O-LevelAccountingAccounting procedures7707/22 · May/June 2017 · Q320 Marks

Aishah and Bolin had been sole traders for many years. On 1 May 2016 they formed a partnership combining their assets and liabilities. Each partner brought the following assets and liabilities into the new partnership. Aishah $ Bolin $ Assets Goodwill 20000 Motor vehicle 8000 Fixtures and fittings 7500 Inventory 9000 4500 Trade receivables 6700 5200 Bank 7100 Liabilities Trade payables 4000 2150 Bank overdraft 3750 The partnership agreement states: 1 Goodwill will be removed from the books of the new partnership. 2 There will be no interest paid on capital. 3 Interest will be charged on drawings (excluding partnership salaries) at the rate of 6%. 4 Bolin will receive a salary of $12000 per annum. 5 Profits and losses will be shared between Aishah and Bolin in the ratio 3:2. REQUIRED

(a)(i)Calculate the opening capital of Aishah.[1]
(a)(ii)Calculate the opening capital of Bolin.[1]
(b)Prepare the statement of financial position of the new partnership at 1 May 2016.[6]
(c)(i)Explain the accounting term 'goodwill'.[2]
(c)(ii)Give three examples of how goodwill may arise.[3]
(d)Prepare the partnership appropriation account for the year ended 30 April 2017.[5]
(e)State two disadvantages to Aishah, other than having to share profit, of forming a partnership.[2]

Mark scheme

Marking points from the official mark scheme (May/June 2017). The mark or mark type is shown in brackets.

[1] Aishah: (20000 + 8000 + 9000 + 6700 + 7100) - 4000 = 50800 - 4000 = 46800
[1] Bolin: (7500 + 4500 + 5200) - (2150 + 3750) = 17200 - 5900 = 11300
[1] Non-current assets total 15500
[1] Current assets: Bank (7100 - 3750) = 3350
[1] Capital - Aishah (46800 – 12000) = 34800
[1] Capital - Bolin (11300 – 8000) = 3300
[1] Current liabilities: Trade payables (4000 + 2150) = 6150
[10/f] Current assets total 28750
[1] The value of the business over and above the net value (1) of the tangible assets and liabilities.
[1] Location
[1] Customer loyalty
[1] Reputation
[1] Quality of goods or service
[1] Skills and efficiency of workforce
[1] Large customer base
[1] Interest on drawings Aishah 420
[1] Interest on drawings Bolin 180
[1] Less Salary - Bolin 12000
[1] Share of profit Aishah 9600
[1] Share of profit Bolin 6400
[1] Individual decisions cannot be made
[1] Jointly and severally liable for actions taken
[1] Possibility of disputes and disagreements

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