O-LevelAccountingPreparation of financial statements7707/21 · May/June 2011 · Q320 Marks

Choong and Tan are partners sharing profits and losses in the ratio 2:1. Interest is allowed on partners' capital at the rate of 5% per annum and Tan receives a salary of $9000 per annum. No interest is charged on drawings. Balances remaining in the books at 30 April 2011 included the following: Profit for the year $ 32 000 Capital accounts Choong 80 000 Tan 50 000 Current accounts Choong 1 200 Cr Tan 1 500 Dr Drawings Choong 14 700 Tan 16 000 Goodwill 90 000 REQUIRED (a) State two items, other than the profit sharing ratio, that might be included in a partnership agreement.

(a)State two items, other than the profit sharing ratio, that might be included in a partnership agreement. 1 2[2]
(b)Prepare the appropriation account of Choong and Tan for the year ended 30 April 2011. Choong and Tan Appropriation Account for the year ended 30 April 2011.[5]
(c)Prepare the current accounts of Choong and Tan for the year ended 30 April 2011. Balance the accounts and bring down the balances on 1 May 2011.[7]
(d)On 1 May 2011, Choong and Tan agreed that goodwill would not be retained on the books. REQUIRED (d) State one reason why Choong and Tan may have decided not to retain goodwill on the books.[2]
(e)Prepare the capital accounts of Choong and Tan. Balance the accounts and bring down the balance on 1 May 2011 after writing off the goodwill.[4]

Mark scheme

Marking points from the official mark scheme (May/June 2011). The mark or mark type is shown in brackets.

[2] (a) Salaries Rate of interest on capital Rate of interest on drawings Arrangements for loans Arrangements for introduction/retirement of partners (1) per point × 2
[5] (b) Choong and Tan Appropriation Account for the year ended 30 April 2011. Profit for the year $ 32 000 Less Interest on capital: Choong 4 000 (1) Tan 2 500 (1) 6 500 25 500 Salary: Tan 9000 (1) 16 500 Share of profit: Choong 11 000 (1) Tan 5 500 (1) 16 500
[7] (c) Current Accounts 2010 Choong $ Tan $ May 1 Balance b/d 1 500 2011 Apl 30 Drawings 14 700 16 000 (1) Balance c/d 1 500 16 200 17 500 May 1 Balance c/d 500 2010 Choong $ Tan $ May 1 Balance b/d 1 200 (1) 2011 Apl 30 Int on cap 4 000 2500 (1of) Salary 9000 (1of) Share of profit 11 000 5 500 (1of) Balance c/d 500 (1) 16 200 17 500 Balance c/d 1500 (1of) Alternative: allow separate accounts
[2] (d) Difficult to value Against principle of money measurement Intangible Allow any acceptable alternatives. (2) × one point
[4] (e) Capital Accounts Choong $ Tan $ 2011 Goodwill 60 000 30 000 (2) Balance b/d 20 000 20 000 80 000 80 000 Balance b/d 20 000 20 000 (1of) 2011 Balance b/d Choong $ Tan $ 80 000 50 000 (1) 80 000 50 000

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