3.1. Preparation of financial statements
A subsection of Accounting, 9706, through 3. Financial accounting (A Level)
Listing 10 of 678 questions
Faraz, Javed and Leah were in partnership. Their agreement included the following terms: Interest on drawings to be charged at 5% on total drawings for the year. Interest at 12% per annum to be provided on fixed capitals. Javed to receive a salary of $9000 per annum. Remaining profits and losses to be shared in the ratio Faraz, Javed and Leah, 4 : 3 : 3 respectively. The following information was available for the year ended 31 December 2020. Faraz $ Javed $ Leah $ Balances at 1 January 2020 Capital accounts Current accounts 80 000 3 400 credit 60 000 2 900 debit 50 000 1 700 debit For the year ended 31 December 2020 Drawings 22 400 17 200 20 200 The profit for the year ended 31 December 2020, before appropriation, was $31 500. REQUIRED State two reasons why partnership agreements sometimes include a provision to charge interest on drawings. Prepare the appropriation account for the year ended 31 December 2020. Faraz, Javed and Leah Appropriation account for the year ended 31 December 2020 $ $ Prepare Javed’s current account for the year ended 31 December 2020. Javed Current account $ $ Additional information On 1 January 2021, Javed retired from the partnership. It was agreed that on this date: Javed would keep some equipment for personal use. The equipment had a net book value of $15 400 and was to be transferred to Javed at a value of $13 000. Other non-current assets were to be revalued upwards by $24 000. Goodwill was valued at $50 000. A goodwill account was not to be maintained in the partnership’s books. REQUIRED Explain the meaning of goodwill. Explain why a valuation of goodwill could be made when a partner retires. Prepare a statement to show the amount due to Javed on his retirement from the partnership. Additional information Faraz and Leah continued in partnership sharing profits and losses equally. They discussed how best to finance the amount due to Javed on his retirement from the partnership. They are considering two options. Option 1: Take out a bank loan to cover the amount due. Option 2: Admit a new partner whose capital contribution would cover the amount due. REQUIRED Advise the partners which option they should choose. Justify your answer by discussing both options.
9706_m21_qp_22
THEORY
2021
Paper 2, Variant 2
View
Bipin, Feroz and Neeru have been in partnership for many years sharing profits and losses in the ratio 3 : 1 : 2 respectively. Feroz decided to retire from the partnership with effect from 1 January 2022. On this date the statement of financial position was available. Statement of financial position $ $ Assets Non-current assets at net book value 132 000 Current assets Inventory 17 560 Trade receivables 10 540 Cash at bank 18 490 46 590 Total assets 178 590 Capital and liabilities Capital accounts Bipin 72 000 Feroz 44 300 Neeru 57 000 173 300 Current accounts Bipin 4 240 Feroz (1 980) Neeru (2 750) (490) Total capital 172 810 Current liabilities Trade payables 5 780 Total capital and liabilities 178 590 The following information is also available. Non-current assets were revalued at $155 000 and inventory was revalued at $13 160. Goodwill was valued at $39 000. It was agreed that a goodwill account was not to be maintained in the books of the partnership. Bipin and Neeru agreed to remain in partnership sharing profits and losses equally. On his retirement, Feroz agreed to take a non-current asset at its valuation of $15 000. He agreed to leave the remaining amount due to him as a loan to the partnership. REQUIRED Prepare, on the next page, the partners’ capital accounts to record the retirement of Feroz. Additional information Bipin and Neeru have agreed the following for the new partnership. They will no longer use current accounts. Each partner’s current account balance is to be transferred to the partner’s capital account. The opening balances of their capital accounts are to reflect their new profit and loss sharing ratio. Neeru was to introduce or withdraw funds in order to achieve this. REQUIRED Calculate the amount Neeru should introduce or withdraw. Explain one reason for valuing goodwill when a partner retires. State two reasons why it is usual not to maintain a goodwill account in the books of a partnership.
9706_m22_qp_22
THEORY
2022
Paper 2, Variant 2
View
Jakoub owns a restaurant. The business’s financial year end is 31 December. The business owns many small items of kitchen equipment. The following information is available. On 1 January 2022 kitchen equipment was valued at $3450. Additional kitchen equipment was purchased for cash, $1680, during the year ended 31 December 2022. On 31 December 2022 kitchen equipment was valued at $3950. REQUIRED Prepare the kitchen equipment account for the year ended 31 December 2022. Kitchen equipment $ $ State two reasons why the reducing balance method of depreciation might be chosen by a business for depreciating non-current assets. Additional information On 1 January 2022, a new delivery vehicle was purchased in part exchange for the business’s old delivery vehicle. A payment of $22 500 was made. The old delivery vehicle had originally cost $24 000 when it was purchased on 1 January 2020. The old delivery vehicle was part exchanged at net book value. Delivery vehicles are depreciated by 25% per annum using the reducing balance method of depreciation. REQUIRED Prepare a journal entry to record the charge for depreciation of vehicles for the year ended 31 December 2022. A narrative is not required. Journal Dr $ Cr $ Workings: Define each of the following terms: capital expenditure capital receipts. Additional information Jakoub is preparing his business’s financial statements for the year ended 31 December 2022. The following additional information is available. Payments $ Purchase of new ovens 5 600 Installation costs for new ovens Repairs to electrical equipment 2 600 Maintenance of computer equipment Extension to restaurant 85 000 Decoration of restaurant extension 3 200 Receipts $ Bank loan 25 000 Additional capital provided by Jakoub 40 000 Proceeds from the disposal of unwanted furniture 2 800 REQUIRED Calculate the total amount for each of the following: capital expenditure capital receipts.
9706_m23_qp_22
THEORY
2023
Paper 2, Variant 2
View
John, Georgina and Paul are in partnership but have no written partnership agreement. The partners wish to expand the partnership, and require additional funds. Their capital accounts at 1 May 2005 were as follows. $ John 60 000 Georgina 45 000 Paul 45 000 Under the existing circumstances, profit of $67 500 is anticipated for the year ended 30 April 2006. There are two options for expanding the business, either of which is acceptable to all three partners. The selected option would take effect from 1 May 2005. The two options are: Borrow $75 000 from the bank at 12% interest per annum. The bank would require repayment of $6750 at the end of each financial year, in addition to interest. A manager would have to be employed at a wage of $15 000 per annum and profits should increase by $27 000 before taking into account bank interest and the manager’s salary. Bring Ringo in as a partner. He would take on the role of manager and would provide $75 000 of capital. Ringo would join the partnership, provided an agreement was drawn up requiring interest on capital to be paid at 7.5% per annum. Remaining profits would be split in the ratio 3:3:2:2, with John and Ringo receiving the larger shares. Goodwill would be ignored and net profit would increase by $27 000. REQUIRED For the year ended 30 April 2006, calculate the profit to be received by each partner under option . Use [T For the year ending 30 April 2006, calculate the amount to be received by each partner under option . Make a brief comparison of options and .
9706_s05_qp_2
THEORY
2005
Paper 2, Variant 0
View
Questions Discovered
678