Partnership Accounts

Question 1

What is the main purpose of the profit appropriation statement in partnership accounting?
A. To allocate profits between the partners before preparing the balance sheet
B. To calculate the firm’s total liabilities
C. To value the firm’s goodwill
D. To record fixed asset depreciation

Answer 1

A. To allocate profits between the partners before preparing the balance sheet
Explanation: The profit appropriation statement is used to divide profits among partners before finalising the capital section of the balance sheet.

Question 2

Angela and Thomas are partners. They agreed to give Thomas a notional salary of 20,000 per year before splitting the rest of the profit equally. This year, the business made 70,000 in profit. How is the profit shared?
A. Angela 25,000, Thomas 45,000
B. Angela 35,000, Thomas 35,000
C. Angela 20,000, Thomas 50,000
D. Angela 40,000, Thomas 30,000

Answer 2

A. Angela 25,000, Thomas 45,000
Explanation: Thomas receives his 20,000 notional salary first. The remaining 50,000 is split equally, so both get 25,000 more.

Question 3

What kind of account is a partner’s current account classified as?
A. Asset
B. Capital
C. Income
D. Expense

Answer 3

B. Capital
Explanation: Both the capital account and current account of a partner are classified as capital accounts in accounting terms.

Question 4

If a partner draws more from their current account than they are entitled to under the agreed profit split, what could happen?
A. The business must increase its capital
B. The partner may need to repay the excess
C. The drawing is reclassified as salary
D. The excess is written off as a bad debt

Answer 4

B. The partner may need to repay the excess
Explanation: If a partner overdraws, they may be required to repay it depending on the partnership agreement.

Question 5

Which of the following would be treated as a capital account item in a partnership balance sheet?
A. Salaries paid to staff
B. Drawings by a partner
C. Equipment maintenance cost
D. Partner’s initial investment

Answer 5

D. Partner’s initial investment
Explanation: The partner’s initial investment is long-term capital and recorded in the capital account.

Question 6

How is a notional salary for a partner treated in the financial statements?
A. As a liability on the balance sheet
B. As a capital contribution
C. As an appropriation of profit
D. As an expense in the profit and loss account

Answer 6

C. As an appropriation of profit
Explanation: A partner’s salary is not a business expense but a method of profit allocation and is treated as an appropriation.

Question 7

Which of the following steps happens after preparing the profit and loss account but before completing the partnership balance sheet?
A. Posting depreciation entries
B. Compiling the trial balance
C. Preparing the profit appropriation statement
D. Recording closing stock

Answer 7

C. Preparing the profit appropriation statement
Explanation: Once total profit is calculated, it must be shared between the partners before completing the balance sheet.

Question 8

What happens to a notional interest on capital in a partnership?
A. It is deducted from retained earnings
B. It is treated as a business liability
C. It is added to the receivables
D. It is recorded as part of each partner’s profit share

Answer 8

D. It is recorded as part of each partner’s profit share
Explanation: Notional interest is a method of allocating profit and forms part of each partner’s total appropriation.