UNIVERSITY OF DAR ES SALAAM BUSINESS SCHOOL
AC 101: PRINCIPLES OF ACCOUNTING II
SEMINAR QUESTION: WEEK 7
PARTNERSHIP ACCOUNTING: APPROPRIATION
Question 1:
Kelvin and Eriq are in partnership, sharing profits and losses in the ratio 3:2. The following
information was taken from their books for the year ended 31 December 2022, before the
completion of their profit and loss appropriation account.
Current accounts (1 January 2022)
Drawings
Net trading profit
Interest on capital
Salary
Interest on drawings
Kelvin
Eriq
Kelvin
Eriq
Kelvin
Eriq
Kelvin
Kelvin
Eriq
TZS (000)
640 Dr
330 Cr
3,000
2,000
6,810
540
720
2,000
270
180
Required:
(a) Prepare, for the year ended 31 December 2022:
(i)
the profit and loss appropriation account of Kelvin and Eriq;
(ii)
the current accounts in the ledger for Kelvin and Eriq.
(b) Why in many partnerships are current accounts prepared as well as capital accounts?
(c) At 1 January 2022 Kelvin had a debit balance in his current account. What does this mean?
(d) In partnership accounts what is the purpose of preparing:
(i)
a profit and loss account?
(ii)
a profit and loss appropriation account?
(e) In partnership accounts why is:
(i)
interest allowed on capital?
(ii)
interest charged on drawings
Question 2:
A and B are in partnership sharing profits and losses 3:2. Under the terms of the partnership
agreement, the partners are entitled to interest on capital at 5 per cent per annum and B is entitled
to a salary of TZS 4,500. Interest is charged on drawings at 5 per cent per annum and the amounts
of interest are given below. No interest is charged or allowed on current accounts. The partners’
AC 101 Partnership Seminar Questions 1.0: Page 1 of 2
capitals at 1 July 2020 were: A TZS 30,000 and B TZS 10,000. The net trading profit of the firm,
before dealing with partners’ interest or B’s salary for the year ended 30 June 2022 was TZS
25,800. Interest on drawings for the year amounted to A TZS 400, B TZS 300
At 1 July 2020, there was a credit balance of TZS 1,280 on B’s current account, while A’s current
account balance was a debit of TZS 500. Drawings for the year to 30 June 2022 amounted to TZS
12,000 for A and TZS 15,000 for B.
Required:
Prepare, for the year to 30 June 2022:
(a) The firm’s profit and loss appropriation account.
(b) The partners’ current accounts.
Question 3:
Bee, Cee and Dee have been holding preliminary discussions with a view to forming a partnership
to buy and sell antiques.
The position has now been reached where the prospective partners have agreed the basic
arrangements under which the partnership will operate.
Bee will contribute TZS 40,000 as capital, and up to TZS 10,000 as a long-term loan to the
partnership, if needed. He has extensive other business interests and will not therefore be taking
an active part in the running of the business.
Cee is unable to bring in more than TZS 2,000 as capital initially, but, because he has an expert
knowledge of the antique trade, will act as the manager of the business on a full-time basis.
Dee is willing to contribute TZS 10,000 as capital. He will also assist in running the business as
the need arises. In particular, he is prepared to attend auctions anywhere within the United
Republic of Tanzania in order to acquire trading stock which he will transport back to the firm’s
premises in his van. On occasions he may also help Cee to restore the articles prior to sale to the
public.
At the meeting, the three prospective partners intend to decide upon the financial arrangements for
sharing out the profits (or losses) made by the firm, and have approached you for advice.
Required:
You are required to prepare a set of explanatory notes, under suitable headings, of the
considerations which the prospective partners should take into account in arriving at their decisions
at the next meeting.
AC 101 Partnership Seminar Questions 1.0: Page 2 of 2