Accounting 9706 · AS & A Level · Preparation of financial statements
Preparation of financial statements — practice question
Faraz, Javed and Leah formed a partnership. Their partnership deed allowed for interest on drawings, interest on capital, a partner's salary, and the ratios for sharing profits and losses. The information for the year ended 31 December 2020 is shown, including the balances, drawings, and profit before appropriation.
(a)[2]
State two reasons why partnership agreements may sometimes provide for interest on drawings to be charged.
(b)[5]
Prepare the appropriation account for the year ended 31 December 2020.
(c)[6]
Prepare Javed’s current account for the year ended 31 December 2020.
(d)[2]
Explain the meaning of goodwill.
(e)[2]
Explain why a valuation of goodwill might be carried out when a partner retires.
(f)[6]
Prepare a statement showing the amount due to Javed on his retirement from the partnership.
(g)[7]
Advise the partners which choice they ought to make. Support your answer by discussing both choices.
Worked solution & mark scheme
This 30-mark question has a full step-by-step worked solution and mark scheme. One marking point: “To discourage partners from making excessive drawings” …