Partnership accounts

State TWO differences between a partner's capital account and a partner's current account. (2 marks)

Define the term "goodwill" as used in partnership accounts, and explain why goodwill is not retained as an asset on the statement of financial position after a change in partnership. (3 marks)

State FOUR default rules that apply under the Partnership Act 1890 where partners have not drawn up a partnership agreement. (4 marks)

Patel and Quinn are in equal partnership. The following information is available for the year ended 31 December 2025: Prepare the appropriation account for Patel and Quinn for the year ended 31 December 2025. Show clearly each partner's share of the residual profit or loss. (4 marks)

Explain TWO reasons why a partnership agreement may include interest on capital as part of the appropriation of profit. (4 marks)

Explain why it is necessary to revalue the assets of a partnership before admitting a new partner, and why any gain or loss on revaluation is shared in the old profit-sharing ratio. (4 marks)

Using the information from Question 4 and the following balances, prepare the current accounts for Dawson and Ellis for the year ended 31 March 2026. Show clearly the closing balance on each account. (6 marks)

Reid and Stewart are in partnership sharing profits in the ratio 3:2. They agree to admit Turner as a new partner on 1 January 2026. The assets of the partnership are revalued immediately before Turner's admission: Prepare the revaluation account and show the entries in the partners' capital accounts to record the revaluation. (6 marks)

Explain why a goodwill adjustment is made when a new partner is admitted to a partnership, and explain TWO reasons why goodwill is not usually retained as an asset on the partnership's statement of financial position. (6 marks)

Dawson and Ellis are in partnership. The following information is available for the year ended 31 March 2026: The partnership agreement provides for: - Interest on drawings at 5% per annum - Interest on capital at 8% per annum Net profit for the year before appropriations was £38 000. Prepare the appropriation account for Dawson and Ellis for the year ended 31 March 2026. (8 marks)

Owen and Palmer are in partnership sharing profits in the ratio 2:1. They agree to admit Quinn as a new partner on 1 April 2026. The new profit-sharing ratio is agreed as 3:2:1 (Owen:Palmer:Quinn). The partners agree that the goodwill of the partnership is valued at £18 000. Goodwill is not to be retained in the books. Prepare the capital accounts for all three partners to show the goodwill adjustment. (8 marks)

Frost, Grant, and Hobbs share profits in the ratio 2:1:1. Grant retires on 31 March 2026. The remaining partners, Frost and Hobbs, will share profits in the ratio 3:1 after Grant's retirement. Capital balances before adjustments: Revaluation of assets on Grant's retirement: Goodwill at the date of retirement is agreed at £16 000. Goodwill is not to be retained in the books. Grant receives £15 000 in cash immediately. The balance owed to Grant is to be treated as a loan to the partnership. Prepare the revaluation account, the capital accounts for all three partners, and Grant's loan account. (8 marks)

Keane, Lynch, and Morris are in partnership. On 1 October 2025, the partnership agreement was revised. The following information relates to the year ended 31 March 2026: **Period 1: 1 April 2025 – 30 September 2025 (6 months)** Profits shared equally. Morris had a loan to the partnership of £24 000 at 5% per annum. **Period 2: 1 October 2025 – 31 March 2026 (6 months)** After the revision: Morris's loan interest rate reduced to 3% per annum. Lynch receives a salary of £4 000 per half year. Interest on capital at 6% per annum (capitals: Keane £30 000, Lynch £20 000, Morris £15 000). Remaining profit shared in ratio 2:1:1. Net profit before any appropriations: - Period 1: £28 200 (before interest on Morris's loan) - Period 2: £33 900 (before interest on Morris's loan) Prepare the appropriation account for both periods for the year ended 31 March 2026. (8 marks)

Nadia is retiring from a partnership. Following goodwill and revaluation adjustments, the partnership owes Nadia £65 000. The partnership's bank account currently shows a balance of £8 200. The partners have agreed that a company vehicle valued at £22 000 could be transferred to Nadia in part settlement. The remaining balance could either be paid in cash raised by the remaining partners or treated as a loan to the partnership at 5% per annum. Assess the most appropriate method of settling the amount owed to Nadia. (8 marks)

Fenwick, Gould, and Havers are in partnership sharing profits in the ratio 3:2:1. The following information relates to the year ended 30 September 2025: The partnership agreement provides for: - Fenwick to receive an annual salary of £12 000 - Interest on capital at 6% per annum Net profit for the year before appropriations was £44 400. Prepare the appropriation account and the current accounts for all three partners for the year ended 30 September 2025. (10 marks)

Thornton, Underwood, and Vale are in partnership sharing profits in the ratio 2:2:1. The following information relates to the year ended 31 March 2026: Additional information: - Underwood introduced additional capital of £15 000 on 1 July 2025 - Interest on capital is charged at 8% per annum; Underwood's additional capital earns interest from the date of introduction - Vale receives an annual salary of £9 000 - Net profit before appropriations was £72 000 Prepare the appropriation account for the year ended 31 March 2026. (10 marks)

Sanjay and Priya are partners. Sanjay has invested £80 000 capital and works full time in the business. Priya has invested £20 000 capital and works part time. Their partnership agreement provides for: - Sanjay to receive a salary of £30 000 per annum - No salary for Priya - Interest on capital at 4% per annum - Remaining profit shared equally Net profit before appropriations for the year ended 31 March 2026 was £58 000. Evaluate the extent to which the terms of the partnership agreement are fair to both partners. (10 marks)

Rosa and Stefan are in partnership sharing profits equally. Rosa has contributed £70 000 capital and Stefan has contributed £50 000 capital. Net profit for the most recent year was £84 000. The partners are considering admitting Tunde as a new partner. Tunde will introduce £30 000 capital. The new profit-sharing ratio will be 2:2:1 (Rosa:Stefan:Tunde). Tunde will receive a salary of £8 000 per annum. Interest on capital will be introduced at 6% per annum for all partners. No other changes to the agreement. Assess the impact of admitting Tunde on the financial position of Rosa and Stefan individually. (10 marks)