Unit 5 - Partnerships, appropriation a/c, goodwill

Alec Baker

Hi guys,

Please can somebody give me some clarity on the attached question?
Does Havva receive £15k salary in the year 2006? Or does this commence in 2007?
If she does receive it in it 2006 then does the salary come out the £75k profit before the rest of the £60K is shared between the 3 partners or does the salary come out the remaining £50k after Karina has been paid off £25K for her retirement?
My instinct is to take £15k from the £50k and share the remaining £17.5k between the Havva and Malka.


Question 1

Karina Pavlova, Havva Celik and Malka Mizrachi have been in partnership importing goods from the Middle East for a number of years sharing profits equally, but on 31 December 2006, Karina has decided to retire. During the year ended 31 December 2006 the partnership made a profit of £75,000.

The partners' capital and current account balances at 1 January 2006 and their drawings for the year were:

Capital £ Current £ Drawings £
Karina Pavlova 48,000 1,200 Cr 20,000
Havva Celik 38,000 800 Dr 23,500
Malka Mizrachi 27,000 2,500 Cr 24,400

At 31 December 2006 the goodwill of the partnership was estimated to be £27,000. After Karina Pavlova's retirement, it has been decided that Havva should receive a salary of £15,000 per annum and that profits should be shared equally between the two remaining partners.

It has been agreed that the partnership will pay Karina £15,000 of the amount due to her in cash and that the remainder should remain as a loan to the partnership.


1. Draw up a Profit and Loss Appropriation Account for the year ended 31 December 2006.
2. Write up
a. the Capital and Current Accounts for the partners
b. and a Goodwill Account for the year ending 31 December 2006

Note

An AAT exam question would provide some of the formats needed to do the question. This question does not do so, as this will test your ability to create the appropriate formats.

My Answer - see word attachement

Regards

Alec