Questions and Answers
What is the primary objective of a partnership?
What is a characteristic of a partnership?
What are the equity accounts in a partnership composed of?
What is the purpose of capital accounts in a partnership?
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What is recorded in the current accounts of each partner?
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What happens to the drawings of each partner at the end of the financial year?
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How is the profit of a partnership calculated?
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What is the main difference between a partnership and a sole proprietorship?
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What is the period of the unsecured loan granted by Den Bank to Matrix Traders?
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What is the amount of Trading inventory on hand as at 28 February 20.15?
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What is the contract amount for the advertising that was taken for the period 01 June 20.14 to 31 May 20.15?
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How often are the salary payments made to each partner?
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What is the rate of interest allowed on the capital balances of the partners?
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What is the amount of bonus entitled to Rixon?
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What is the method used to provide for depreciation on equipment?
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What is the amount of the telephone account for February 20.15 that has not yet been paid?
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What is the annual rent received from the tenant for leasing a part of the building?
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What are the components that the statement of changes in equity shows?
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In a partnership, how is a partner's salary treated in accounting?
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What is the purpose of providing interest on capital in a partnership?
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How is interest on drawings treated in a partnership?
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What is the last step in appropriating profit in a partnership?
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What is the purpose of preparing financial statements in a partnership?
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What financial statement reflects the financial result of the business in a partnership?
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How is a partner's current account affected when they withdraw more than they are entitled to?
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What is the order of appropriation of profit in a partnership?
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What is the nature of interest on capital in a partnership?
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What is the purpose of recording a partner's salary in a partnership?
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What is the interest on drawings for Ed and Con respectively?
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How is the remaining profit or loss shared by the partners at the end of the financial year?
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What is the balance of the capital account of Sam as at 28 February 20.15?
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What is the interest on capital for Sam for the year ended 28 February 20.15?
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What is the net profit reflected in the statement of comprehensive income of Protea Traders?
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By how much did Hashim decrease his capital on 01 June 20.14?
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What is the interest on drawings for Hashim for the year ended 28 February 20.15?
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What is the balance of Steyn's capital account after the increase on 01 December 20.14?
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What is the total value of drawings by Kivesh and Niemand for the year ended 28 February 20.15?
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What is the interest rate on the loan from Vin Bank?
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What is the amount of merchandise inventory on hand as at 28 February 20.15?
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What is the depreciation method used for equipment?
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What is the amount of interest on fixed deposit that needs to be provided for?
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What is the amount of rent received up to 31 March 20.15?
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What is the amount of salary allowed to each partner monthly?
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What is the formula to calculate the total profit share?
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How is interest on capital calculated?
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What is the interest rate on capital allowed to each partner?
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What happens to the drawings of each partner at the end of the financial year?
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What is the amount of bonus to be received by Kivesh?
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How are inventories measured in the financial statements?
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What is the ratio in which the remaining profit (loss) is shared between Kivesh and Niemand?
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What is the purpose of the notes to the financial statements?
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How is the net profit for the year allocated to each partner?
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What is recorded in the statement of financial position under equity?
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What is the purpose of the statement of changes in equity?
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How is the balance as at 28 February 20.15 calculated?
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What is the measurement basis of the financial statements?
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What is the total interest on capital?
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What is the total equity as at 28 February 20.15 for Protea Traders?
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What is Sam's share of the remaining shortfall?
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What is Sing's current account balance?
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What is the gross profit for Kiveshnie Traders for the year ended 28 February 20.15?
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What is the bad debt written off for Kiveshnie Traders for the year ended 28 February 20.15?
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What is the total capital of Hashim and Steyn as at 28 February 20.15?
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How is the interest on capital calculated for Hashim?
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What is the depreciation expense for Kiveshnie Traders for the year ended 28 February 20.15?
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What is the interest income for Kiveshnie Traders for the year ended 28 February 20.15?
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What is the total profit share for the year?
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What is the ratio of Hashim's and Steyn's capital balances?
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What is the net profit for Kiveshnie Traders for the year ended 28 February 20.15?
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What is the interest on capital for Steyn for the financial year?
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What is the balance of the current account for Kivesh as at 28 February 20.15?
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What is the balance as at 28 February 20.14 for Hashim's capital account?
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What is the total drawings for Kivesh and Niemand for the year ended 28 February 20.15?
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What is the interest on capital for Kivesh and Niemand for the year ended 28 February 20.15?
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What is the profit share ratio for Hashim and Steyn?
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What is the profit share for Kivesh and Niemand for the year ended 28 February 20.15?
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What is the total value of Non-current assets in Kiveshnie Traders' Statement of Financial Position as at 28 February 20.15?
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How is interest on capital calculated in Kiveshnie Traders?
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What is the total value of Current liabilities in Kiveshnie Traders' Statement of Financial Position as at 28 February 20.15?
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How is the equipment written off in Kiveshnie Traders?
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What is the total value of Inventories in Kiveshnie Traders' Statement of Financial Position as at 28 February 20.15?
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What is the interest rate on the unsecured loan granted by Vin Bank to Kiveshnie Traders?
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What is the total value of Equity in Kiveshnie Traders' Statement of Financial Position as at 28 February 20.15?
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What is the method used to measure Inventories in Kiveshnie Traders?
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What is the carrying value of Land and buildings as at the beginning of the year?
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What is the value of Cash and cash equivalents in Kiveshnie Traders' Statement of Financial Position as at 28 February 20.15?
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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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Solve problems related to interest on capital, remaining profit, and share in profit using financial data and ratios. Practice financial reporting and analysis with this quiz.