Poa, Chapter 8 Answers

Principles of Accounts for CSEC®
2nd edition
Answers to Chapter 8: Accounting for partnerships

8.1 An introduction to partnership accounts
Question 1
Oliver Penelope Rajiv

$ $ $
a. equal shares 21 000 21 000 21 000
b. 5:3:2 31 500 18 900 12 600
c. 4:2:1 36 000 18 000 9 000
Question 2
Jamal Karen Lewis

$ $ $
a. equal shares 28 000 28 000 28 000
b. 6:3:1 50 400 25 200 8 400
c. 2:3:7 14 000 21 000 49 000
Question 3
Andy Beverley
$ $
Interest on capital 6 500 7 200
Share of residual profits 34 650 34 650
($83 000 − $13 700 = $69 300)

Totals 41 150 41 850
Question 4
Robin Sharla Trevor
$ $ $
Interest on capital 24 000 28 800 19 200
Share of residual profits 59 000 39 333 19 667
($190 000 − $72 000 = $118 000)

Totals 83 000 68 133 38 867
1 Principles of Accounts for CSEC®, 2nd edition © Oxford University Press 2019
Question 5
Fay George Henry
$ $ $
Salary 26 000
($112 000 − $26 000 = $86 000)

Totals 43 000 60 400 8 600
Question 6
Cindy David Euzhan

$ $ $
Salary 34 000
($274 000 − $34 000 = $240 000)

Totals 90 000 90 000 94 000
Question 7
Kris Leah
$ $
Salary 14 000
Share of residual loss (3 000) (3 000)
(profit $24 000 − interest on capital

$16 000 − salary $14 000 = loss $6 000)
Totals 6 000 18 000
Question 8
Yvette Zara
$ $
Salary 51 000
Share of residual loss (39 600) (19 800)
(profit $54 000 − interest on capital

$62 400 − salary $51 000 = loss $59 400)
Totals 45 000 9 000
Question 9
a. Calculation of interest on Keith’s drawings:
Keith
Details Calculation $
31 March 2018 drawings of $8 000 × 9 months (i.e. 0.75 year) × 12% 720
$8 000
30 Sept 2018 drawings of $10 000 × 3 months (i.e. 0.25 year) × 12% 300
$10 000
Total 1 020
b. Calculation of interest on Louis’s drawings:
Louis
30 April 2018 drawings $4 000 × 8 months (i.e. 2/3 year) × 12% 320
of $4 000
31 Aug 2018 drawings $8 000 × 4 months (i.e. 1/3 year) × 12% 320
of $8 000
Total 640
c. Share of profits
Keith Louis
$ $
Interest on drawings (1 020) (640)
Share of residual profit 12 970 12 970
(profit $24 280 + interest on drawings $1 660 = profit $25 940)

Totals 11 950 12 330
Question 10
a. Calculation of interest on Jackie’s drawings:
Jackie
30 June 2018 $15 000 × 6 months (i.e. 0.5 year) × 6% 450
drawings of $15 000

Total 450
b. Calculation of interest on Kerrie’s drawings:
Kerrie
30 March 2018 $6 000 × 9 months (i.e. 0.75 year) × 6% 270
drawings of $6 000
30 Sept 2018 drawings $16 000 × 3 months (i.e. 0.25 year) × 6% 240
of $16 000
Total 510
c. Share of profits
Jackie Kerrie
$ $
Interest on drawings (450) (510)
Share of residual profit 22 000 11 000
(profit $32 040 + interest on drawings $960 = profit

$33 000)
Totals 21 550 10 490
Question 11
a.
Dr CAPITAL ACCOUNTS Cr
Donna Elwin Donna Elwin
$ $ $ $
Jan 1 Balances 160 000 140 000
b.
Dr DRAWINGS ACCOUNTS Cr
$ $ $ $
Jan–Dec Bank 22 000 24 000 Dec 31 Current
accounts 22 000 24 000
c.
Donna and Elwin
Appropriation account
for the year ended 31 December 2017
$ $
Net profit 58 000
Add interest on drawings
Donna 850
Elwin 1 150
2 000
60 000
Less interest on capital
Donna 16 000
Elwin 14 000
30 000
30 000
Less salary, Elwin 12 000
18 000
Shares of residual profit
Donna 9 000
Elwin 9 000
18 000
d.
Dr CURRENT ACCOUNTS Cr
$ $ $ $
Dec 31 Drawings 22 000 24 000 Dec 31 Interest on
31 Interest on capital 16 000 14 000
drawings 850 1 150 31 Salary 12 000
31 Balances c/d 2 150 9 850 31 Residual
profits 9 000 9 000
25 000 35 000 25 000 35 000
Jan 1 Balances b/d 2 150 9 850
Question 12
a.
Nicholas Penelope Nicholas Penelope
$ $ $ $
Apr 1 Balances 360 000 600 000
b.
$ $ $ $
Apr–Mar Bank 75 000 91 000 Mar 31 Current
accounts 75 000 91 000
c.
Nicholas and Penelope
for the year ended 31 March 2018
$ $
Net profit 216 000
Nicholas 4 620
Penelope 7 020
11 640
227 640
Nicholas 36 000
Penelope 60 000
96 000
131 640
Less salary, Nicholas 60 000
71 640
Nicholas 42 984
Penelope 28 656
71 640
d.
$ $ $ $
Mar 31 Drawings 75 000 91 000 Mar 31 Interest on
31 Interest on capital 36 000 60 000
drawings 4 620 7 020 31 Salary 60 000
31 Balance c/d 59 364 31 Residual
profits 42 984 28 656
31 Balance c/d 9 364
138 984 98 020 138 984 98 020
Apr 1 Balance b/d 9 364 Apr 1 Balance b/d 59 364
Question 13
Calculations of interest on drawings
Alex $
4 months (1/3 yr) × $18 000 × 6% 360
Bradley $
9 months (0.75 yr) × $12 000 × 6% 540
6 months (0.5 yr) × $10 000 × 6% 300
Total 840
Candace $
3 months (0.25 yr) × $20 000 × 6% 300
a.
Alex Bradley Candace Alex Bradley Candace
$ $ $ $ $ $
Apr 1 Balances 80 000 50 000 70 000
b.
$ $ $ $ $ $
Apr–Mar Bank 18 000 22 000 20 000 Mar 31 Current
accounts 18 000 22 000 20 000
c.
Alex, Bradley and Candace
for the year ended 31 March 2018
$ $
Net profit 48 500
Alex 360
Bradley 840
Candace 300
1 500
50 000
Alex 8 000
Bradley 5 000
Candace 7 000
20 000
30 000
Less salary, Bradley 9 000
21 000
Alex 7 000
Bradley 7 000
Candace 7 000
21 000
d.
$ $ $ $ $ $
2017 2017
Apr 1 Balance 2 100 Apr 1 Balance 3 200 4 900
2018 2018
Mar 31 Interest
Mar 31 Drawings 18 000 22 000 20 000 on
31 Interest on capital 8 000 5 000 7 000
drawings 360 840 300 31 Salary 9 000
31 Balance c/d 3 060 31 Residual
profits 7 000 7 000 7 000
31 Balance
c/d 160 8 400
18 360 25 900 22 400 18 360 25 900 22 400
Apr 1 Balance
Apr 1 Balance b/d 160 8 400 b/d 3 060
Question 14
Calculations of interest on drawings
Ryan $
8 months (2/3 yr) × $24 000 × 12% 1 920
4 months (1/3 yr) × $39 000 × 12% 1 560
Total 3 480
Sonya $
7 months (7/12 yr) × $51 000 × 12% 3 570
2 months (1/6 yr) × $36 000 × 12% 720
Total 4 290
Tara $
6 months (0.5 yr) × $39 000 × 12% 2 340
1 month (1/12 yr) × $39 000 × 12% 390
Total 2 730
a.
Ryan Sonya Tara Ryan Sonya Tara
$ $ $ $ $ $
Aug 1 Balances 660 000 540 000 300 000
b.
$ $ $ $ $ $
Aug–July Bank 63,000 87,000 78,000 July 31 Current
accounts 63 000 87 000 78 000
c.
Ryan, Sonya and Tara
for the year ended 31 July 2018
$ $
Net profit 87 390
Ryan 3 480
Sonya 4 290
Tara 2 730
10 500
97 890
Ryan 52 800
Sonya 43 200
Tara 24 000
120 000
(22 110)
Less salaries
Ryan 33 000
Tara 15 000
48 000
(70 110)
Shares of residual loss
Ryan 28 044
Sonya 28 044
Tara 14 022
(70 110)
d.
$ $ $ $ $ $
2017 2017
Aug 1 Balance 5 300 2 700 Aug 1 Balance 8 100
2018 2018
July 31 Drawings 63 000 87 000 78 000 July 31 Interest on
31 Interest on capital 52 800 43 200 24 000
drawings 3 480 4 290 2 730 31 Salary 33 000 15 000
31 Share of 31 Bal c/d 14 024 53 034 73 452
residual loss 28 044 28 044 14 022
119
99 824 119 334 97 452 99 824 334 97 452
Aug 1 Balance b/d 14 024 53 034 73 452
8.2 More about accounting for partnerships

Question 15
a.
Walter and Xena
for the year ended 31 October 2018
$ $
Net profit 105 000
Less salary, Xena 35 000
70 000
Walter 56 000
Xena 14 000
70 000
b.
Walter Xena Walter Xena
$ $ $ $
Oct 31 Drawings 69 500 40 270 Nov 1 Balances 382 490 145 280
31 Balances c/d 368 990 154 010 Oct 31 Salary 35 000
31 Share of
profits 56 000 14 000
438 490 194 280 438 490 194 280
Nov 1 Balances b/d 368 990 154 010
Question 16
a.
Jenny and Keith
for the year ended 31 July 2018
$ $
Net loss 25 000
Salaries
Jenny 33 000
Keith 18 000
51 000
76 000
Jenny 30 400
Keith 45 600
76 000
b.
Jenny Keith Jenny Keith
$ $ $ $
Juy 31 Drawings 55 490 62 440 Aug 1 Balances 284 570 345 800
31 Share of July 31 Salary 33 000 18 000
loss 30 400 45 600
31 Balances c/d 231 680 255 760
317 570 363 800 317 570 363 800
Nov 1 Balances b/d 231 680 255 760
Question 17
a.
Journal
Dr Cr
$ $
Sept 1 Equipment 64 000
Inventory 27 000
Accounts receivable 11 000
Bank 31 000
Accounts payable 22 000
Capital (Natasha) 111 000
Entries to record Natasha’s contributions to the
business
b.
Journal
$ $
Sept 1 Vehicles 48 000
Inventory 19 000
Bank overdraft 3 000
Capital (Omare) 79 000
Entries to record Omare’s contribution to the business
c.
Natasha and Omare

Summarised statement of financial position
(balance sheet) at 1 September 2018
$
Equipment 64 000
Vehicles 48 000
Inventory 46 000
Bank 28 000
212 000
Capital accounts
Natasha 111 000
Omare 79 000
Liabilities
212 000
Question 18
a.
Journal
Dr Cr
$ $
May 1 Premises 290 000
Furniture and fittings 38 000
Inventory 29 000
Bank 22 000
Bank loan 25 000
Capital (Rajiv) 342 000
Entries to record Rajiv’s contributions to the business
b.
$ $
May 1 Equipment 75 000
Inventory 17 000
Bank loan 10 000
Bank overdraft 8 000
Capital (Sharla) 104 000
Entries to record Sharla’s contribution to the business
c.
Rajiv and Sharla

Summarised statement of financial position
(balance sheet) at 1 May 2018
$
Premises 290 000
Equipment 75 000
Inventory 46 000
Bank 14 000
500 000
Capital accounts
Rajiv 342 000
Sharla 104 000
Liabilities
Bank loans 35 000
500 000
Question 19
$
Net profit (before interest) 85 000
Less interest at 5% per annum on loan (Walter) 2 500
Profit after interest 82 500
Profit shares:
Tricia 27 500
Ulrick 27 500
Walter 27 500
Question 20
$
Net profit (before interest) 135 000
Less interest at 5% per annum on loan (Ryan) 4 000
Profit after interest 131 000
Profit shares:
Ryan 65 500
Stacey 65 500
Question 21
a.
Ishaka and Joshua
Income statement (trading and profit and loss account)
for the year ended 30 September 2018
$ $
Gross profit 237 000
Interest on loan (Ishaka) (10% × $40 000) 4 000
Operating expenses ($68 000 + $5 000) 73 000
Depreciation (20% × $480 000) 96 000
Provision for doubtful debts (5% × $20 000) 1 000
174 000
Net profit 63 000
b.
for the year ended 30 September 2018
$ $
Net profit 63 000
Ishaka 6 000
Joshua 4 000
10 000
73 000
Less salary (Joshua) 28 000
45 000
Shares of residual profits
Ishaka 27 000
Joshua 18 000
45 000
c.
Ishaka Joshua Ishaka Joshua
$ $ $ $
Oct 1 Balance 4 000 Oct 1 Balance 7 000
Sept 30 Drawings 47 000 35 000 Sept 30 Loan interest 4 000
30 Interest on 30 Salary 28 000
drawings 6 000 4 000 30 Residual profit 27 000 18 000
30 Balance c/d 14 000 30 Balance c/d 26 000
57 000 53 000 57 000 53 000
Oct 1 Balance b/d 26 000 Oct 1 Balances b/d 14 000
d.
Statement of financial position (balance sheet) at 30 September 2018
$ $ $ $
Cost Deprcn Net
NON−CURRENT ASSETS
820 000 436 000 384 000
CURRENT ASSETS
Inventory 63 000
Less provision for doubtful debts 1 000
19 000
Cash at bank 31 000
113 000
Less CURRENT LIABILITIES
Accruals 5 000
29 000
Net current assets 84 000
468 000
NON−CURRENT LIABILITY
Loan from Ishaka 40 000
428 000
$ $ $
CAPITAL ACCOUNTS Ishaka Joshua
240 000 200 000 440 000
CURRENT ACCOUNTS (26 000) 14 000 (12 000)

428 000
Question 22
a.
Geeta, Henry and Irvin
Income statement (trading and profit and loss account)
for the year ended 31 August 2018
$000 $000
Gross profit 291
Decrease in provision for doubtful debts 4
Discount received 15
310
Discount allowed 11
General expenses 19
Insurance (27 − 3 prepaid) 24
Wages and salaries (139 + 12 due) 151
Depreciation of furniture and fittings 44
249
Net profit 61
b.
$000 $000
Net profit 61
Geeta 4
Henry 5
Irvin 7
16
77
Less salary (Geeta) 28
49
Geeta 26
Henry 31
Irvin 37
94
(45)
Geeta (9)
Henry (18)
Irvin (18)
(45)
c.
Geeta Henry Irvin Geeta Henry Irvin
$000 $000 $000 $000 $000 $000
Sept 1 Balances 6 9 Sept 1 Balance 8
Aug 31 Drawings 44 61 52 Aug 31 Salary 28
31 Interest on 31 Interest on
drawings 4 5 7 capital 26 31 37
31 Residual 31 Balance c/d 9 45 49
loss 9 18 18
63 84 86 63 84 86
Apr 1 Balance b/d 9 45 49
d.
Geeta, Henry and Irvin
Statement of financial position (balance sheet) at 31 August 2018
$000 $000 $000 $000
NON−CURRENT ASSETS Cost Deprcn Net
Premises 660 660
Furniture and equipment 220 110 110
770
CURRENT ASSETS
Inventory 68
Accounts receivable 40
Less provision for doubtful debts 2
38
Prepayment 3
109
Accounts payable 18
Accruals 12
Bank overdraft 12
42
Net current assets 67
837
CAPITAL ACCOUNTS Geeta Henry Irvin

260 310 370 940
CURRENT ACCOUNTS (9) (45) (49) (103)

837
Question 23
a., b., c. Ratio calculations
Current ratio CA:CL 113:29 3.89:1
Acid test ratio CA (less inventory): CL 50:29 1.72:1
Return on investment Profit/Capital and Current accounts % 63/428 14.72%
(based on closing balances)
Note: in d. and e. answers could include some of the following points:
d. Comments
The partnership’s current ratio is much higher than that of the comparable business. This
could mean that the business has more resources than is necessary tied up in current assets.
These resources could be better used in other ways and so could be wasted at the moment.
The partnership’s acid test ratio is in line with that of the comparable business. This means
that the partnership has the right amount of liquid assets in order to meet its immediate
liabilities without difficulty.
The return on investment is lower than that for the comparable business. This could mean
that the business is not making the amount of profit that could be expected from the funds
invested in the business by the partners. Alternatively, if the profit figure is comparable to
other similar businesses, it could mean that the business has too many resources which are
being under−used or used ineffectively.
e. Recommendations
Current ratio: since the acid test ratio is at the right level, this could mean that the reason
behind the excessively high current ratio could be that the business has inventory levels
which are too high. The partners should consider reducing inventories levels. This would
reduce the level of current assets and release money which could be better used elsewhere;
it could also reduce storage costs and the risk of inventories being held for too long and
deteriorating in quality.
In order to improve the return on investment, the partners could follow the advice to reduce
inventory levels (see above). This would reduce the net worth of the business. Alternatively,
the partners should increase profits, by either cutting money spent on running costs
wherever possible, or increasing gross profit by finding cheaper suppliers of goods, or by
changing the business’s pricing policy to increase demand and sales.
Question 24
a., b., c. Ratio calculations
Current ratio CA:CL 109:42 2.60:1
Acid test ratio CA (less inventory): CL 41:42 0.98:1
Return on investment Profit/Capital and Current accounts % 61/837 7.29%
(based on closing balances)
Note: in d. and e. answers could include some of the following points:
d. Comments
The partnership’s current ratio and acid test ratios have declined since the previous year.
This may mean that the business will experience more difficulty than last year in meeting its
obligations, both in the short and medium term.
The return on investment has increased since the previous year. This means that the
business is more profitable than previously and is making better use of its resources to
produce profit for the business.
e. Recommendations
Current and acid test ratios: the partners need to consider ways in which they can increase
the business’s current assets and/or decrease its current liabilities. The partners could
consider reducing their drawings which have exceeded the business’s profit for the year –
this would help keep funds in the bank. The partners could consider investing more in the
form of capital in the business, or perhaps taking out a long−term loan. Alternatively, the
partners could consider selling off any non−current assets that are no longer required for the
operation of the business.
Develop your exam skills

Paper 1
1. C 2. D 3. D 4. A 5. C
6. B 7. C 8. B 9. B 10. B
Paper 2
Case study
a. Possible answers:
More opportunities to raise additional capital
Access of specialist skills and expertise of partners
Workload and management tasks can be shared
b. By having a partnership agreement, there is less chance of disputes between partners about
sharing profits and losses or other aspects of managing the partnership. This is because
each partner will have been consulted about, and have agreed to, the terms recorded in
the written document which will set out the rules by which the partnership will operate and
about how profits and losses will be shared.
c.
Dee, Michelle and Thomas
$ $
Net profit 54 000
Dee 580
Michelle 730
Thomas 890
2 200
56 200
Less salary (Michelle) 18 000
38 200
Dee 3 000
Michelle 4 000
Thomas 8 000
15 000
23 200
Dee 4 640
Michelle 6 960
Thomas 11 600
23 200
d.
Dee Michelle Thomas Dee Michelle Thomas
$ $ $000 $ $ $
Dec 31 Drawings 17 400 22 950 24 880 Jan 1 Balances b/d 1 480 5 320 2 860
31 Interest on Dec 31 Salary 18 000
drawings 580 730 890 31 Interest on
31 Balance c/d 10 600 capital 3 000 4 000 8 000
31 Residual
profits 4 640 6 960 11 600
31 Loan interest 640
31 Balances c/d 8 860 2 670
17 980 34 280 25 770 17 980 34 280 25 770

Jan 1 Balances b/d 8 860 2 670 Jan 1 Balance b/d 10 600
e.
Dee, Michelle and Thomas
Statement of financial position (balance sheet) at 31 December 2018
$ $ $ $
NON−CURRENT ASSETS Cost Deprcn Net
170 000 38 500 131 500
CURRENT ASSETS
Inventory 14 870
Less provision for doubtful debts 840
15 960
Prepaid expenses 410
Cash at bank 4 550
35 790
Expenses owing 490
10 220
Net current assets 25 570
157 070
NON−CURRENT LIABILITY
Loan (Thomas) 8 000
149 070
CAPITAL ACCOUNTS Dee Michelle Thomas

30 000 40 000 80 000 150 000
CURRENT ACCOUNTS (8 860) 10 600 (2 670) (930)

149 070

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Principles of Accounts for CSEC®

Answers to Chapter 8: Accounting for partnerships

Oliver Penelope Rajiv

Jamal Karen Lewis

($83 000 − $13 700 = $69 300)

($190 000 − $72 000 = $118 000)

($112 000 − $26 000 = $86 000)

Cindy David Euzhan

($274 000 − $34 000 = $240 000)

(profit $24 000 − interest on capital

(profit $54 000 − interest on capital

a. Calculation of interest on Keith’s drawings:

b. Calculation of interest on Louis’s drawings:

(profit $24 280 + interest on drawings $1 660 = profit $25 940)

drawings of $15 000

b. Calculation of interest on Kerrie’s drawings:

(profit $32 040 + interest on drawings $960 = profit

8.2 More about accounting for partnerships

Natasha and Omare

Rajiv and Sharla

CURRENT ACCOUNTS (26 000) 14 000 (12 000)

CAPITAL ACCOUNTS Geeta Henry Irvin

CURRENT ACCOUNTS (9) (45) (49) (103)

Note: in d. and e. answers could include some of the following points:

Note: in d. and e. answers could include some of the following points:

Develop your exam skills

17 980 34 280 25 770 17 980 34 280 25 770

CAPITAL ACCOUNTS Dee Michelle Thomas

CURRENT ACCOUNTS (8 860) 10 600 (2 670) (930)

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