Chapter 22 Partnership changes

Q1 Wilson, Keppel and Betty

(a) Partners Capital accounts

Wilson Keppel Betty Wilson Keppel Betty
1998 $ $ $ 1998 $ $ $
May 1 Goodwill 4 000 4 000 May 1 Balance b/f 40 000 30 000 15 000
Bank 42 000 Goodwill 8 000
1999 Profit on
Apr 30 Drawings 46 000 45 000 revaluation 4 000 4 000 4 000
Balance c/d 54 000 30 000 1999
Apr 30 Profit share 60 000 60 000
104 000 42 000 79 000 104 000 42 000 79 000

(b) Wilson Betty Imogen Wilson Betty Imogen

1999 $ $ $ 1999 $ $ $
Nov 1 Goodwill 8 000 May 1 Balance b/d 54 000 30 000
2000 Nov 1 Bank 20 000
Apr 30 Drawings 52 000 48 000 20 000 Goodwill 4 000 4 000
Balances c/d 71 000 51 000 2 000 2000
Apr 30 Profit 65 000 65 000 10 000
123 000 99 000 30 000 123 000 99 000 30 000
May 1 Bank 71 857 51 857 2 286 May 1 Balance b/d 71 000 51 000 2 000
Profit on sale 857 857 286
71 857 51 857 2 286 71 857 51 857 2 286

Q2 Dellow and Coucom

(a) Departmental Trading and Profit and Loss Account for the year ended 30 April 2002
Television Computing Telephones Total
$ $ $ $ $ $ $ $
Sales 214 000 428 000 107 000 749 000
Stock at 1.5.01 8 000 19 000 3 000 30 000
Purchases 119 000 220 000 40 000 379 000
127 000 239 000 43 000 409 000
Stock at 30.4.02 17 000 110 000 40 000 199 000 5 000 38 000 62 000 347 000
Gross profit 104 000 229 000 69 000 402 000
Wages 16 000 32 000 8 000 56 000
Sales staff salaries 55 000 74 000 18 000 147 000
General expenses 2 000 4 000 1 000 7 000
Office expenses 10 000 20 000 5 000 35 000
Advertising 4 000 8 000 2 000 14 000
Rent 16 800 21 000 4 200 42 000
Electricity 4 000 5 000 1 000 10 000
Insurance 2 000 2 500 500 5 000
Depreciation:
Motor vehicles 3 000 3 000 3 000 9 000
Furniture &
Fittings 2 000 2 000 2 000 6 000
Sales staff
commission 2 140 116 940 4 280 175 780 1 070 45 770 7 490 338 490
Net profit/(loss) (12 940) 53 220 23 230 63 510
Interest on drawings Dellow 300
Coucom 80 380
63 890
(b) Partnership Appropriation Account for the year ended 30 April 2002
$ $
Interest on capitals Dellow 600
Coucom 400
1 000
Salary Coucom 7 600 8 600
55 290
Profit Dellow (35 ) 33 174
Coucom (25 ) 22 116 55 290

(c) The closure of a loss-making department does not normally result in the reduction in overheads, which
must be borne by the remaining departments. The result may cause hitherto profitable departments to become
loss-making, or will certainly reduce their profitability. Provided a department is making a contribution to the
fixed overheads of the business it should be kept open. Management should review the bases used to charge
fixed overheads to departments. A department may be loss-making because it is being unfairly charged with
excessive overheads.