New Horizon Business, Accounting and Financial Studies Financial Accounting 2

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SECTION A: SHORT QUESTIONS

FA11T2Q001
Peter and Mary started partnership on 1 January 20X3 with capital contribution of $50,000 from
each. They agreed to equally share profits and losses. The information regarding the year ended 31
December 20X3 was as follows:

(i) Net profit of the year was $25,000.

(ii) Interest on capital: $5,000 for Peter, $5,000 for Mary.
(iii) Partners’ salary: $6,000 for Peter, $4,000 for Mary.
(iv) Interest on drawings: Peter: $700, Mary: $400.
(v) Drawing for the year: $7,000 by Peter, $4,000 by Mary.
(vi) The partnership decided to maintain a current account.

Required:
(a) Prepare the profit and loss appropriation account for the year ended 31 December 20X3. (4
marks)
(b) Prepare the statement of financial position as at 31 December 20X3 (Extract). (6 marks)

Answer
(a)
Peter and Mary
Profit and loss appropriation account
for the year ended 31 December 20X3
$ $ $
Net profit 25,000
Add: Interest on drawings
– Peter 700 ½
– Mary 400 1,100 ½
26,100
Less: Interest on capital
– Peter 5,000 ½
– Mary 5,000 10,000 ½

Salary
– Peter 6,000 ½
– Mary 4,000 10,000 20,000 ½
6,100

Share of profits
– Peter (1/2) 3,050 ½
– Mary (1/2) 3,050 6,100 ½
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(b)
Peter and Mary
Statement of Financial Position (Extract)
as at 31 December 20X3
Financed by:
Capital accounts: Peter 50,000 ½
Mary 50,000 100,000 ½

Current accounts Peter Mary

Add: Partners’ salary 6,000 4,000 1
Interest on capital 5,000 5,000 1
Share of profits 3,050 3,050 1
14,050 12,050
Less: Drawings 7,000 4,000 1
Interest on drawings 700 400 1
6,350 7,650 14,000
114,000

FA11T2Q002
Mr Wong and Mr Ng have been in partnership for years sharing profits and losses in the ratio of 2:1.
The information regarding the year ended 31 December 20X5 was as follows:

(i) Net profit before appropriation for the year ended 31 December 20X5 was $23,000.
(ii) Interest on capital was 3% per annum.
(iii) Partners’ salary: $4,000 for Mr Wong, $4,800 for Mr Ng
(iv) Interest on drawings was 5% per annum.
(v) Drawings in the year: $4,000 by Mr Wong, $6,000 by Mr Ng
(vi) Capital account balance on 1 January 20X5: Mr Wong: $60,000 (credit), Mr Ng: $30,000
(debit)
(vii) Current account balance on 1 January 20X5: Mr Wong: $8,200(credit), Mr Ng: $2,200
(debit)

Required:
(a) Prepare the income statement for the year ended 31 December 20X5 (Extract). (4 marks)
(b) Prepare the statement of financial position for the year ended 31 December 20X5 (Extract).
(6 marks)

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Answer
(a)
Mr Wong and Mr Ng
Income statement (Extract)
for the year ended 31 December 20X5
$ $ $
Net profit 23,000
Add: Interest on drawings
– Mr Wong ($4,000×5%) 200 ½
– Mr Ng ($6,000×5%) 300 500 ½
23,500
Less: Interest on capital
– Mr Wong ($60,000×3%) 1,800 ½
– Mr Ng ($30,000×3%) 900 2,700 ½

Salary
– Mr Wong 4,000 ½
– Mr Ng 4,800 8,800 11,500 ½
12,000

Share of profits
– Mr Wong (2/3) 8,000 ½
– Mr Ng (1/3) 4,000 12,000 ½

(b)
Mr Wong and Mr Ng
Statement of financial position as at 31 December 20X5 (Extract)
Financed by: $ $ $
Capital Accounts: ½
Mr Wong 60,000
Mr Ng 30,000 90,000 ½

Current Accounts Mr Wong Mr Ng

Balance, 1 January 20X5 8,200 (2,200)
Add: Partners’ salary 4,000 4,800 1
Interest on capital 1,800 900 1
Share of profits 8,000 4,000 1
22,000 7,500
Less: Drawings 4,000 5,800 1
Interest on drawings 200 300 1
17,800 1,400 19,200
109,200

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FA11T2Q003
Andy and Erika entered into partnership sharing profits and losses in the ratio of 4:3. The
information regarding the year ended 31 December 20X7 was as follows:

(i) Net profit before appropriation for the year ended 31 December 20X7 was $19,050.
(ii) Annual interest on capital was 6%.
(iii) Partners’ salary: $250 per month for Andy, $200 per month for Erika.
(iv) Annual interest on drawings was 8%.
(v) Drawings in the year:
Andy: $12,000 ($10,000 were withdrawn on 1 April 20X7, the balance was withdrawn
on 1 July 20X7)
Erika: $8,000 (Withdrawn on 1 October 20X7)
(vi) Capital account balance on 1 January 20X7：Andy: $100,000 (credit), Erika: $75,000
(debit).
(vii) Current account balance on 1 January 20X7: Andy: $1,200 (debit), Erika: $2,500 (credit).

Required:
(a) Prepare the income statement for the year ended 31 December 20X7 (Extract). (6 marks)
(b) Prepare the partners’ current accounts in columnar form for the year ended 31 December
20X7. (4 marks)

Answer
(a)
Andy and Erika
Income statement (Extract)
for the year ended 31 December 20X7
$ $ $
Net profit 19,050
Add: Interest on drawings
– Andy ($10,000×8%×9/12 + $2,000×8%×1/2) 680 2
– Erika ($8,000×8%×3/12) 160 840 1
19,890
Less: Interest on capital
– Andy ($100,000×6%) 6,000 ½
– Erika ($75,000×6%) 4,500 10,500 ½

Salary
– Andy ($250×12) 3,000 ½
– Erika ($200×12) 2,400 5,400 15,900 ½

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3,990

Share of profits
– Andy (4/7) 2,280 ½
– Erika (3/7) 1,710 3,990 ½

(b)
Current
Andy Erika Andy Erika
$ $ $ $
½ Balance b/d 1,200 Balance b/f 2,500 ½
Profit and loss
Profit and loss
appropriation
appropriation account
account
– Interest on
½ 680 160 – Partners’ salary 3,000 2,400 ½
drawings
½ Drawings 12,000 8,000 – Interest on capital 6,000 4,500 ½
½ Balance c/d 2,950 – Share of profits 2,280 1,710 ½
Balance c/d 2,600
13,880 11,110 13,880 11,110

FA11T2Q004
Mr Yip and Mr Chong entered into partnership sharing profits and losses in the ratio of 5:4. The
information regarding the year ended 30 June 20X8 was as follows:

(i) Pre-sharing net profit for the year ended 30 June 20X8 was $44,370.
(ii) Annual interest on capital was 5%.
(iii) Partners’ salary: $12,000 for Mr Yip, $13,000 for Mr Chong.
(iv) Annual interest on drawings was 9%.
(v) Drawings in the year: $8,000 by Mr Yip, $9,000 by Mr Chong.
(vi) The partnership borrows out a loan of $20,000 from Mr Yip on 1 July 20X7 at interest
rate of 6% per annum. No record has been made for loan interest.
(vii) Capital account balance on 1 July 20X7: Mr Yip: $120,000 (credit), Mr Chong: $130,000
(credit).
(viii) Current account balance on 1 July 20X7: Mr Yip: $8,300 (credit), Mr Chong: $10,200
(credit).

Required:
(a) Prepare the profit and loss appropriation account for the year ended 30 June 20X8. (6 marks)
(b) Prepare the partners’ current accounts in columnar form for the year ended 30 June 20X8. (4
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marks)

Answer
(a)
Mr Yip and Mr. Chong
Income statement (Extract)
for the year ended 30 June 20X8
$ $ $
Net profit (44,370 - 20,000 × 6%) 43,170 2
Add: Interest on drawings
– Mr Yip ($8,000 × 9%) 720 ½
– Mr Chong ($9,000 × 9%) 810 1,530 ½
44,700
Less: Interest on capital
– Mr Yip ($120,000×5%) 6,000 ½
– Mr Chong ($130,000×5%) 6,500 12,500 ½

Salary
– Mr Yip 12,000 ½
– Mr Chong 13,000 25,000 37,500 ½
7,200
Share of profits
– Mr Yip (5/9) 4,000 ½
– Mr Chong (4/9) 3,200 7,200 ½

(b)
Current
Mr Mr
Mr Yip Mr Yip
Chong Chong
$ $ $ $
Profit and loss
appropriation Balance b/d 8,300 10,200 ½
account
– Interest on Profit and loss
½ 720 810
drawings appropriation account
½ Drawings 8,000 9,000 – Partners’ salary 12,000 13,000 ½
1 Balance c/d 21,580 23,090 – Interest on capital 6,000 6,500 ½
– Share of profits 4,000 3,200 ½
30,300 32,900 30,300 32,900

FA11T2Q005
Mr Leung and Mr Tam have been in partnership for many years sharing profits and losses in the
ratio of 3:1. The information regarding the year ended 30 June 20X4 was as follows:

(i) Net profit before appropriation for the year ended 30 June 20X4 was $12,830.
(ii) Interest on capital was 4% per annum
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(iii) Partners’ salary: $6,000 for Mr Leung annually, $3,000 for Mr Tam annually.
(iv) Interest on drawings was 10% per annum.
(v) Drawings in the year:
Mr Leung $4,000 (withdrawn on 1 October 20X3)
Mr Tam $5,000 (withdrawn on 1 January 20X4)
(vi) The partnership borrows a loan of $10,000 from Mr Tam on 1 January 20X4 at interest
rate of 6% per annum. No record has been made for loan interest.
(vii) Capital account balance on 1 January 20X4: Mr Leung: $60,000(credit), Mr Tam:
$20,000 (credit).
(viii) Current account balance on 1 January 20X4: Mr Leung: $2,000 (credit), Mr Tam: $500
(credit).

Required:
(a) Prepare the income statement for the year ended 30 June 20X4 (Extract). (7 marks)
(b) Prepare the partners’ current accounts in columnar form for the year ended 30 June 20X4. (4
marks)

Answer
(a)
Mr Leung and Mr Tam
Income statement (Extract)
for the year ended 30 June 20X4
$ $ $
Net profit (12,830 - [10000×6%×6/12]) 12,530 2
Add: Interest on drawings
– Mr Leung ($4,000×10%×9/12) 300 1
– Mr Tam ($5,000×10%×6/12) 250 550 1
13,080
Less: Interest on capital
– Mr Leung ($60,000×4%) 2,400 ½
– Mr Tam ($20,000×4%) 800 3,200 ½

Salary
– Mr Leung 6,000 ½
– Mr Tam 3,000 9,000 12,200 ½
880

Share of profits
– Mr Leung (3/4) 660 ½
– Mr Tam (1/4) 220 880 ½

(b)
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Current
Mr Leung Mr Tam Mr Leung Mr Tam
$ $ $ $
½ Drawings 4,000 5,000 Balance b/d 2,000 500 ½
Profit and loss
Profit and loss
appropriation
appropriation account
account
– Interest on
½ 300 250 – Partners’ salary 6,000 3,000 ½
drawings
½ Balance c/d 6,760 – Interest on capital 2,400 800 ½
– Share of profits 660 220 ½
Balance c/d 730 ½
11,060 5,250 11,060 5,250

FA11T2Q006*
Helen and Oscar formed a partnership agreeing to share profits and losses equally. The information
regarding the year ended 31 March 20X9 was as follows:

(i) Pre-sharing net profit for the year ended 31 March 20X9 was $1,330.
(ii) Interest on capital was 5% per annum
(iii) Partners’ salary: $2,500 for Helen annually, $2,000 for Oscar annually.
(iv) Interest on drawings was 4% per annum.
(v) Drawings in the year:
$4,000 by Helen (Withdrawn on 1 October 20X8)
$3,000 by Oscar (Withdrawn on 1 January 20X9)
(vi) The partnership borrows a loan of $8,000 from Helen on 1 July 20X8 at interest rate of
9% per annum. No record has been made for loan interest.
(vii) Capital account balance on 1 April 20X8: Helen: $60,000 (credit), Oscar: $50,000
(credit).
(viii) Current account balance on 1 April 20X8: Helen: $1,200 (credit), Oscar: $2,500 (credit).

Required:
(a) Prepare the profit and loss appropriation account for the year ended 31 March 20X9 (Extract).
(6 marks)
(b) Prepare the partners’ current accounts in columnar form for the year ended 31 March 20X9.
(4 marks)

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Answer
(a)
Helen and Oscar
Profit and loss appropriation account (Extract)
for the year ended 31 March 20X9
$ $ $
Net loss (–1330–[$8,000×9%×9/12]) (1,870) 2
Add: Interest on drawings
– Helen ($4,000×4%×6/12) 80 ½
– Oscar ($3,000×4%×3/12) 30 110 ½
(1,760)
Less: Interest in capital
– Helen ($60,000×5%) 3,000 ½
– Oscar ($50,000×5%) 2,500 5,500 ½

Salary
– Helen 2,500 ½
– Oscar 2,000 4,500 10,000 ½
(11,760)

Share of loss
– Helen (1/2) (5,880) ½
– Oscar (1/2) (5,880) (11,760) ½

(b)
Current
Helen Oscar Helen Oscar
$ $ $ $
½ Balance b/d 2,500 Balance b/d 1,200 ½
Profit and loss
½ Drawings 4,000 3,000
appropriation account
Profit and loss
– Partners’ salary 2,500 2,000 ½
appropriation account
– Interest on capital
½ – Interest on drawings 80 30 3,000 2,500 ½
½ – Share of loss 5,880 5,880 Balance c/d 3,260 6,910 ½
9,960 11,410 9,960 11,410

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SECTION B: APPLICATION PROBLEMS

FA11T3Q007
Mr Kwan, Mr Wing and Mr Luk have been in partnership for years sharing profits and losses in the
ratio of 3:2:1. The information regarding the year ended 31 March 20X1 was as follows:

(i) Net profit for the year: $52,260.

(ii) Capital account balance on 1 April 20X0: Mr Kwan: $90,000 (credit), Mr Wing:
$60,000 (credit), Mr Luk: $30,000 (credit).
(iii) Current account balance on 1 April 20X0: Mr Kwan: $$3,200 (credit), Mr Wing: $1,300
(debit), Mr Luk: $2,800(credit).
(iv) Interest on capital was 5% per annum.
(v) Partners’ salary: $4,000 for Mr Kwan annually, $5,500 for Mr Luk annually, Mr Wing
was not paid any salary.
(vi) Interest on drawings was 8% per annum.
(vii) Drawings in the year: $5,000 by Mr Kwan, $2,000 by Mr Wing, $6,000 by Mr Luk.

Required:
(a) Prepare the profit and loss appropriation account for the year ended 31 March 20X1. (6 marks)
(b) Prepare the partners’ current accounts in columnar form for the year ended 31 March 20X1. (4
marks)
(c) If no partnership agreement has been signed, in what ratio should the partners share the
following? (3 marks)
(1) Partners’ salary;
(2) Interest on capital;
(3) Share of profits and losses.

Answer
(a)
Mr Kwan, Mr Wing and Mr Luk
Income statement(Extract)
for the year ended 31 March 20X1
$ $ $
Net profit 52,260 ½
Add: Interest on drawings
– Mr Kwan ($5,000×8%) 400 ½
– Mr Wing ($2,000×8%) 160 ½
– Mr Luk ($6,000×8%) 480 1040 ½
53,300
Less: Interest on capital
– Mr Kwan ($90,000 × 5%) 4,500 ½

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– Mr Wing ($60,000×5%) 3,000 ½
– Mr Luk ($30,000×5%) 1,500 9,000 ½

Salary
– Mr Kwan 4,000 ½
– Mr Luk 5,500 9,500 18,500 ½
34,800

Share of profits
– Mr Kwan (3/6) 17,400 ½
– Mr Wing (2/6) 11,600 ½
– Mr Luk (1/6) 5,800 34,800 ½

(b)
Current
Mr Mr Mr Mr
Mr Luk Mr Luk
Kwan Wing Kwan Wing
$ $ $ $ $ $
½ Balance b/d 1,300 Balance b/d 3,200 2,800 ½
Profit and loss Profit and loss
appropriation appropriation
account account
– Interest on
½ 400 160 480 – Partners’ salary 4,000 5,500 ½
drawings
– Interest on
½ Drawings 5,000 2,000 6,000 4,500 3,000 1,500 ½
capital
½ Balance c/d 23,700 11,140 9,120 – Share of profits 17,400 11,600 5,800 ½
29,100 14,600 15,600 29,100 14,600 15,600

(c) If no partnership agreement has been made, the partnership will be dealt with as follows:
(1) The partners shall not be entitled to any salary. (1 mark)
(2) The partners shall not be entitled to interest on capital. (1 mark)
(3) The partners shall share profits and losses equally. (1 mark)

FA11T3Q008
Andy, George and Mak entered into partnership sharing profits and losses in the ratio of 2:3:5. The
information regarding the year ended 31 December 20X8 was as follows:

(i) Net profit for the year: $10,500.

(ii) Capital account balance on 1 January 20X8: Andy: $20,000 (credit), George:
$30,000(credit), Mak: $50,000 (credit).
(iii) Current account balance on 1 January 20X8: Andy: $2,000 (credit), George: $1,500
(debit), Mak: $5,000 (credit).
(iv) Interest on capital was 6% per annum.
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(v) Partners’ salary: $4,000 for Andy annually, $3,500 for George annually, $2,000 for Mak
annually.
(vi) Interest on drawings was 8% per annum.
(vii) Drawings in the year: $8,000 by Andy (withdrawn on 1 October 20X8), George: $3,000
(withdrawn on 1 January 20X8).

Required:
(a) Prepare the profit and loss appropriation account for the year ended 31 December 20X8.
(7 marks)
(b) Prepare the partners’ current accounts in columnar form for the year ended 31 December
20X8. (5 marks)
(c) What are the advantages of maintaining both the capital account and current account for
partnership? (2 marks)

Answer
(a)
Andy, George and Mak
Profit and loss appropriation account
for the year ended 31 December 20X8
$ $ $
Net profit 10,500 ½
Add: Interest on drawings
– Andy ($8,000×8%×3/12) 160 1
– George ($3,000×8%) 240 400 1
10,900
Less: Interest on capital
– Andy ($20,000×6%) 1,200 ½
– George ($30,000×6%) 1,800 ½
– Mak ($50,000×6%) 3,000 6,000 ½

Salary
– Andy 4,000 ½
– George 3,500 ½
– Mak 2,000 9,500 15,500 ½
(4,600)

Share of loss
– Andy (2/10) (920) ½
– George (3/10) (1,380) ½
– Mak (5/10) (2,300) (4,600) ½

(b)
Current

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Andy Geroge Mak Andy Geroge Mak
$ $ $ $ $ $
½ Balance b/d 1,500 Balance b/d 2,000 5,000 ½
Profit and loss
Profit and loss
appropriation
appropriation account
account
– Interest on
½ 160 240 –Partners’ salary 4,000 3,500 2,000 ½
drawings
½ Drawings 8,000 3,000 – Interest on capital 1,200 1,800 3,000 ½
½ – Share of loss 920 1,380 2,300 Balance c/d 1,880 820 1
½ Balance c/d 7,700
9,080 6,120 10,000 9,080 6,120 10,000

(c) The advantages of maintaining both the capital account and current account in the case of
partnership:
(1) Current capital account helps differentiate the capital brought in by partner from the capital
generated by d operation. (1 mark)
(2) Fixed capital account helps ensure a sufficient capital base by preventing over-drawing. (1
mark)

FA11T3Q009
Mr Leung and Mr Chenug entered into partnership with the following agreement:

(i) Mr Leung and Mr Chenug share profits and losses in the ratio of 3:2.
(ii) Interest on fixed capital shall be charged at 4% per annum.
(iii) Interest on drawing shall be charged at 5% per annum.
(iv) Mr Leung and Mr Chenug are entitiled to a monthly salary of $1,200 and $1,000
respectively.

Additional information:
(1) Net profit for the year ended 31 December 20X6 was $48,000.
(2) Balances of the partners’ current accounts on 1 January 20X6:
Mr Chenug Mr Leung
$ $
Capital account 20,000 (credit) 15,000 (credit)
Current account 1,800 (credit) 4,500 (credit)
(3) Drawings in 20X6 were as follows:
Mr Chenug Mr Leung
$ $
12,000 9,000
(4) On 31 December 20X6, Mr Leung and Mr Chenug decided to transfer the following amounts
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in the current account to the capital account.

Mr Chenug Mr Leung
$ $
10,000 5,000

Required:
(a) Prepare the profit and loss appropriation account for the year ended 31 December 20X6. (4
marks)
(b) Prepare the partners’ current and capital accounts in columnar form for the year ended 31
December 20X6. (6 marks)

Answer
(a)
Mr Leung and Mr Cheung
Profit and loss appropriation account
for the year ended 31 December 20X6
$ $ $
Net profit 48,000

Add: Interest on drawings

– Mr Leung ($12,000 × 5%) 600 ½
– Mr Cheung ($9,000 × 5%) 450 1,050 ½
49,050
Less: Interest on capital
– Mr Leung ($20,000 × 4%) 800 ½
– Mr Cheung ($15,000 × 4%) 600 1,400 ½

Salary
– Mr Leung ($1,200 × 12) 14,400 ½
– Mr Cheung ($1,000×12) 12,000 26,400 27,800 ½
21,250

Share of profits
– Mr Leung (3/5) 12,750 ½
– Mr Cheung (2/5) 8,500 21,250 ½

(b)
Capital
Mr Leung Mr Cheung Mr Leung Mr Cheung
$ $ $ $
½ Balance c/d 21,000 21,000 Balance b/d 20,000 15,000 ½
Current account 10,000 5,000 ½
21,000 21,000 30,000 20,000

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Current
Mr Mr
Mr Leung Mr Leung
Cheung Cheung
$ $ $ $
Profit and loss
Balance b/d 1,800 4,500 ½
appropriation account
Profit and loss
½ – Interest on drawings 600 450
appropriation account
½ Drawings 12,000 9,000 – Partners’ salary 14,400 12,000 ½
½ Capital account 10,000 5,000 – Interest on capital 800 600 ½
1 Balance c/d 7,150 11,150 – Share of profit 12,750 8,500 ½
29,750 25,600 29,750 25,600

FA11T3Q010
Henry and Mary have entered into partnership. The following trial balance was extracted from the
book on 31 August 20X7:
Dr. Cr.
$ $
Gross profit 60,000
Capital account, 1 September 20X6
–Henry 60,000
–Mary 90,000
Capital account, 1 September 20X6
–Henry 2,100
–Mary 900
Inventory, 31 August 20X7 17,000
Machinery 78,200
Motor van 47,300
Accumulated depreciation
–Machinery 9,200
–Motor van 2,900
Salary 26,500
Accounts receivable and accounts payable 23,800 11,800
Commission income 1,300
Cash at bank 28,900
Insurance 2,500
Drawings
–Henry 6,000
–Mary 8,000
238,200 238,200

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Henry and Mary have the following agreement regarding their partnership:
(i) Interest on partners’ capital balance was 7% per annum.
(ii) Interest on drawings was charged at 6% per annum.
(iii) Henry and Mary were to share profits and losses in the ratio of 2:3.
(iv) Henry was entitled to an annual salary of $3,000 and Mary was entitled to an annual salary
of $2,000.

Additional information:
(i) Accrued expense: $300 for salary.
(ii) Prepaid expense: $240 for insurance.
(iii) Depreciation was calculated as follows:
Machinery - 10% per annum using the straight-line depreciation method.
Motor van - 15% per annum using the reducing–balance method.

Required:
(a) Prepare the income statement for the year ended 31 August 20X7. (9 marks)
(b) Prepare the statement of financial position as at 31 August 20X7. (10 marks)

Answer
(a)
Henry and Mary
Income statement
for the year ended 31 August 20X7
$ $ $
Gross profit 60,000 ½
Add: Other incomes
Commission income 1,300 ½
61,300
Less: Expenses
Salary ($26,500 + $300) 26,800 1
Insurance ($2,500 - $240) 2,260 1
Depreciation: Machinery ($78,200×10%) 7,820 1
Motor van [(47,300–$2,900)×15%] 6,660 43,540 1
Net profit 17,760

Add: Interest on drawings

– Henry ($6,000×6%) 360 ½
– Mary ($8,000×6%) 480 840 ½
18,600
Less: Interest on capital
– Henry ($60,000×7%) 4,200 ½

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– Mary ($90,000×7%) 6,300 10,500 ½

Salary
– Henry 3,000 ½
– Mary 2,000 5,000 15,500 ½
3,100

Share of profits
– Henry (2/5) 1,240 ½
– Mary (3/5) 1,860 3,100 ½

(b)
Henry and Mary
Statement of Financial Position as at 31 August 20X7
Accumulate Net book
Cost
depreciation value
Non-current assets $ $ $
Machinery 78,200 17,020 61,180 1
Motor van 47,300 9,560 37,740 1
125,500 26,580 98,920
Current assets
Inventory 17,000 ½
Accounts receivable 23,800 ½
Cash at bank 28,900 ½
Prepaid expense 240 ½
69,940
Less: Current liabilities
Accounts payable 11,800 ½
Accrued expense 300 12,100 ½
Net current asset 57,840
156,760

Financed by:
Capital account: Henry 60,000 ½
Mary 90,000 150,000 ½

Current account: Henry (W1) 4,180

Mary (W1) 2,580 6,760
156,760

(W1) Current
Henry Mary Henry Mary
$ $ $ $
Profit and loss
Balance b/d 2,100 900 ½
appropriation account
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– Interest on Profit and loss
½ 360 480
drawings appropriation account
½ Drawings 6,000 8,000 – Partners’ salary 3,000 2,000 ½
1 Balance c/d 4,180 2,580 – Interest on capital 4,200 6,300 ½
– Share of profits 1,240 1,860 ½
10,540 11,060 10,540 11,060

FA11T3Q011
Joseph and Paul have been in partnership for many years. An extract from their books of
partnership was given as follows:
Dr. Cr.
$ $
8% loan – Paul 8,000
Inventory, 31 December 20X5 55,030
Accounts receivable 27,000
Accounts payable 21,640
Cash at bank 3,415
Cash 300
Allowance for doubtful accounts 1,750
Accrued expense 150
Prepaid expense 200
Motor van, at cost 80,000
Furniture and fittings, at cost 23,585
Accumulated depreciation
–Motor van 6,500
–Furniture and fittings 5,120
Net profit 31,040
Capital account, 1 January 20X5
–Joseph 60,000
–Paul 48,000
Current account, 1 January 20X5
–Joseph 8,400
–Paul 5,100
Drawings
–Joseph 9,000
–Paul 4,000
199,115 199,115

Joseph and Paul have the following agreement regarding their partnership:

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(i) Interest on partners’ capital balance was charged at 5% per annum.

(ii) Interest on drawings was charged at 4% per annum.
(iii) Joseph and Paul were to share profits and losses in the ratio of 5:4.
(iv) Joseph was entitled to an annual salary of $3,000 and Paul was entitled to an annual salary of
$1,820.

Additional information:
The 10-year loan to Paul was taken out on 1 January 20X5, but no records have been made for the
interests.

Required:
(a) Prepare the profit and loss appropriation account for the year ended 31 December 20X5. (5
marks)
(b) Prepare the statement of financial position as at 31 December 20X5. (12 marks)

Answer
(a)
Joseph and Paul
Income Statement
for the year ended 31 December 20X5
$ $ $
Net profit ($31,040–$8,000×8%) 30,400 1
Add: Interest on drawings
– Joseph ($9,000 × 4%) 360 ½
– Paul ($4,000 × 4%) 160 520 ½
30,920
Less: Interest on capital
– Joseph ($60,000 × 5%) 3,000 ½
– Paul ($48,000 × 5%) 2,400 5,400 ½

Salary
– Joseph 3,000 ½
– Paul 1,820 4,820 10,220 ½
20,700

Share of profits
– Joseph (5/9) 11,500 ½
– Paul (4/9) 9,200 20,700 ½

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(b)
Joseph and Paul
Statement of Financial Position as at 31 December 20X5
Accumulated Net book
Cost
depreciation value
Non-current assets $ $ $
Motor van 80,000 6,500 73,500 1
Furniture and fittings 23,585 5,120 18,465 1
103,585 11,620 91,965
Current assets
Inventory 55,030 ½
Accounts receivable 27,000 ½
Less: Allowance for doubtful accounts 1,750 25,250 ½
Cash 300 ½
Prepaid expense 200 ½
80,780
Less: Current liabilities
Bank overdraft 3,415 ½
Accounts payable 21,640 ½
Accrued expense ($150+$640) 790 25,845 1
Net current asset 54,935
146,900
Less: Non-current liability
8% loan – Paul 8,000 ½
138,900
Financed by:
Capital account: Joseph 60,000 ½
Paul 48,000 108,000 ½

Current account: Joseph (W1) 16,540

Paul (W1) 14,360 30,900
138,900

(W1) Current account

Joseph Paul Joseph Paul
$ $ $ $
Balance b/d Balance b/d 8,400 5,100 ½
Profit and loss Profit and loss
appropriation account appropriation account
½ – Interest on drawings 360 160 – Partners’ salary 3,000 1,820 ½
½ Drawings 9,000 4,000 – Interest of capital 3,000 2,400 ½
1 Balance c/d 16,540 14,360 – Share of profits 11,500 9,200 ½

25,900 18,520 25,900 18,520

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FA11T3Q012
Alice and Susan are partners sharing profits and losses in the ratio of 3:1. The following balances
are extracted from the partnership books as at 30 June 20X2:

$
Gross profit 125,000
Capital account, 1 July 20X1
Alice 50,000 Cr.
Susan 22,000 Cr.
Current account, 1 July 20X1
Alice 5,100 Dr.
Susan 1,800 Cr.
Drawings
Alice 16,000
Susan 8,800
Accounts receivable 20,000
Accounts payable 10,200
Salary 50,800
Rent 10,800
Insurance 3,900
Electricity fees 7,300
Discount received 1,500
Motor van expense 9,700
Depreciation 11,800

Joseph and Paul have the following agreement regarding their partnership:
(i) Interest on partners’ capital balance was charged at 7% per annum.
(ii) Interest on drawings was charged at 5% per annum.
(iii) Susan was entitled to a monthly salary of $1,000.

Additional information:
(i) Allowance for doubtful accounts was to be made at 2%.
(ii) $1,600 of the Motor van expense shall be for the partners’ private use. They have decided to
share such expense equally.
(iii) Accrued salary was $2,100.
(iv) Prepaid rent was $900.

Required:

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(a) Prepare the income statement for the year ended 30 June 20X2. (11 marks)
(b) Prepare the partners’ current accounts in columnar form for the year ended 30 June 20X2.
(5 marks)

Answer
(a)
Alice and Susan
Income statement for the year ended 30 June 20X2
$ $ $
Gross profit 125,000 ½
Add: Other incomes
Discount received 1,500 ½
126,500
Less: Expenses
Rent ($10,800 – $900) 9,900 1
Insurance 3,900 ½
Electricity fees 7,300 ½
Motor van expenses ($9,700 – $1,600) 8,100 1
Depreciation 11,800 ½
Salary ($50,800 + $2,100) 52,900 1
Allowance for doubtful accounts 400 94,300 1
Net profit 32,200

Add: Interest on drawings

– Alice ([$16,000 + $800]×5%) 840 1
– Susan ([$8,800 + $800]×5%) 480 1,320 1
33,520
Less: Interest on capital
– Alice (50,000×7%) 3,500 ½
– Susan (22,000×7%) 1,540 5,040 ½

Salary
– Susan ($1,000×12) 12,000 17,040 ½
16,480

Share of profits
– Alice (3/4) 12,360 ½
– Susan (1/4) 4,120 16,480 ½

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(b)
Current account
Alice Susan Alice Susan
$ $ $ $
½ Balance b/d 5,100 Balance b/d 1,800 ½
Profit and loss
½ Drawings 16,000 8,800 appropriation
account
Profit and loss
appropriation – Partners’ salary 12,000 ½
account
– Interest on
½ 840 480 – Interest on capital 3,500 1,540 ½
drawings
1 Balance c/d 10,180 – Share of profits 12,360 4,120 ½
Balance c/d 6,080 ½
21,940 19,460 21,940 19,460

FA11T3Q013
Cheung and Tat have entered into partnership sharing the profits and losses in the ratio of 3:4. The
trial balance below was extracted from the book as at 31 December 20X2:

Dr. Cr.
$ $
Gross profit 85,600
Inventory, 31 December 20X2 27,000
Machinery, at cost 57,500
Motor van, at cost 34,000
Accumulated depreciation, 31
December 20X2
Machinery 6,700
Motor van 4,600
Accounts receivable 41,700
Accounts payable 30,000
Cash at bank 19,000
Discount received 2,100
Insurance 19,000
Salary 5,800
Capital account, 1 January 20X2
Cheung 30,000
Tat 40,000
Current account, 1 January 20X2
Cheung 12,000
Tat 7,500
Drawings
Cheung 10,000
Tat 4,500

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218,500 218,500
Additional information:
(i) Cheung was entitled to a monthly salary of $1,000, and Tat was entitled to a monthly salary of
$800.
(ii) Interest on partners’ capital was charged at 6% per annum.
(iii) Interest on drawings was charged at 8% per annum.
(iv) Adjustment shall be made to the accrued insurance of $1,200.
(v) Adjustment shall be made to the prepaid salary of $300.
(vi) Depreciation was calculated as follows:
Machinery - 8% per annum using the straight-line depreciation method
Motor van - 15% per annum using the reducing balance method

Required:
(a) Prepare the income statement for the year ended 31 December 20X2. (9 marks)
(b) Prepare the statement of financial position as at 31 December 20X2. (10 marks)

Answer
(a)
Cheung and Tat
Income Statement for the year ended 31 December 20X2
$ $ $
Gross profit 85,600 ½
Add: Other incomes
Discount received 2,100 ½
87,700
Less: Expenses
Depreciation: Machinery ($57,500×8%) 4,600 1
Motor van [($34,000–$4,600)×15%] 4,410 1
Salary ($5,800–$300) 5,500 1
Insurance ($19,000+1,200) 20,200 34,710 1
Net profit 52,990

Add: Interest on drawings

– Cheung 800 ½
– Tat 360 1160 ½
54,150
Less: Interest on capital
– Cheung ($30,000×6%) 1,800 ½
– Tat ($40,000×6%) 2,400 4,200 ½

Salary
– Cheung ($1,000×12) 12,000 ½
– Tat ($800×12) 9,600 21,600 25,800 ½
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28,350

Share of profits
– Cheung (3/7) 12,150 ½
– Tat (4/7) 16,200 28,350 ½

(b)
Cheung and Tat
Statement of Financial Position as at 31 December 20X2
Accumulated Net book
Cost
depreciation value
Non-current assets $ $ $
Machinery 57,500 11,300 46,200 1
Furniture and fittings 34,000 9,010 24,990 1
91,500 20,310 71,190
Current assets
Inventory 27,000 ½
Accounts receivable 41,700 ½
Prepayment 300 ½
Bank 19,000 ½
88,000
Less: Current liabilities
Accrual 1,200 ½
Accounts payable 30,000 31,200 ½
Net current asset 56,800
127,990
Financed by:
Capital account: Cheung 30,000 ½
Tat 40,000 70,000 ½

Current account: Cheung (W1) 27,150

Tat (W1) 30,840 57,990
127,990

(W1) Current account

Cheung Tat Cheung Tat
$ $ $ $
Profit and loss
Balance b/d 12,000 7,500 ½
appropriation account
Profit and loss
½ – Interest on drawings 800 360
appropriation account
½ Drawings 10,000 4,500 – Partners’ salary 12,000 9,600 ½
1 Balance c/d 27,150 30,840 – Interest of capital 1,800 2,400 ½
– Share of profits 12,150 16,200 ½

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37,950 35,700 37,950 35,700

FA11T3Q014
Martin and Willie have entered into partnership. They have agreed on the following:
(i) They were to share profits and losses in the ratio of 3:5.
(ii) Martin was entitled to an annual salary of $18,000.
(iii) Interest on partners’ capital was charged at 6% per annum.
(iv) Interest on drawings was charged at 8% per annum.

The following trial balance was extracted from the books as at 31 December 20X9:
Dr. Cr.
$ $
Motor van, at cost 81,400
Office equipment, at cost 23,600
Accumulated depreciation, 1 January 20X9
Motor van 31,000
Office equipment 4,600
Gross profit 94,300
Accounts receivable 119,800
Accounts payable 16,100
Insurance 19,100
Electricity fees 14,300
Loan interest 5,500
Bank loan 52,300
Cash at bank 39,600
Inventory, 31 December 20X9 58,000
Capital account, 1 January 20X9
Martin 60,000
Willie 100,000
Current account, 1 January，20X9
Martin 30,000
Willie 13,000
Drawings
Willie 40,000
401,300 401,300

Additional information:
(i) Adjustment shall be made to the accrued electricity fee of $740.
(ii) Adjustment shall be made to the prepaid insurance of $1,200.
(iii) Bad debts were to be written off in 20X9 was $1,800.
(iv) Depreciation was calculated by straight-line depreciation method using the following
depreciation rates:
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Motor van - 10% per annum at cost

Office equipment - 8% per annum of residual value

Required:
(a) Prepare the income statement for the year ended 31 December 20X9. (9 marks)
(b) Prepare the statement of financial position as at 31 December 20X9. (9 marks)

Answer
(a)

Martin and Willie

Income Statement for the year ended 31 December 20X9
$ $ $
Gross profit 94,300 ½

Less: Expenses
Depreciation: Motor van ($81,400×10%) 8,140 1
Office equipment ($23,600–$4,600)×8% 1,520 1
Loan interest 5,500 ½
Insurance ($19,100–$1,200) 17,900 1
Electricity fees ($14,300+$740) 15,040 1
Bad debts 1,800 49,900 1
Net profit 44,400

Add: Interest on drawings

– Willie ($40,000×8%) 3,200 3200 ½
47,600
Less: Interest on capital
– Martin (60,000×6%) 3,600 ½
– Willie (100,000×6%) 6,000 9,600 ½

Salary
– Martin 18,000 27,600 ½
20,000

Share of profits
– Martin (3/8) 7,500 ½
– Willie (5/8) 12,500 20,000 ½

(b)
Martin and Willie
Statement of Financial Position as at 31 December 20X9
Accumulated
Cost Net book value
depreciation
Non-current assets $ $ $
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Motor van 81,400 39,140 42,260 ½
Office equipment 23,600 6,120 17,480 ½
105,000 45,260 59,740
Current assets
Inventory 58,000 ½
Accounts receivable ($119,800–$1,800) 118,000 ½
Cash at bank 39,600 ½
Prepaid expense 1,200 ½
216,800
Less: Current liabilities
Accounts payable 16,100 ½
Accrued expense 740 16,840 ½
Net current asset 199,960
259,700
Less: Non-current liability
Bank loan 52,300 ½
207,400
Financed by:
Capital account: Martin 60,000
½
Willie 100,000 160,000

Current account: Martin(W1) 59,100

Willie(W1) (11,700) 47,400
207,400

(W1) Current account

Martin Willie Martin Willie
$ $ $ $
Interest on
½ 3,200 Balance b/d 30,000 13,000 ½
drawings
Profit and loss
½ Drawings 40,000
appropriation account
½ Balance c/d 59,100 – Partners’ salary 18,000 ½
– Interest on capital 3,600 6,000 ½
– Share of profits 7,500 12,500 ½
Balance c/d 11,700 ½
59,100 43,200 59,100 43,200

FA11T3Q015
Mr Tsang and Mr Lee have been in partnership for years sharing profits and losses in the ratio of
3:2. The information regarding the year ended 31 March 20X1 was as follows:

Dr. Cr.
$ $

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Capital account, 1 April 20X0
Mr Tsang 120,000
Mr Lee 80,000
Current account, 1 April 20X0
Mr Tsang 43,000
Mr Lee 25,500
Drawings
Mr Tsang 9,000
Mr Lee 35,000
Inventory, 31 March 20X1 48,000
Gross profit 235,720
Accounts receivable 148,000
Accounts payable 69,700
Allowance for doubtful accounts, 1 April 20X0 5,080
Machinery, at cost 102,000
Motor van, at cost 61,400
Rent 70,680
Salary 98,200
Insurance 18,500
Electricity fee 14,000
Accumulated depreciation, 1 April 20X0
Machinery 35,000
Motor van 18,600
Loan - Mr Lee 66,200
Cash at bank 94,020
698,800 698,800

Additional information:
(i) Interest on partners’ capital was charged at 5% per annum.
(ii) Interest on drawings was charged at 3% per annum.
(iii) Interest on loan was charged at 10% per annum. The loan was taken out on 1 April 20X0, but
no record has been made for the interest.
(iv) Adjustment shall be made to the accrued salary of $2,000.
(v) Adjustment shall be made to the prepaid insurance of $1,700.
(vi) Allowance for doubtful accounts was to be made at 3% of accounts receivable.
(vii) Depreciation was calculated as follows:
Machinery - 6% per annum using the straight-line depreciation method
Motor van - 5% per annum using the reducing balance method

Required:
(a) Prepare the income statement for the year ended 31 March 20X1. (10 marks)
(b) Prepare the statement of financial position as at 31 March 20X1. (9 marks)

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Answer
(a)
Mr Tsang and Mr Lee
Income Statement for the year ended 31 March 20X1
$ $ $
Gross profit 235,720
Add: Other incomes
Decrease in allowance for doubtful accounts 640 1
($5,080–$148,000×3%) 236,360
Less: Expenses
Depreciation: Machinery ($102,000×6%) 6,120 1
Motor van [($61,400–$18,600)×5%] 2,140 1
Salary (99,000+1,250) 100,200 1
Rent 70,680 ½
Loan interest ($66,200×10%) 6,620 1
Insurance ($18,500–$1,700) 16,800 1
Electricity fees 14,000 216,560 ½
Net profit 19,800

Add: Interest on drawings

– Mr Tsang ($9,000×3%) 270 ½
– Mr Lee ($35,000×3%) 1,050 1,320 ½
21,120
Less: Interest on capital
– Mr Tsang (120,000×5%) 6,000 ½
– Mr Lee (80,000×5%) 4,000 10,000 ½
11,120

Share of profits
– Mr Tsang (3/5) 6,672 ½
– Mr Lee (2/5) 4,448 11,120 ½

(b)
Mr Tsang and Mr Lee
Statement of Financial Position as at 31 March 20X1
Accumulated Net book
Cost
depreciation value
Non-current assets $ $ $
Machinery 102,000 41,120 60,880 ½
Motor van 61,400 20,740 40,660 ½
163,400 61,860 101,540
Current assets
Inventory 48,000 ½
Accounts receivable 148,000 ½
Less: Allowance for doubtful accounts ($148,000×3%) 4,440 143,560 ½
cash at bank 94,020 ½

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Prepaid expense 1,700 ½
287,280
Less: Current liabilities
Accounts payable 69,700 ½
Accrued expense ($2,000+$6,620) 8,620 78,320 ½
Net current asset 208,960
310,500
Less: Non-current liability
Bank loan 66,200 ½
244,300
Financed by:
Capital account: Mr Tsang 120,000 ½
Mr Lee 80,000 200,000 ½

Current account: Mr Tsang (W1) 46,402

Mr Lee (W1) (2,102) 44,300
244,300

(W1) Current account

Cheung Tat Cheung Tat
$ $ $ $
½ Drawings 9,000 35,000 Balance b/d 43,000 25,500 ½
Profit and loss Profit and loss
appropriation account appropriation account
½ Interest on drawings 270 1,050 – Interest on capital 6,000 4,000 ½
½ Balance c/d 46,402 – Share of profits 6,672 4,448 ½
Balance c/d 2,102
55,672 36,050 55,672 36,050

SECTION C: CASE/THEORY QUESTIONS

FA11T4Q016
Mr Ko and Mr Lam are partners who share profits and losses in the ratio of 2:3. The following trial
balance was extracted from the book on 31 December 20X2:
Dr. Cr.
$ $
Purchases 539,000
Sales 905,000
Discount received 2,100
Returns inward 9,500
Accounts receivable 118,000
Accounts payable 60,600
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Allowance for doubtful accounts, 1 January
4,000
20X2
Plant and equipment, at cost 72,000
Motor van, at cost 55,000
Rent 60,750
Salary 99,000
Carriage inwards 4,700
Accumulated depreciation, 1 January 20X2
Plant and equipment 31,000
Motor van 8,000
Loan interest 6,710
Bank loan 56,250
Cash at bank 106,990
Capital account, 1 January 20X2
Mr Ko 56,800
Mr Lam 74,000
Drawings
Mr Ko 19,700
Mr Lam 38,500
Inventory, 1 January 20X2 67,900
1,197,750 1,197,750

Additional information:
(i) Mr Ko was entitled to an annual salary of $22,500.
(ii) Interest on partners’ capital was charged at 5% per annum.
(iii) Inventory amounted at $60,400 on 31 December 20X2.
(iv) Accrued expenses were as follows:
Salary $1,250
Rent $4,200
(v) Allowance for doubtful accounts was to be made at 3% of accounts receivable.
(vi) Depreciation was calculated as follows
Plant and machinery - 8% per annum by straight-line depreciation method
Motor van - 15% per annum by reducing balance method
(vii) No balance in the partners’ current accounts on 1 January 20X2.

Required:
(a) Prepare the income statement for the year ended 31 December 20X2. (11 marks)
(b) Prepare the statement of financial position as at 31 December 20X2. (9 marks)

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Answer
(a)
Mr Ko and Mr Lam
Income statement for the year ended 31 December 20X2
$ $ $
Sales 905,000 ½
Less: Returns inward 9,500 ½
Net sales 895,500
Less: Cost of goods sold
Opening inventory 67,900 ½
Add: Purchase 539,000 ½
Carriage inwards 4,700 543,700 ½
611,600
Less: Closing inventory 60,400 551,200 ½
Gross profit 344,300
Add: Other incomes
Discount received 2,100 ½
Decrease in allowance for doubtful accounts 460 2,560 ½
346,860
Less: Expenses
Depreciation: Plant and machinery ($72,000 × 8%) 5,760 1
Motor van[($55,000–$8,000)× 15%] 7,050 1
Salary ($99,000+$1,250) 100,250 ½
Rent ($60,750+4,200) 64,950 ½
Loan interest 6,710 184,720 ½
Net profit 162,140

Less: Interest on capital

– Mr Ko ($56,800×5%) 2,840 ½
– Mr Lam ($74,000×5%) 3,700 6,540 ½

Salary
– Mr Ko 22,500 29,040 ½
133,100
Share of profits
– Mr Ko (2/5) 53,240 1
– Mr Lam (3/5) 79,860 133,100 1

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(b)
Mr Ko and Mr Lam
Statement of Financial Position as at 31 December 20X2
Accumulated Net book
Cost
depreciation value
Non-current assets $ $ $

Plant and machinery 72,000 36,760 35,240 ½

Motor van 55,000 15,050 39,950 ½
127,000 51,810 75,190
Current assets
Inventory 60,400 ½
Accounts receivable 118,000 ½
Less: Allowance for doubtful accounts ($118,000×3%) 3,540 114,460 ½
Cash at bank 106,990 ½
281,850
Less: Current liabilities
Accounts payable 60,600 ½
Accrued expense ($1,250+$4,200) 5,450 66,050 1
215,800
290,990
Less: Non-current liability
Bank loan 56,250 ½
234,740
Financed by:
Capital account: Mr Ko 56,800 ½
Mr Lam 74,000 130,800 ½

Current account: Mr Ko (W1) 58,880

Mr Lam (W1) 45,060 103,940
234,740

(W1) Current account

Mr Ko Mr Lam Mr Ko Mr Lam
$ $ $ $
Profit and loss
appropriation account
½ Drawings 19,700 38,500 – Partners’ salary 22,500 ½
1 Balance c/d 58,880 45,060 – Interest on capital 2,840 3,700 ½
– Share of profits 53,240 79,860 ½
78,580 83,560 78,580 83,560

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FA11T4Q017
Mr Kan and Mr Lam have been in partnership sharing profits and losses in the ratio of 2:1. The
following trial balance was extracted from the book as at 31 December 20X8:

Dr. Cr.
$ $
Gross profit 120,600
Inventory, 31 December 20X9 48,000
Capital account, 1 January 20X9
Mr Kan 40,000
Mr Lam 20,000
Current account, 1 January 20X9
Mr Kan 12,000
Mr Lam 7,500
Drawings
Mr Kan 10,000
Mr Lam 4,500
Discount received 2,100
Accounts receivable 55,800
Accounts payable 40,000
Plant and machinery, at cost 57,400
Furniture and fittings, at cost 34,000
Accumulated depreciation, 1 January 20X9
Plant and machinery 6,700
Furniture and fittings 4,600
Rent 20,700
Salary 26,300
Insurance 19,000
Loan interest 5,800
Bank loan 72,000
Cash at bank 44,000
325,500 325,500
Additional information:
(i) Mr Kan was entitled to an annual salary of $12,500, Mr Lam was entitled to an annual salary
of $10,000.
(ii) Interest on partners’ capital was charged at 5% per annum.
(iii) Adjustment shall be made to the accrued salary of $1,200.
(iv) Interest on drawings was charged at 10% per annum.
(v) Adjustment shall be made to the prepaid rent of $2,300.
(vi) Depreciation was calculated as follows
Plant and machinery - 10% per annum using the reducing-balance method
Furniture and fittings - 5%% per annum using the straight-line depreciation method
(vii) Interest on drawings was charged at 10% per annum
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Required:
(a) Prepare the income statement for the year ended 31 December 20X8. (10 marks)
(b) Prepare the statement of financial position as at 31 December 20X8. (10 marks)

Answer
(a)
Mr Kan and Mr Lam
Income Statement
for the year ended 31 December 20X8
$ $ $
Gross profit 120,600
Add: Other incomes
Discount received 2,100 1
122,700
Less: Expenses
Depreciation: Plant and machinery ($57,400 – $6,700)×10% 5,070 1
Furniture and fittings ($34,000×5%) 2,140 1
Salary ($26,300 +$1,200) 27,500 1
Rent ($20,700–$2,300) 18,400 ½
Loan interest 5,800 1
Insurance 19,000 77,470 ½
Net profit 45,230

Add: Interest on drawings

– Mr Kan ($10,000×10%) 1,000 ½
– Mr Lam ($45,000×10%) 450 1,450 ½
46,680
Less: Salary
– Mr Kan 12,500
– Mr Lam 10,000 22,500
24,180
Less: Interest on capital
– Mr Kan ($40,000×5%) 2,000 ½
– Mr Lam ($20,000×5%) 1,000 3,000 ½
21,180

Share of profits
– Mr Kan (2/3) 14,120 ½
– Mr Lam (1/3) 7,060 21,180 ½

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(b)
Mr Kan and Mr Lam
Statement of financial position as at 31 December 20X8
Accumulated Net book
Cost
depreciation value
Non-current assets $ $ $

Plant and machinery 57,400 11,770 45,630 1

Furniture and fittings 34,000 6,300 27,700 1
91,400 18,070 73,330
Current assets
Inventory 48,000 ½
Accounts receivable 55,800 ½
Cash at bank 44,000 ½
Prepaid expense 2,300 ½
150,100
Less: Current liabilities
Accounts payable 40,000 ½
Accrued expense 1,200 41,200 ½
Net current asset 108,900
182,230
Less: Non-current liability
Bank loan 72,000 ½
110,230
Financed by:
Capital account: Mr Kan 40,000 ½
Mr Lam 20,000 60,000 ½

Current account: Mr Kan (W1) 29,620

Mr Lam (W1) 20,610 50,230
110,230

(W1) Current account

Mr Kan Mr Lam Mr Kan Mr Lam
$ $ $ $
1 Drawings 10,000 4,500 Balance b/d 12,000 7,500 ½
Profit and loss Profit and loss
appropriation account appropriation account
½ Interest on drawings 1000 450 – Partners’ salary 12,500 10,000 ½
1 Balance c/d 29,620 20,610 – Interest on capital 2,000 1,000 ½
– Share of profits 14,120 7,060 ½
40,620 25,560 40,620 25,560

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Chapter 11 Financial Statements for Partnership © Hong Kong Educational Publishing Company
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FA11T4Q018
Mr Ho, Mr Wong and Mr Chiu have been in partnership sharing profits and losses in the ratio of
3:2:1. The following balances were extracted from the books as at 30 June 20X4:

Dr. Cr.
$ $
Capital account, 1 July 20X3
Mr Ho 200,000
Mr Wong 150,000
Mr Chiu 100,000
Current account, 1 July 20X3
Mr Ho 13,000
Mr Wong 6,000
Mr Chiu 7,000
8% Loan - Mr Ho 50,000
Inventory, 30 June 20X4 150,600
Gross profit 180,000
Accounts receivable and accounts payable 63,000 25,270
Cash at bank 68,110
Electricity fees 16,500
Rates 10,800
Wages and salaries 53,160
Allowance for doubtful accounts 1,300
Discount received 600
Motor van, at cost 280,000
Office equipment, at cost 165,000
Accumulated depreciation
Motor van 53,000
Office equipment 35,000
814,170 814,170

Additional information:
(i) Adjustment shall be made to the prepaid rates of $600.
(ii) The 10-year loan to Mr Ho was taken out on 1 January 20X4, but no records have been made
for the interests.
(iii) It is company’s policy to depreciate non-current assets at a rate of 10% per annum on cost.
(iv) Decrease in allowance for doubtful accounts was $280.
(v) Electricity fee includes Mr Ho’s personal electricity fee $1,000.
(vi) Interest on partner’s capital balance was charged at 5% per annum.
(vii) Partners’ salary: $20,000 for Mr Chiu annually

Required:
(a) Prepare the income statement for the year ended 30 June 20X4. (8 marks)
38
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(b) Prepare the statement of financial position as at 30 June 20X4. (12 marks)

Answer
(a)
Mr Ho, Mr Wong and Mr Chiu
Income Statement
for the year ended 30 June 20X4
$ $ $
Gross profit 180,000 ½
Add: Other incomes
Allowance for doubtful accounts 280 ½
Discount received 600 880 ½
180,880
Less: Expenses
Electricity fees ($16,500–$1,000) 15,500 ½
Rates ($1,800–$600) 10,200 ½
Wages and Salaries 53,160 ½
Depreciation Motor van ($280,000×10%) 28,000 ½
Office equipment ($165,000×10%) 16,500 ½
Loan interest ($50,000×8%×6/12) 2,000 125,360 ½
Net profit 55,520

Less: Interest on capital

Mr Ho ($200,000×5%) 10,000 ½
Mr Wong ($150,000×5%) 7,500 ½
Mr Chiu ($100,000×5%) 5,000 22,500 ½

Salary
Mr Chiu 20,000 42,500 ½
13,020

Share of profits
Mr Ho (3/6) 6,510 ½
Mr Wong (2/6) 4,340 ½
Mr Chiu (1/6) 2,170 13,020 ½

39
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(b)
Mr Ho, Mr Wong and Mr Chiu
Statement of Financial Position as at 30 June 20X4
Accumulated Net book
Cost
depreciation value
Non-current assets $ $ $
Motor van 280,000 81,000 199,000 1
Office equipment 165,000 51,500 113,500 1
445,000 132,500 312,500
Current assets
Inventory 150,600 ½
Accounts receivable 63,000 ½
Less: Allowance for doubtful accounts
1,020 61,980 ½
($1,300 – $280)
Cash at bank 68,110 ½
Prepaid expense 600 ½
281,290
Less: Current liabilities
Accounts payable 25,270 ½
Accrued expense 2,000 27,270 ½
Net current asset 254,020
566,520
Less: Non-current liability
Loan – Mr Ho 50,000 ½
516,520
Financed by:
Capital account: Mr Ho 200,000 ½
Mr Wong 150,000 ½
Mr Chiu 100,000 450,000 ½

Current account: Mr Ho (W1) 28,510

Mr Wong (W1) 17,840
Mr Chiu (W1) 20,170 66,520
516,520
(W1) Current account
Mr Mr
Mr Ho Mr Chiu Mr Ho Mr Chiu
Wong Wong
$ $ $ $ $ $
½ Balance b/d 7,000 Balance b/d 13,000 6,000 ½
Profit and loss
½ Drawings 1,000 appropriation
account
1½ Balance c/d 28,510 17,840 20,170 – Partners’ salary 20,000 ½
– Interest on capital 10,000 7,500 5,000 ½
– Share of profits 6,510 4,340 2,170 ½
29,510 17,840 27,170 29,510 17,840 27,170

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FA11T4Q019
Aida, Betty and Connie have been in partnership for years sharing profits and losses in the ratio of
4:3:2. The following balances were extracted from the books of the partnership as at 31 August
20X7:

Dr. Cr.
$ $
Capital account, 1 September 20X6
Aida 80,000
Betty 60,000
Connie 40,000
Current account, 1 September 20X6
Aida 8,000
Betty 4,000
Connie 5,000
Drawings
Aida 8,000
Betty 10,000
Connie 20,000
Bank loan 25,000
Inventory, 31 August 20X7 22,600
Sales 203,570
Cost of goods sold 43,720
Accounts receivable and account payable 63,000 8,620
Cash at bank 5,300
Electricity fees 16,470
Allowance for doubtful accounts 1,300
Motor van, at cost 150,000
Furniture and fittings, at cost 115,000
Accumulated depreciation
Motor van 9,000
Furniture and fittings 7,000
452,790 452,790

Aida, Betty and Connie have made the following partnership agreement:
(i) Interest on partner’s capital balance was charged at 5% per annum.
(ii) Interest on drawings was charged at 7% per annum.
(iii) Betty was entitled to an annual salary of $10,000.

Additional information:
(i) Adjustment shall be made to the accrued electricity fee of $250.
(ii) Depreciation was calculated as follows:
Motor van - 5% per annum using the reducing-balance method
41
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Furniture and fittings - 5% at cost

(iii) Allowance for doubtful accounts was to be made at 3% of the accounts receivable.

Required:
(a) Prepare the income statement for the year ended 31 August 20X7. (8 marks)
(b) Prepare the statement of financial position as at 31 August 20X7. (12 marks)

Answer
(a)
Aida, Betty and Connie
Income Statement for the year ended 31 August 20X7
$ $ $
Sales 203,570 ½
Less: Cost of goods sold 43,720 ½
Gross profit 159,850

Less: Expense
Electricity fees ($16,460+250) 16,720 ½
Allowance for doubtful accounts ($63,000×3%–$1,300) 590 ½
Depreciation: Motor van ($150,000–9,000)×5% 7,050 ½
Furniture and fittings ($115,000×5%) 5,750 ½
30,110
Net profit 129,740

Add: Interest on drawings

– Aida ($8,000×7%) 560 ½
– Betty ($10,000×7%) 700 ½
– Connie ($20,000×7%) 1,400 2660 ½
132,400
Less: Interest on capital
– Aida 4,000 ½
– Betty 3,000 ½
– Connie 2,000 9,000 ½

Salary
– Betty 10,000 19,000 ½
113,400

Share of profits
– Aida (4/9) 50,400 ½
– Betty (3/9) 37,800 ½
– Connie (2/9) 25,200 113,400 ½

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(b)
Aida, Betty and Connie
Statement of Financial Position as at 31 August 20X7
Accumulated Net book
Cost
depreciation value
Non-current assets $ $ $
Motor van 150,000 16,050 133,950 1
Furniture and fittings 115,000 12,750 102,250 1
265,000 28,800 236,200
Current assets
Inventory 22,600 ½
Accounts receivable 63,000 ½
Less: Allowance for doubtful accounts 1,890 61,110 ½
($63,000×3%) 83,710

Less: Current liabilities

Bank overdraft 5,300 ½
Accounts payable 8,620 ½
Accrued expense 250 14,170 ½
Net current asset 69,540
305,740
Less: Non-current liability
Bank loan 25,000 ½
280,740
Financed by:
Capital account: – Aida 80,000 ½
– Betty 60,000 ½
– Connie 40,000 180,000 ½

Current account: – Aida (W1) 53,840

– Betty (W1) 36,100
– Connie (W1) 10,800 100,740
280,740

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(W1) Current account

Aida Betty Connie Aida Betty Connie
$ $ $ $ $ $
½ Balance b/d 4,000 Balance b/d 8,000 5,000 ½
Profit and loss Profit and loss
appropriation appropriation
account account
– Interest on
½ 560 700 1,400 – Partners’ salary 10,000 ½
drawings
½ Drawings 8,000 10,000 20,000 – Interest on capital 4,000 3,000 2,000 ½
1½ Balance c/d 53,840 36,100 10,800 – Share of profits 50,400 37,800 25,200 ½
62,400 50,800 32,200 62,400 50,800 32,200

44
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FA11T4Q020*
Mr Kwok, Mr Lau and Mr Tsang have been in partnership for years sharing profits and
losses in the ratio of 5:3:2. The following balances were extracted from the books of the
partnership as at 30 September 20X6:

Dr. Cr.
$ $
Capital account, 30 September 20X6
Mr Kwok 530,000
Mr Lau 320,000
Mr Tsang 200,000
Current account, 30 September 20X6
Mr Kwok 10,500
Mr Lau 2,100
Mr Tsang 3,100
Drawings
Mr Tsang 110,000
Inventory, 30 September 20X6 31,700
Purchase and sale 702,500 1,311,100
Returns inward and returns outward 3,800 1,700
Accounts receivable and accounts payable 165,900 23,300
Cash at bank 585,000
Carriage inwards 5,100
Electricity fees 25,600
Wages and salaries 153,200
Repair costs 65,800
Motor van, at cost 330,000
Furniture and fittings, at cost 285,000
Accumulated depreciation
Motor van 43,000
Furniture and fittings 25,000
2,466,700 2,466,700

Aida, Betty and Connie have made the following partnership agreement:
(i) Interest on partner’s capial balance was charged at 4% per annum.
(ii) Interest on drawings was charged at 8% per annum.
(iii) Mr Tsang was entitled to an annual salary of $80,000.

Additional information:
(i) The inventory amounted at $37,600 on 30 September 20X6.
(ii) Depreciation was calculated as follows:
Motor van - 10% at cost
Furniture and fittings - 15% of residual value
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(iii) Adjustment shall be made to the accrued electricity fees of $300.

Required:
(a) Prepare the income statement for the year ended 30 September 20X6. (10 marks)
(b) Prepare the statement of financial position as at 30 September 20X6. (10 marks)

Answer
(a)

Mr Kwok, Mr Lau and Mr Tsang

Income statement for the year ended 30 September 20X6
$ $ $
Sales 1,311,100 ½
Less: Returns inward 3,800 ½
Net sale 1,307,300
Less: Cost of goods sold
Opening inventory 31,700 ½
Add: Purchase 702,500 ½
Carriage inwards 5,100 ½
707,600
Less: Returns outward 1,700 705,900 ½
737,600
Less: Closing inventory 37,600 700,000 ½
Gross profit 607,300

Less: Expenses
Electricity fees ($25,600+300) 25,900 ½
Wages and salaries 153,200 ½
Repair costs 65,800 ½
Depreciation: Motor van ($330,000×10%) 33,000 ½
Furniture and fittings
39,000 316,900 ½
($285,000–$25,000)×15%
Net profit 290,400

Add: Interest on drawings

– Mr Tsang ($110,000×8%) 8,800 8800 ½
299,200
Less: Interest on capital
– Mr Kwok ($530,000×4%) 21,200 ½
– Mr Lau ($320,000×4%) 12,800 ½
– Mr Tsang ($220,000×4%) 8,000 42,000 ½

Salary
– Mr Tsang 80,000 80,000 122,000 ½
177,200
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Share of profits
– Mr Kwok (5/10) 88,600 ½
– Mr Lau (3/10) 53,160 ½
– Mr Tsang (2/10) 35,440 177,200 ½

(b)
Mr Kwok, Mr Lau and Mr Tsang
Statement of Financial Position as at 30 September 20X6
Accumulated
Cost Net book value
depreciation
Non-current assets $ $ $
Motor van 330,000 76,000 254,000 ½
Furniture and fittings 285,000 64,000 221,000 ½
615,000 140,000 475,000
Current assets
Inventory 37,600 ½
Accounts receivable 165,900 ½
Cash at bank 585,000 ½

788,500
Less: Current liabilities
Accounts payable 23,300 ½
Accrued expense 300 23,600 ½
Net current asset 764,900
1,239,900

Financed by:
Capital account: Mr Kwok 530,000 ½
Mr Lau 320,000 ½
Mr Tsang 200,000 1,050,000 ½

Current account: Mr Kwok (W1) 120,300

Mr Lau (W1) 68,060
Mr Tsang (W1) 1,540 189,900
1,239,900
(W1) Current account
Mr Mr Mr Mr
Mr Lau Mr Lau
Kwok Tsang Kwok Tsang
$ $ $ $ $ $
½ Balance b/d 3,100 Balance b/d 10,500 2,100 ½
Profit and loss Profit and loss
appropriation appropriation

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account account
– Interest on
½ 8,800 – Partners’ salary 80,000 ½
drawings
½ Drawings 110,000 – Interest on capital 21,200 12,800 8,000 ½
1½ Balance c/d 120,300 68,060 1,540 – Share of profits 88,600 53,160 35,440 ½
120,300 68,060 123,440 120,300 68,060 123,440

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