10

3 Paul and Ann are in partnership. Their financial year ends on 30 September.

When they started the business they drew up a partnership agreement which provided for:

Interest on capital at 4% per annum

Interest on drawings at 5%
An annual salary of $7000 for Paul
Interest on any loans from partners at 6% per annum
Sharing of profits and losses equally

On 1 October 2017 the balances on the partners’ accounts were as follows:

Paul Ann
$ $
Capital account 50 000 85 000
Current account 1 150 credit 3 125 debit
Loan account 10 000

The interest on loan is credited to Paul’s current account at the end of each financial year.

On 1 April 2018 Paul introduced a motor vehicle, $14 500, into the business. He also deposited
an amount into the business bank account so that his total capital was $80 000.

The partners agreed that Paul’s salary should be increased by $1000 per annum starting on
1 April 2018.

Drawings during the year ended 30 September 2018 were as follows:

$
Paul 9 000
Ann 11 000

On 30 September 2018 Ann transferred $5000 from her capital account to her current
account.

The profit for the year ended 30 September 2018 after loan interest was $11 350.

© UCLES 2018 0452/22/O/N/18

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REQUIRED

(a) Prepare journal entries to record the following:

1 The introduction of additional capital by Paul on 1 April 2018.

2 The transfer of $5000 from Ann’s capital account to her current account on 30 September
2018.

Narratives are not required.

Paul and Ann

Journal

Date Details Debit Credit

$ $

………… ………………………………………… ……………… ………………

………… ………………………………………… ……………… ………………

………… ………………………………………… ……………… ………………

………… ………………………………………… ……………… ………………

………… ………………………………………… ……………… ………………

………… ………………………………………… ……………… ………………

………… ………………………………………… ……………… ………………

………… ………………………………………… ……………… ………………

[5]

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(b) Prepare the profit and loss appropriation account for the year ended 30 September 2018.

Paul and Ann

Profit and Loss Appropriation Account for the year ended 30 September 2018

$ $

………………………………………………………… ………………… …………………

………………………………………………………… ………………… …………………

………………………………………………………… ………………… …………………

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………………………………………………………… ………………… …………………

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………………………………………………………… ………………… …………………

………………………………………………………… ………………… …………………

[8]

© UCLES 2018 0452/22/O/N/18

 13

(c) Prepare the current account of Paul for the year ended 30 September 2018. Balance the
account and bring down the balance on 1 October 2018.

Paul
Current account

Date Details $ Date Details $

……… ………………………… ………… ……… ………………………… …………

……… ………………………… ………… ……… ………………………… …………

……… ………………………… ………… ……… ………………………… …………

……… ………………………… ………… ……… ………………………… …………

……… ………………………… ………… ……… ………………………… …………

……… ………………………… ………… ……… ………………………… …………

……… ………………………… ………… ……… ………………………… …………

……… ………………………… ………… ……… ………………………… …………

……… ………………………… ………… ……… ………………………… …………

……… ………………………… ………… ……… ………………………… …………

[8]

[Total: 21]

© UCLES 2018 0452/22/O/N/18 [Turn over

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3 Bari and Nada are in partnership. Their financial year ends on 31 December.

Their partnership agreement provides for residual profits to be shared in proportion to capital
invested.

The balances on their accounts on 1 January 2018 were:

Bari Nada
$ $
Capital account 150 000 100 000
Current account 950 credit 150 debit

During the year ended 31 December 2018 the partners made the following drawings:

Bari Nada
$ $
11 000 13 000

The following is an extract from the draft appropriation account for the year ended
31 December 2018.

Bari and Nada

Draft Appropriation Account for the year ended 31 December 2018

$ $
Profit for the year 35 590
Interest on drawings Bari 660
Nada 780 1 440
37 030
Interest on capital Bari 7 500
Nada 5 000
12 500
Partner’s salary Bari 20 000 32 500
Profit available for distribution 4 530

The following additional information is available at 31 December 2018.

$
Premises at 1 January 2018 120 000
Premises purchased on 1 July 2018 100 000
Other non-current assets 92 650
Trade payables 17 250
Trade receivables 25 500
Other payables 800
Other receivables 910
Provision for doubtful debts 510
Bank 21 890 debit
Loan (repayable 2025) 80 000

REQUIRED

(a) Prepare the draft statement of financial position at 31 December 2018.

The details of the partners’ current accounts should be shown within the statement.

© UCLES 2019 0452/22/F/M/19

 11

Bari and Nada

Draft Statement of Financial Position at 31 December 2018

$ $ $

................................................................. ........................ ........................ ........................

................................................................. ........................ ........................ ........................

................................................................. ........................ ........................ ........................

................................................................. ........................ ........................ ........................

................................................................. ........................ ........................ ........................

................................................................. ........................ ........................ ........................

................................................................. ........................ ........................ ........................

................................................................. ........................ ........................ ........................

................................................................. ........................ ........................ ........................

................................................................. ........................ ........................ ........................

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................................................................. ........................ ........................ ........................

................................................................. ........................ ........................ ........................

................................................................. ........................ ........................ ........................

................................................................. ........................ ........................ ........................

................................................................. ........................ ........................ ........................

................................................................. ........................ ........................ ........................

................................................................. ........................ ........................ ........................

................................................................. ........................ ........................ ........................

................................................................. ........................ ........................ ........................

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................................................................. ........................ ........................ ........................

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................................................................. ........................ ........................ ........................

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$ $ $

................................................................. ........................ ........................ ........................

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................................................................. ........................ ........................ ........................

................................................................. ........................ ........................ ........................

[13]

Bari and Nada’s receipts and payments during the financial year ended 31 December 2018
included both capital and revenue items.

REQUIRED

(b) State the meaning of each of the following terms and give an example of each.

Capital expenditure

Meaning ....................................................................................................................................

...................................................................................................................................................

Example ....................................................................................................................................

Capital receipt

Meaning ....................................................................................................................................

...................................................................................................................................................

Example ....................................................................................................................................

Revenue expenditure

Meaning ....................................................................................................................................

...................................................................................................................................................

Example ....................................................................................................................................

Revenue receipt

Meaning ....................................................................................................................................

...................................................................................................................................................

Example ............................................................................................................................... [8]

© UCLES 2019 0452/22/F/M/19

 13

After the preparation of the draft financial statements for the year ended 31 December 2018 the
accounting records were checked.

The amount debited to the premises account on 1 July 2018 consisted of the following:

$
Cost of premises 89 000
Legal fees (including $250 legal fees for recovery of a bad debt) 5 300
Decoration costs (half of which related to the original premises) 3 300
Insurance of new premises (for 12 months from 1 July 2018) 2 400
100 000

REQUIRED

(c) (i) Calculate the amount which should have been debited to the premises account on
1 July 2018.

$
Cost of premises 89 000

................................................................................ ..............

................................................................................ ..............

................................................................................ ..............

Correct amount to debit to premises account

[3]

(ii) Calculate the correct profit for the year ended 31 December 2018.

$
Profit for the year 35 590

................................................................................ ..............

................................................................................ ..............

................................................................................ ..............

Corrected profit for the year ended 31 December 2018

[4]

[Total: 28]

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 14

4 Liam and Mia are in partnership. Their financial year ends on 31 January. They share profits and
losses in the ratio 2 : 1.

The following information is available.

Liam Mia
$ $
Capital accounts at 1 February 2018 160 000 60 000
Current accounts at 1 February 2018 44 500 credit 2 140 debit

Drawings during the year ended 31 January 2019 19 100 8 500

On 1 August 2018 Liam transferred $14 000 from his current account to his capital account. On
the same date he transferred his personal motor vehicle, valued at $6000, to the business.

The following is an extract from the profit and loss appropriation account of Liam and Mia for the
year ended 31 January 2019.

Liam and Mia

Extract from Profit and Loss Appropriation Account
for the year ended 31 January 2019

$ $
Profit for the year 24 240
Interest on drawings Liam 955
Mia 425 1 380
25 620
Interest on capital Liam 10 200
Mia 3 600
13 800

Salary Mia 15 000 28 800

(3 180)

REQUIRED

(a) (i) Calculate the percentage rate of interest charged on drawings.

...........................................................................................................................................

.......................................................................................................................................[1]

(ii) Calculate the percentage rate of interest allowed on capital.

...........................................................................................................................................

.......................................................................................................................................[1]

© UCLES 2019 0452/21/M/J/19

 15

(b) Complete the current accounts of the partners for the year ended 31 January 2019.
Balance the accounts and bring down the balances on 1 February 2019.

Liam and Mia

Current accounts

Date Details Liam Mia Date Details Liam Mia

$ $ $ $
2018 2018
Feb 1 Balance b/d ............. 2 140 Feb 1 Balance b/d 44 500 .............

............. ............................... ............. ............. ............. ............................... ............. .............

............. ............................... ............. ............. ............. ............................... ............. .............

............. ............................... ............. ............. ............. ............................... ............. .............

............. ............................... ............. ............. ............. ............................... ............. .............

............. ............................... ............. ............. ............. ............................... ............. .............

............. ............................... ............. ............. ............. ............................... ............. .............

............. ............................... ............. ............. ............. ............................... ............. .............

............. ............................... ............. ............. ............. ............................... ............. .............

............. ............................... ............. ............. ............. ............................... ............. .............

............. ............................... ............. ............. ............. ............................... ............. .............

............. ............................... ............. ............. ............. ............................... ............. .............

............. ............................... ............. ............. ............. ............................... ............. .............

[9]

© UCLES 2019 0452/21/M/J/19 [Turn over

 16

Liam and Mia provided the following information at 31 January 2019.

$
Inventory 38 440
Trade payables 36 250
Trade receivables 42 060
Bank overdraft 14 150

REQUIRED

(c) Calculate the current ratio. The calculation should be correct to two decimal places.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...............................................................................................................................................[2]

(d) Calculate the quick (acid test) ratio. The calculation should be correct to two decimal places.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...............................................................................................................................................[2]

Liam and Mia would like to improve the liquidity of their business.

Liam has suggested that both the current ratio and the quick (acid test) ratio could be improved if
they introduce extra capital.

REQUIRED

(e) (i) Suggest one other way in which they could increase both the current ratio and the quick
(acid test) ratio.

Give a reason for your answer.

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

.......................................................................................................................................[2]

© UCLES 2019 0452/21/M/J/19

 17

(ii) State why selling inventory at cost price would increase the quick (acid test) ratio but
would not affect the current ratio.

Give a reason for your answer.

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

.......................................................................................................................................[2]

Liam and Mia are considering inviting their brother, Darren, to become a partner in the business.

REQUIRED

(f) Suggest four factors they should consider before inviting Darren to become a partner.

1 ................................................................................................................................................

...................................................................................................................................................

2 ................................................................................................................................................

...................................................................................................................................................

3 ................................................................................................................................................

...................................................................................................................................................

4 ................................................................................................................................................

...............................................................................................................................................[4]

[Total: 23]

PLEASE TURN OVER FOR QUESTION 5.

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To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge
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at www.cambridgeinternational.org after the live examination series.

Cambridge Assessment International Education is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of the University of
Cambridge Local Examinations Syndicate (UCLES), which itself is a department of the University of Cambridge.

© UCLES 2019 0452/21/M/J/19 [Turn over