Partnerships — practice questions

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

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 × 3/5 = $6,000
• Y's share: $10,000 × 2/5 = $4,000

3. Goodwill Adjustment

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

4. Partners' Capital Accounts