Retest partnership accounts

Question 1

Partnership Act 1890

Answer 1

1. Partners must contribute equal amounts of capital
2. Any loans to the business by partners carry interest at 5%
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. Profit or losses are to be shared equally

Question 2

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

Question 3

partnership current account credit other than b/d

Answer 3

Interest on loan
Salaries
Interest on capital
Share of profits

Question 4

What are the steps of the goodwill

Answer 4

1) First you debit ‘Goodwill’ because you are creating an asset and credit the partners’ capital accounts in the old profit sharing ratio
2) Then you credit ‘Goodwill’ because you are decreasing an asset and debit the partners’ capital account in the new profit sharing ratio
3) The closing balance on the ‘Goodwill’ account must be equal to zero

Question 5

Steps of revaluation

Answer 5

• An increase in the value of an asset would be debited to that asset’s account and therefore credited to ‘revaluation’ account
• A decrease in the value of an asset would be credited to that asset’s account and therefore debited to ‘revaluation’
• The balance on the revaluation account is transferred to the partners capital account in their old profit sharing ratio
• Closing balance on ‘revaluation’ account must be equal to zero

Question 6

Garner v murray

Answer 6

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 v murray’ rule. This means that other partners must share the loss in the ratio of their capital account balances at the start of the financial year