What are some of the terms included in a written partnership agreement?

Transcription

1 CHAPTER 15 STRUCTURED QUESTIONS 1. What are some of the terms included in a written partnership agreement? 2. If there is no written agreement in a partnership company, what are the main provisions of the Partnership Act of 1890 that must be considered? 3. Wendy and Lee are sole traders. They decide to merge their respective businesses. At January 1, 20 each business owner had the following assets and liabilities WENDY LEE Buildings $ Buildings $ Furniture Motor van Stock Debtors Creditors Creditors Bank loan Stock Bank Bank overdraft Cash Cash 4 000

2 Your are required to (a) Draw up a General journal page to record the start of the new partnership company Wendy and Lee (b) Draft a classified Balance Sheet of the partnership Wendy and Lee as at February 1 20 Rajiv and Phill have contributed capital of $ and $ respectively. During the year they withdrew $ and $ Phill agreed to lend the business $ at the rate of 5% per year. R and P as it commonly called made a profit of $ interest in the year ended December The partners agreed on the following: Rajiv will earn an annual salary of $ for working in the firm Pay interest on capital at the rate of 5% Interest on drawings to be charged at 10% per annum Profits to be share in the ratio of the capital balances Using the information above, you are required to do the following questions: 4. Draw up R and P partnership company profit and loss appropriation account for the year ended December 31, Draw up the current accounts for each partner

3 CHAPTER 15 ANSWERS 1. -the rate of interest on loans -the capital to be invested by each partner -the rate of interest on capital -the salary to be paid to partner(s) -the share of profits/losses -the rate of interest on drawings 2. -all profits/losses to be divided equally -no salary to be paid to partner (s) -no interest on capital -no interest on drawings -a 5% rate of interest to be charged on loans given to a company by a partner

4 3. (a) GENERAL JOURNAL DATE DETAILS DR CR February1 $ $ Buildings Furniture Motor van Stock Debtors Bank Cash Bank overdraft Bank loan Creditors Capital accounts: Wendy Lee

5 (b) Wendy and Lee Balance sheet As at February 1, 20 Fixed assets Buildings $ Motor van Furniture Current assets Stock Debtors Bank Cash Current liabilities Bank overdraft Creditors Working capital Less Long term liabilities (11 000) Bank loan (30 000) Financed by Wendy Lee

6 4. R and P Appropriation account For the year ended December 31 Net profit before interest Less interest on loan-phill ( x 5%) (1 000) NET PROFIT Add interest on drawings Rajiv ( x 10%) Phill ( x 10%) Less interest on capital: Rajiv ( x 5%) Phill ( x 5%) (12 500) Salaries (35 000) Residual profit Share of residual profit: Rajiv Phill

7 5. R and P CURRENT a/c R P R P Drawings $ $ Interest on loan $1 000 Interest on drawings Interest on capital Salaries Share of profit Balance c/d Balance c/d

8 CHAPTER 16 STRUCTURED QUESTIONS 1. Match the numbered items in List A with appropriate terms in List B LIST A LIST B 1. Authorized share capital a) Cash loaned to a company over the long term 2. Share premium b) Have voting rights 3. Memorandum of Association c)the share of net profit that a shareholder will receive 4. Ordinary shareholders d)is the account used to record shares issued above the par value 5. Debentures e)the amount of capital that a company can issue or raise 6.Dividend f)document prepared by a company for external use 2. GoBetween Company Limited was permitted to issue Ordinary shares at $1 each and , 7% Preference shares at $2 each. The company decided to issue the following: Ordinary shares at $2 each 9 000, 7% Preference shares at $2 each (a) What is GoBetween s total authorized share capital?

9 (b) What is the total issued share capital? (c) Assume that the preference share is issued at $5 each instead of $2, what is the name of the account used to record the difference in the price issued? NRP Limited has capital consisting of , $1 Ordinary shares and , $4 5% Preference shares. During the year ended December 31, 20 NRP Limited records a net profit of $ The Board of Directors recommends the following: -a transfer of $ to the General Reserve Fund -pay.15cents per share to the Ordinary shareholders as dividends -pay Preference shareholders Using the above information you are required to answer the following questions: 3. Prepare the appropriation account for NRP Limited for the period ended December 31, Draw up a Balance sheet extract showing the capital and current liabilities sections 5. What are the main types of reserves created?

10 CHAPTER 16 ANSWERS 1. LIST A LIST B 1. E 2. D 3. F 4. B 5. A 6. C 2. (a) x $1= $ x $2=$ $ (b) x $1=$ x $2=$ (c) Share premium account

11 3. NRP Limited Appropriation account For the period ended December 31, 20 Net profit $ Proposed dividends: Preference shares ( x 5%) (20 000) Ordinary shares ( x.15) (52 500) Transfer to General Reserve (20 000) Retained earnings NRP Limited Balance Sheet (extract) As at December 31, 20 Capital and Reserves $1 Ordinary shares $ $4, 5% Preference shares General Reserve Retained earnings Current liabilities Proposed dividends general reserve -capital reserve