31 December 2022.

Joan and Lewis

Appropriation account for the year ended 31 December 2022

Prepare the current account of Lewis for the year ended 31 December 2022.

Balance the account on this date and bring the balance down on 1 January 2023.

Current Account – Lewis

Carl and Ming are in partnership sharing profits and losses equally. The partnership agreement also provided for:

• interest on opening capital at 8% per annum

• interest on total drawings at 9% per annum

• a salary for Ming of $18000 per annum.

On 1 January 2022 the partnership purchased a machine costing $10000. This was fully funded by a 10% bank loan.

This transaction has not yet been entered in the books of account.

Depreciation is charged on machinery at 15% per annum using the straight-line method. A full year’s depreciation is charged in the year of acquisition.

Complete the income statement and appropriation account for the year ended 31 March 2022.

Carl and Ming

Income statement and appropriation account for the year ended 31 March 2022

(i) Prepare the current account of Ming for the year ended 31 March 2022. Balance the account on this date and bring the balance down on 1 April 2022.

Current Account – Ming

(8)

(ii) State what a credit balance on a partner’s current account means.

(1)

(iii) State how a debit balance on a partner’s current account may arise.

(1)

Able and Beena are in partnership sharing profits and losses in the ratio 3:1.

The partnership agreement also provided for:

• interest on capital at 8% per annum

• interest on drawings at 10% per annum

• an annual salary of $7 200 for Beena.

The following information was available at 1 May 2020

For the year ended 30 April 2021 profit for the year was $26 550 and total drawings were Able $16 000, Beena $10 500

Prepare the appropriation account for the year ended 30 April 2021.

Able and Beena

Appropriation account for the year ended 30 April 2021

Prepare Beena’s current account for the year ended 30 April 2021. Balance the account on that date and bring the balance down on 1 May 2021.

Current Account – Beena

State one reason why a partner may have a debit balance in their current account.

State, indicating with a tick (✓), the effect, if any, each transaction would have on a partnership’s profit for the year.

Explain why a partnership: charges interest on drawings

Explain why a partnership: allows interest on capital.

Muneeb and Javeed are in partnership sharing profits and losses in the ratio of 2:1.

The partnership agreement provides for:

• interest on capital at 10% per annum

• an annual salary of $12 000 for Muneeb.

The partners provided the following information for the year ended 31 March 2020.

Prepare the appropriation account for the year ended 31 March 2020.

Muneeb and Javeed

Appropriation account for the year ended 31 March 2020

Prepare the current account of Muneeb for the year ended 31 March 2020. Balance the account on that date and bring the balance down on 1 April 2020.

Current Account – Muneeb

The balance on Javeed’s current account at 31 March 2020 was $3 950 debit.

Prepare the statement of financial position at 31 March 2020.

Muneeb and Javeed

Statement of financial position at 31 March 2020

Muneeb and Javeed are in partnership sharing profits and losses in the ratio of 2:1.

The partnership agreement provides for:

• interest on capital at 10% per annum

• an annual salary of $12 000 for Muneeb.

The partners provided the following information for the year ended 31 March 2020.

Prepare the appropriation account for the year ended 31 March 2020.

Muneeb and Javeed

Appropriation account for the year ended 31 March 2020

Prepare the current account of Muneeb for the year ended 31 March 2020. Balance the account on that date and bring the balance down on 1 April 2020.

Current Account – Muneeb

The balance on Javeed’s current account at 31 March 2020 was $3 950 debit.

Prepare the statement of financial position at 31 March 2020.

Muneeb and Javeed

Statement of financial position at 31 March 2020

Identify, indicating with a tick (✓), which statements are true or false in the absence of a partnership agreement according to section 24 of the Partnership Act 1890.

The first one has been completed as an example

Discuss the need for a partnership to prepare different accounts from those prepared by a sole trader.