9706 · 1.5.3

Partnerships — practice questions

Practice and worked examples for 9706 Partnerships. Short previews only — attempt the full question in MarkScheme against the official scheme.

Worked example 1

Net profit $48,000. Partners A and B share profits 3:2. Salaries: A $6,000, B $4,000. Interest on capital is 5% per annum: A's capital is $80,000, B's is $40,000. Prepare the Appropriation Account.

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Appropriation Account for the year ended...

| | $|$ | :--- | :--- | | Net Profit for the year | 48,000 | | Less: Appropriations | | | Partners' Salaries: | |

A	(6,000)
B	(4,000)
Interest on Capital:
A ($80,000 x 5%)	(4,000)
---	---
B ($40,000 x 5%)	(2,000)
Residual Profit	32,000

Distribution of Residual Profit:

| | $|$ | :--- | :--- | | Share of profit for A ( $32,000 x 3/5) | 19,200 |$ | --- | --- | | Share of profit for B ( $32,000 x 2/5) | 12,800 |$ | Total | 32,000 |

Total amount appropriated to each partner:

A: $6,000 (Salary) + $4,000 (Int. on Capital) + $19,200 (Profit Share) = $29,200
B: $4,000 (Salary) + $2,000 (Int. on Capital) + $12,800 (Profit Share) = $18,800

Worked example 2

X and Y are partners sharing profits 3:2. Their capital balances are $60,000 and $40,000 respectively. They admit Z as a partner, with a new PSR of 5:3:2. Z introduces $30,000 capital. Goodwill is valued at $20,000. Premises are revalued up by $15,000 and Inventory is revalued down by $5,000. Calculate the closing capital balances.

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1. Revaluation Account

Profit on revaluation = Increase in Premises - Decrease in Inventory
Profit = $15,000 -$ 5,000 = $10,000$

2. Distribute Revaluation Profit (Old PSR 3:2)

X's share: $10,000 \times 3/5 =$ 6,000
Y's share: $10,000 \times 2/5 =$ 4,000

3. Goodwill Adjustment

Raise Goodwill (Old PSR 3:2):
- Cr X Capital: $20,000 \times 3/5 =$ 12,000
- Cr Y Capital: $20,000 \times 2/5 =$ 8,000
Write-off Goodwill (New PSR 5:3:2):
- Dr X Capital: $20,000 \times 5/10 =$ 10,000
- Dr Y Capital: $20,000 \times 3/10 =$ 6,000
- Dr Z Capital: $20,000 \times 2/10 =$ 4,000

4. Partners' Capital Accounts

| | X ( $) | Y ($ ) | Z ( $) |$ | :--- | :--- | :--- | :--- |

Opening Balance	60,000	40,000	-
Capital Introduced	-	-	30,000
Revaluation Profit	6,000	4,000	-
Goodwill (Raised)	12,000	8,000	-
Goodwill (Written-off)	(10,000)	(6,000)	(4,000)
Closing Balance	68,000	46,000	26,000

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