knowledge test - partnership accounts

Question 1

Unless there is a partnership agreement that states otherwise:

Answer 1

1. Partners must contribute equal amounts of capital
2. Any loans to the business by partners carry interest at 5% per annum
3. No partner may be charged interest on drawings
4. No partner is entitled to interest on capital
5. No partner is entitled to a salary
6. Profits or losses are to be shared equally

Question 2

Complete the APPROPRIATION ACCOUNT.

Answer 2

• Interest charged on partners’ drawings is ADDED
• Salaries paid to any of the partners are SUBTRACTED
• Interest on partners’ capital accounts is SUBTRACTED
• The remaining profit or loss is shared between the partners

Question 3

PARTNERSHIP CURRENT ACCOUNTS - debit

Answer 3

interest on drawings
drawings

Question 4

PARTNERSHIP CURRENT ACCOUNTS - credit

Answer 4

b/d
interest on loan
salaries
interest on capital
share or capital

Question 5

You must account for goodwill

Answer 5

You must account for goodwill, even if you have been told that it won’t be maintained in the books of accounts.

Question 6

what is goodwill

Answer 6

Goodwill is an intangible ASSET, so remember how to use ‘RAIL’.

Question 7

why should you debit goodwill first

Answer 7

First you DEBIT ‘Goodwill’ because you are creating an asset and credit the partners’ capital accounts in the OLD profit sharing ratio.

Question 8

why should you credit goodwill second

Answer 8

Then you CREDIT ‘Goodwill’ because you are decreasing an asset and debit the partners’ capital accounts in the NEW profit sharing ratio

Question 9

how much should the closing balance on the goodwill account be

Answer 9

The closing balance on the ‘Goodwill’ account must be equal to ZERO.

Question 10

Rail

Answer 10

Remember ‘RAIL’ and how that would affect the T-accounts for the relevant assets, although you don’t need to show those assets’ T-accounts.

Question 11

other half of double entry is im

Answer 11

‘Revaluation’ account.

Question 12

where would an increase in value of asset be

Answer 12

An INCREASE in the value of an asset would be debited to that asset’s account and therefore CREDITED to ‘Revaluation’.

Question 13

where would an decrease in value of asset be

Answer 13

A DECREASE in the value of an asset would be credited to that asset’s account and therefore DEBITED to ‘Revaluation’.

Question 14

where is the balance on the revaluation account being transferred

Answer 14

The balance on the ‘Revaluation’ account is transferred to the partners’ capital accounts in their OLD profit sharing ratio

Question 15

how much should closing balance on revaluation account be

Answer 15

The closing balance on the ‘Revaluation’ account must be equal to ZERO.

Question 16

what is the garner v murray rule

Answer 16

If the retiring partner is unable to repay a debit balance due to bankruptcy, it should be allocated to the remaining partners using the ‘Garner vs Murray’ rule.
This means that the other partners must share the loss in the ratio of their capital account balances at the start of the financial year.

Question 17

x

Answer 17

s