Financial Reporting and Analysis Unit 3
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What is the primary objective of a partnership?

  • To make a loss
  • To make a profit (correct)
  • To create employment
  • To obtain loans

    • What is a characteristic of a partnership?

  • It is a separate legal entity
  • It is not a separate legal entity (correct)
  • It can own assets
  • It cannot enter into contracts

    • What are the equity accounts in a partnership composed of?

  • Only current accounts
  • Capital accounts and current accounts (correct)
  • Only capital accounts
  • Drawing accounts only

    • What is the purpose of capital accounts in a partnership?

    <p>To record capital contributions or capital decreases</p> Signup and view all the answers

    What is recorded in the current accounts of each partner?

    <p>Salaries, bonuses, interest on capital, and drawings</p> Signup and view all the answers

    What happens to the drawings of each partner at the end of the financial year?

    <p>They are closed off to the respective current accounts</p> Signup and view all the answers

    How is the profit of a partnership calculated?

    <p>The same way as for a sole proprietorship</p> Signup and view all the answers

    What is the main difference between a partnership and a sole proprietorship?

    <p>The recording and reporting of transactions involving the sharing of profit and equity</p> Signup and view all the answers

    What is the period of the unsecured loan granted by Den Bank to Matrix Traders?

    <p>5 years</p> Signup and view all the answers

    What is the amount of Trading inventory on hand as at 28 February 20.15?

    <p>R61 600</p> Signup and view all the answers

    What is the contract amount for the advertising that was taken for the period 01 June 20.14 to 31 May 20.15?

    <p>R1 200</p> Signup and view all the answers

    How often are the salary payments made to each partner?

    <p>Monthly</p> Signup and view all the answers

    What is the rate of interest allowed on the capital balances of the partners?

    <p>12% p.a.</p> Signup and view all the answers

    What is the amount of bonus entitled to Rixon?

    <p>R12 000</p> Signup and view all the answers

    What is the method used to provide for depreciation on equipment?

    <p>Fixed instalment method</p> Signup and view all the answers

    What is the amount of the telephone account for February 20.15 that has not yet been paid?

    <p>R450</p> Signup and view all the answers

    What is the annual rent received from the tenant for leasing a part of the building?

    <p>R30 000</p> Signup and view all the answers

    What are the components that the statement of changes in equity shows?

    <p>Opening and closing balances of each partner, transactions with partners, distribution of profit to partners</p> Signup and view all the answers

    In a partnership, how is a partner's salary treated in accounting?

    <p>As an appropriation of profit</p> Signup and view all the answers

    What is the purpose of providing interest on capital in a partnership?

    <p>To be fair to partners where the capital contributions are different</p> Signup and view all the answers

    How is interest on drawings treated in a partnership?

    <p>Not treated as an income to the business</p> Signup and view all the answers

    What is the last step in appropriating profit in a partnership?

    <p>Sharing the remaining profit or loss between partners</p> Signup and view all the answers

    What is the purpose of preparing financial statements in a partnership?

    <p>To fairly present the financial performance and financial position of the business</p> Signup and view all the answers

    What financial statement reflects the financial result of the business in a partnership?

    <p>Statement of Comprehensive Income</p> Signup and view all the answers

    How is a partner's current account affected when they withdraw more than they are entitled to?

    <p>It shows a debit balance</p> Signup and view all the answers

    What is the order of appropriation of profit in a partnership?

    <p>Salaries, interest on capital, interest on drawings, remaining profit</p> Signup and view all the answers

    What is the nature of interest on capital in a partnership?

    <p>An appropriation of profit</p> Signup and view all the answers

    What is the purpose of recording a partner's salary in a partnership?

    <p>To appropriate the profit to the partner</p> Signup and view all the answers

    What is the interest on drawings for Ed and Con respectively?

    <p>R800 and R900</p> Signup and view all the answers

    How is the remaining profit or loss shared by the partners at the end of the financial year?

    <p>In the ratio of their capital contributions</p> Signup and view all the answers

    What is the balance of the capital account of Sam as at 28 February 20.15?

    <p>R388 000</p> Signup and view all the answers

    What is the interest on capital for Sam for the year ended 28 February 20.15?

    <p>R40 800</p> Signup and view all the answers

    What is the net profit reflected in the statement of comprehensive income of Protea Traders?

    <p>R250 000</p> Signup and view all the answers

    By how much did Hashim decrease his capital on 01 June 20.14?

    <p>R100 000</p> Signup and view all the answers

    What is the interest on drawings for Hashim for the year ended 28 February 20.15?

    <p>R2 250</p> Signup and view all the answers

    What is the balance of Steyn's capital account after the increase on 01 December 20.14?

    <p>R360 060</p> Signup and view all the answers

    What is the total value of drawings by Kivesh and Niemand for the year ended 28 February 20.15?

    <p>R2 400 + R7 320</p> Signup and view all the answers

    What is the interest rate on the loan from Vin Bank?

    <p>16% p.a.</p> Signup and view all the answers

    What is the amount of merchandise inventory on hand as at 28 February 20.15?

    <p>R128 500</p> Signup and view all the answers

    What is the depreciation method used for equipment?

    <p>Diminishing balance method</p> Signup and view all the answers

    What is the amount of interest on fixed deposit that needs to be provided for?

    <p>R9 000 x 8% x 1/12</p> Signup and view all the answers

    What is the amount of rent received up to 31 March 20.15?

    <p>R23 000</p> Signup and view all the answers

    What is the amount of salary allowed to each partner monthly?

    <p>R9 000</p> Signup and view all the answers

    What is the formula to calculate the total profit share?

    <p>Net profit for year - Interest on capital - Salaries - Bonus + Interest on drawings</p> Signup and view all the answers

    How is interest on capital calculated?

    <p>As a percentage of each partner's capital</p> Signup and view all the answers

    What is the interest rate on capital allowed to each partner?

    <p>15% p.a.</p> Signup and view all the answers

    What happens to the drawings of each partner at the end of the financial year?

    <p>They are deducted from the capital accounts</p> Signup and view all the answers

    What is the amount of bonus to be received by Kivesh?

    <p>R15 000</p> Signup and view all the answers

    How are inventories measured in the financial statements?

    <p>At the lower of cost, on the FIFO method, and net realisable value</p> Signup and view all the answers

    What is the ratio in which the remaining profit (loss) is shared between Kivesh and Niemand?

    <p>3:2</p> Signup and view all the answers

    What is the purpose of the notes to the financial statements?

    <p>To explain the accounting policies and methods used</p> Signup and view all the answers

    How is the net profit for the year allocated to each partner?

    <p>According to the partnership agreement</p> Signup and view all the answers

    What is recorded in the statement of financial position under equity?

    <p>The capital and current accounts of the partners</p> Signup and view all the answers

    What is the purpose of the statement of changes in equity?

    <p>To record the changes in the capital and current accounts of the partners</p> Signup and view all the answers

    How is the balance as at 28 February 20.15 calculated?

    <p>By adding the net profit for the year to the balance as at 28 February 20.14 and then subtracting the drawings</p> Signup and view all the answers

    What is the measurement basis of the financial statements?

    <p>Historical cost</p> Signup and view all the answers

    What is the total interest on capital?

    <p>R18 750</p> Signup and view all the answers

    What is the total equity as at 28 February 20.15 for Protea Traders?

    <p>R662 000</p> Signup and view all the answers

    What is Sam's share of the remaining shortfall?

    <p>R8 000</p> Signup and view all the answers

    What is Sing's current account balance?

    <p>– R41 500</p> Signup and view all the answers

    What is the gross profit for Kiveshnie Traders for the year ended 28 February 20.15?

    <p>R526 520</p> Signup and view all the answers

    What is the bad debt written off for Kiveshnie Traders for the year ended 28 February 20.15?

    <p>R700</p> Signup and view all the answers

    What is the total capital of Hashim and Steyn as at 28 February 20.15?

    <p>R500 000</p> Signup and view all the answers

    How is the interest on capital calculated for Hashim?

    <p>R300 000 X 12% X 3/12 + R200 000 X 12% X 9/12</p> Signup and view all the answers

    What is the depreciation expense for Kiveshnie Traders for the year ended 28 February 20.15?

    <p>R12 000</p> Signup and view all the answers

    What is the interest income for Kiveshnie Traders for the year ended 28 February 20.15?

    <p>R1 440</p> Signup and view all the answers

    What is the total profit share for the year?

    <p>R197 400</p> Signup and view all the answers

    What is the ratio of Hashim's and Steyn's capital balances?

    <p>3:2</p> Signup and view all the answers

    What is the net profit for Kiveshnie Traders for the year ended 28 February 20.15?

    <p>R398 760</p> Signup and view all the answers

    What is the interest on capital for Steyn for the financial year?

    <p>R30 600</p> Signup and view all the answers

    What is the balance of the current account for Kivesh as at 28 February 20.15?

    <p>R141 756</p> Signup and view all the answers

    What is the balance as at 28 February 20.14 for Hashim's capital account?

    <p>R240 000</p> Signup and view all the answers

    What is the total drawings for Kivesh and Niemand for the year ended 28 February 20.15?

    <p>R208 000</p> Signup and view all the answers

    What is the interest on capital for Kivesh and Niemand for the year ended 28 February 20.15?

    <p>R104 100</p> Signup and view all the answers

    What is the profit share ratio for Hashim and Steyn?

    <p>3:2</p> Signup and view all the answers

    What is the profit share for Kivesh and Niemand for the year ended 28 February 20.15?

    <p>R74 060</p> Signup and view all the answers

    What is the total value of Non-current assets in Kiveshnie Traders' Statement of Financial Position as at 28 February 20.15?

    <p>R594 200</p> Signup and view all the answers

    How is interest on capital calculated in Kiveshnie Traders?

    <p>By calculating interest from the beginning of the year until the date of change of the balance, and then from the date of change of the balance until the end of the financial year</p> Signup and view all the answers

    What is the total value of Current liabilities in Kiveshnie Traders' Statement of Financial Position as at 28 February 20.15?

    <p>R46 300</p> Signup and view all the answers

    How is the equipment written off in Kiveshnie Traders?

    <p>At 20% per annum on the diminishing balance</p> Signup and view all the answers

    What is the total value of Inventories in Kiveshnie Traders' Statement of Financial Position as at 28 February 20.15?

    <p>R128 800</p> Signup and view all the answers

    What is the interest rate on the unsecured loan granted by Vin Bank to Kiveshnie Traders?

    <p>16% p.a.</p> Signup and view all the answers

    What is the total value of Equity in Kiveshnie Traders' Statement of Financial Position as at 28 February 20.15?

    <p>R895 680</p> Signup and view all the answers

    What is the method used to measure Inventories in Kiveshnie Traders?

    <p>Lower of cost and net realisable value on the FIFO method</p> Signup and view all the answers

    What is the carrying value of Land and buildings as at the beginning of the year?

    <p>R531 200</p> Signup and view all the answers

    What is the value of Cash and cash equivalents in Kiveshnie Traders' Statement of Financial Position as at 28 February 20.15?

    <p>R241 600</p> Signup and view all the answers

    Study Notes

    Partnerships in Business

    • A partnership is an agreement between two or more people who invest in a business with the aim of making a profit, which is then shared.
    • A partnership is not a separate legal entity, meaning it cannot own assets, incur liabilities, enter into contracts, sue, or be sued.
    • The accounting entries for income, expenses, assets, and liabilities of a partnership are the same as for a sole proprietorship.

    Equity Accounts in a Partnership

    • The equity of a partnership includes capital accounts and current accounts.
    • Separate capital accounts are opened for each partner, recording capital contributions or decreases.
    • Current accounts are also opened for each partner, recording items such as salaries, bonuses, interest on capital, and share of profits or losses.

    Sharing Profits in a Partnership

    • Profit is calculated in the same way as for a sole proprietorship.
    • Partners' salaries, bonuses, and interest on capital are recorded before the remaining profit (loss) is shared.
    • Partners' salaries are treated as an appropriation of profit, not a business expense.
    • Interest on capital is provided for in partnership agreements to be fair to partners with different capital contributions.
    • Interest on drawings is not treated as an expense, but rather as a transaction with partners.

    Preparation of Financial Statements of a Partnership

    • The basic financial statements of a partnership include:
      • Statement of comprehensive income
      • Statement of changes in equity
      • Statement of financial position
    • The statement of comprehensive income reflects the financial result of the business.
    • The statement of changes in equity shows the movements in capital and current accounts of partners.
    • The statement of financial position presents the financial position of the business.

    Statement of Changes in Equity

    • The statement of changes in equity includes:
      • Opening and closing balances of each partner's capital account and current account
      • Transactions with partners, including increases and decreases in capital and current accounts
      • Distribution of profit to partners
    • The statement of changes in equity is used to calculate the net profit for each partner.

    Statement of Financial Position and Notes to the Financial Statements

    • The statement of financial position for a partnership includes the equity section, which consists of partners' capital accounts and current accounts.
    • Notes to the financial statements provide additional information about specific items on the financial statements.

    I hope this helps! Let me know if you need anything else.### Calculating Interest on Capital and Remaining Profit

    • Total interest on capital: R8,437.50 + R10,312.50 = R18,750
    • Calculation of remaining profit: Net profit + Interest on drawings – Interest on capital = R80,000 + R1,700 – R18,750 = R62,950
    • Calculation of share in remaining profit: Ed: R62,950 x 3/5 = R37,770, Con: R62,950 x 2/5 = R25,180
    • Ratio of capitals at the end of the year: R75,000:R50,000 = 75:50 = 3:2

    Interest on Capital and Remaining Shortfall

    • Calculation of interest on capital: Sam: R400,000 x 12% x 6/12 = R24,000, R400,000 x 15% x 6/12 = R30,000
    • Sing: R300,000 x 12% x 6/12 = R18,000, R300,000 x 15% x 6/12 = R22,500
    • Remaining shortfall: Net profit + Interest on drawings – Interest on capital = R74,800 + R5,700 – R94,500 = (R14,000)
    • Sam's share: R14,000 x 4/7 = R8,000, Sing's share: R14,000 x 3/7 = R6,000
    • Ratio of capitals: R400,000:R300,000 = 4:3

    Current Accounts

    • Sam's current account: R10,000 + R54,000 – R2,700 – R52,000 – R8,000 = R1,300 (credit balance)
    • Sing's current account: – R13,000 + R40,500 – R3,000 – R60,000 – R6,000 = – R41,500 (debit balance)

    Protea Traders: Statement of Changes in Equity

    • Capital accounts: Hashim (R200,000), Steyn (R300,000), Total (R500,000)
    • Current accounts: Hashim (R80,710), Steyn (R81,290), Total (R162,000)
    • Interest on capital: Hashim (R27,000), Steyn (R30,600)
    • Profit share: Hashim (R78,960), Steyn (R118,440)

    Protea Traders: Statement of Financial Position

    • Equity and liabilities: Capital (R500,000), Current accounts (R162,000)
    • Total equity and liabilities: R662,000

    Kiveshnie Traders: Statement of Comprehensive Income

    • Sales: R1,386,920
    • Gross profit: R526,520
    • Operating profit: R550,520
    • Net profit for the year: R398,760

    Kiveshnie Traders: Statement of Changes in Equity

    • Capital accounts: Kivesh (R370,000), Niemand (R330,000), Total (R700,000)
    • Current accounts: Kivesh (R141,756), Niemand (R53,924), Total (R195,680)
    • Interest on capital: Kivesh (R51,000), Niemand (R53,100)
    • Profit share: Kivesh (R44,436), Niemand (R29,624)

    Kiveshnie Traders: Statement of Financial Position

    • Assets: Non-current assets (R594,200), Current assets (R410,780), Total assets (R1,004,980)
    • Equity and liabilities: Equity (R895,680), Non-current liabilities (R63,000), Current liabilities (R46,300), Total equity and liabilities (R1,004,980)

    Notes to the Financial Statements

    • Accounting policy: Historical cost, consistent with previous year
    • Property, plant, and equipment: Written off at 20% per annum on the diminishing balance
    • Inventories: Measured at the lower of cost, on the FIFO method, and net realizable value
    • Financial assets: Fixed deposit with Vin Bank (8% p.a.) = R15,000

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