Lodini and Mathy were in partnership sharing profits and losses equally. They provided the following information on 1 August 2017. Capital Lodini $25000 Mathy $15000 On 1 August 2017 Lodini and Mathy agreed to admit Nanda as a partner. On that date Lodini and Mathy valued their goodwill at $30000. The new partnership agreement stated: 1 Goodwill would not be retained in the books of the new partnership. 2 Nanda would pay $10000 as capital into the business bank account on 1 August 2017. 3 Lodini would transfer $8000 of her capital into a 5% loan account to the partnership on 1 August 2017. 4 Profits and losses would be shared Lodini two-fifths, Mathy two-fifths and Nanda one-fifth. 5 Interest would be allowed on partners' capital at 5% per annum. 6 Interest would be charged at 10% on partners' drawings. 7 There would be no salaries paid to the partners. REQUIRED

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2018). The mark or mark type is shown in brackets.

1. [1] Must share profits with Nanda
2. [1] Must consult Nanda before decisions
3. [1] Conflicts may arise with Nanda
4. [1] Joint and several liability for Nanda's acts
5. [1] Decision making could be slower
6. [1] Capital accounts: Dr Lodini Goodwill $12000
7. [1] Capital accounts: Dr Mathy Goodwill $12000
8. [1] Capital accounts: Dr Nanda Goodwill $6000
9. [1] Capital accounts: Cr Lodini Loan $8000
10. [1] Capital accounts: Cr Nanda Bank $10000
11. [1] Capital accounts: Cr Lodini Goodwill $15000
12. [1] Capital accounts: Cr Mathy Goodwill $15000
13. [1] Capital accounts: Balances b/d (Lodini $20000, Mathy $18000, Nanda $4000)
14. [1] Alternative goodwill entry: Nanda $6000 Debit
15. [2] Alternative goodwill entry: Lodini $3000 Credit
16. [2] Alternative goodwill entry: Mathy $3000 Credit
17. [1] Appropriation Account: Profit for the year $24100 ($24500 - $400 loan interest)
18. [1] Appropriation Account: Lodini Interest on drawings $850
19. [1] Appropriation Account: Mathy Interest on drawings $1100
20. [1] Appropriation Account: Nanda Interest on drawings $600
21. [1] Appropriation Account: Lodini Interest on capital $1000
22. [1] Appropriation Account: Mathy Interest on capital $900
23. [1] Appropriation Account: Nanda Interest on capital $200
24. [1] Appropriation Account: Lodini Share of profit $9820
25. [1] Appropriation Account: Mathy Share of profit $9820
26. [1] Appropriation Account: Nanda Share of profit $4910
27. [1] Accounting entity: The business is treated as being completely separate from the owners of the business.
28. [1] Accounting entity: The personal assets and the personal spending of the owners do not appear in the accounting records of the business.