Partnership Accounts

Question 1

What is an appropriation account?

Answer 1

sharing statement’ for the profits or losses of the business

Question 2

What goes on an appropriation account in order?

Answer 2

Profit for the year
Add: interest on drawings
Less: interest on capital
Less: salaries
Equals: remaining profit share
Share of profit
Total of shared profit

Question 3

What should you do to the total figures on appropriation accounts?

Answer 3

Should equal and be double underlined

Question 4

When was the partnership act created?

Answer 4

1890

Question 5

When is the partnership act in effect?

Answer 5

When there is no partnership agreement

Question 6

How are loans treated under the partnership act?

Answer 6

Loans to the partnership by partners will receive 5% interest

Question 7

Is there interest on drawings under the partnership act?

Answer 7

None charged

Question 8

Is there interest on capital under the partnership act?

Answer 8

None charged

Question 9

How are partnership salaries treated under the partnership act?

Answer 9

Partners are not entitled to a salary

Question 10

How are profits/ losses shared under the partnership act?

Answer 10

Shared equally

Question 11

What is the income statement like for a partnership?

Answer 11

The same as a sole trader down to profit for the year then the appropriation account

Question 12

How is the statement of financial position laid out for a partnership?

Answer 12

Same as a sole trader apart from the capital section that will contain the end of year capital and current account balances of each partner

Question 13

What is the purpose of capital accounts?

Answer 13

Record the permanent contributions of partners

Question 14

What would mean the capital account would have to change?

Answer 14

If structural change happens in the business

Question 15

What are some examples of structural changes to a business?

Answer 15

Partner introduces or withdraws capital
A partner leaves
A partner joins
Assets are revalued
Profit sharing ratio is changed

Question 16

What goes on the debit side of a capital account?

Answer 16

Balance b/d (owe business)
Good will written off
Decrease in revaluation
Capital withdrawn

Question 17

What goes on the credit side of the capital account?

Answer 17

Balance b/d
Goodwill created
Increase in revaluation
Capital introduced

Question 18

What are current accounts?

Answer 18

A more flexible sort of capital account
Record regular fluctuations in partners stake in the business

Question 19

What side of the account is increase for capital and current?

Answer 19

Credit

Question 20

What side of the capital/ current accounts would be decreasing value?

Answer 20

Debit

Question 21

What goes on the debit side of the current account?

Answer 21

Balance b/d take more then they’re entitled to
Drawings
Interest on drawings
Share of loss

Question 22

What goes on the credit side of the current account?

Answer 22

Balance b/d
Salaries
Interest on capital
Share of profits
Interest on loan

Question 23

What are the main changes expected in a partnership?

Answer 23

Partner leaves
Partner joins
Assets are revalued
Profit sharing ratio changed

Question 24

What is goodwill?

Answer 24

Difference between value of business as a whole and the net value of its separate assets and liabilities
What SFP says its worth and what it can be sold as going concern

Question 25

When is goodwill used?

Answer 25

When a change in partnership takes place to ensure the partners benefit ( or otherwise) from the change in value of the business

Question 26

What is the first step for goodwill?

Answer 26

Create goodwill to all partners in existence before change using original sharing ratio

Question 27

What are the debits and credits for creating goodwill?

Answer 27

Debit= goodwill Credit= capital

Question 28

What is step 2 of good will in accounts?

Answer 28

Written off between all partners in existence after changes using new sharing ratio

Question 29

What side would a loss in asset value go in the revaluation account?

Answer 29

Credit- goes to debit on capital (liabilities increased)

Question 30

Where would a gain in asset value go on the revaluation account?

Answer 30

The credit side and the debit of capital

Question 31

How do you balance the revaluation account?

Answer 31

Instead of balance c/d you split the amount between the partners using sharing ratio

Question 32

What is the procedure for when a partner leaves?

Answer 32

Make all necessary adjustments to capital and current accounts Transfers current account balance to capital account Close capital account

Question 33

How do you close a capital account?

Answer 33

Paying the partner from the business bank account Transfer the balance owing into a loan account

Question 34

What are split years?

Answer 34

When a change in the business occur partway though a accounting year Split the year into before and after change and then do everything twice for time period (7 months and 5 months)