CHAPTER 27: CLOSING TRANSFERS, TRADING ACCOUNT, PROFIT AND LOSS ACCOUNT, APPROPRIATION ACCOUNT

Question 1

define partnership

Answer 1

a business with 2 to 20 people working together to make a profit

Question 2

what is a partnership agreement?

Answer 2

contains details of consent information between the partners.

Question 3

list the features of a partnership agreement

Answer 3

• capital value contribute by each partner
• profit or loss to be shared in a predetermined ratio
• salaries to be paid to partners if applicable
• rate of interest to be paid on capital if applicable
• rate of interst to be paid on drawings if applicable
• rate of interest to be paid on partner’s loan to the partnership if applicable
• accounting treatment to be followed when admitting a new partner
• accounting treatment to be followed when one partner dies or retires.

Question 4

what is the position of the partnership when there is no partnershp agreement?

Answer 4

• any profits or losses must be shared equally among parterns
• no salaries to be paid to partners
• no interest on drawings
• no interest on capital
• loans from partners must carry interest of 5 percent per annum

Question 5

list differences of the accounting records of a sole trader and a parternship, 3 each

Answer 5

parternship:
- profit/loss made is shared among partners
- interest may be paid on capital invested
- interest may be paid on the drawings made
sole trader:
- takes all profit and bears all losses
- no interest paid on capital invested
- no interest paid on drawings made

Question 6

what is the importance of appropriation?

Answer 6

it shows how the profits and losses of the business are distributed among the partners

Question 7

list the entries on the debit side of the appropriation account

Answer 7

• interest on capital
• salaries
• interest on loan
• appropriation: share of profit

outflows of moeny and are treated like expenses- debit entries