9706 · 1.5.3
Partnerships flashcards
Revision flashcards for Cambridge 9706 Partnerships (syllabus 1.5.3). Flip, recall, then mark a real past-paper question.
Card
Appropriation account order?
Net profit → salaries → interest on capital → residual profit share.
Card
Interest on drawings?
Charged to partner — reduces their share (income to partnership).
Card
Goodwill on admission?
DR Goodwill, CR Old partners' capital in old ratio (unless otherwise stated).
Card
Capital vs current account?
Capital — permanent; current — drawings, interest, profit share.
Card
Partner retirement?
Revalue assets, adjust goodwill, settle capital/current balance.
Card
Fixed capital method?
All appropriations through current accounts only.
Card
What is the purpose of the Appropriation Account?
To show the distribution of the net profit for the year among the partners, after accounting for partners' salaries, interest on capital, and interest on drawings. It is not part of the double-entry system but a working statement.
Card
What is the double entry for charging a partner interest on their drawings?
Debit the partner's Current Account (reducing what the firm owes them) and Credit the Appropriation Account (increasing the profit available for distribution).
Card
What are the two steps for adjusting for goodwill upon the admission of a new partner?
1. Raise Goodwill: Debit Goodwill account, Credit Old Partners' Capital accounts (in old PSR). 2. Write-off Goodwill: Debit All Partners' Capital accounts (in new PSR), Credit Goodwill account.
Card
How is a profit on revaluation distributed when a new partner is admitted?
The profit on revaluation is shared between the OLD partners in their OLD profit-sharing ratio. It is credited to their Capital Accounts.
Card
What happens to the amount owed to a retiring partner if it is not paid immediately?
The total balance due to the retiring partner (from their combined capital and current accounts) is transferred to a 'Loan from retiring partner' account. This becomes a non-current liability of the partnership.
Card
What is the double entry for a profit on revaluation when admitting a new partner?
Debit the individual asset accounts (for increases) and Credit the Revaluation Account. Then, Debit the Revaluation Account and Credit the OLD partners' Capital Accounts in their OLD profit-sharing ratio.
Card
What are the accounting entries to settle a retiring partner's account via a loan?
Debit the retiring partner's Capital Account (with the final total amount due) and Credit 'Loan from retiring partner' account. This creates a non-current liability.