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ILLUSTRATION
1
. The
following balances were extracted from the books of Aiyegbami Enterprises on
31st
December, 2018.
N
Sales ledger, debit balance 1/1/2018 98,260
Sales ledger, credit balance 1/1/2018 2,370
Bought ledger, credit balance 1/1/2018 72,190
Bought ledger, debit balance 1/1/2018 4,210
Cash purchases 27,380
Cash sales 19,360
Accounts settled by contra 6,220
Bills dishonoured 7,500
Bills debts written off 5,260
Bills of exchange drawn on customers 34,730
Returns Inward 7,450
Returns Outwards 8,920
Cash received from debtors
689,230
Cash paid to suppliers 495,140
Discount Received 19,320
Discount Allowed
24,750
Cash refunded to customers 1,270
Sales ledger, debit balance 31/12/2018 120,570
Sales ledger, credit balance 31/12/2018 2,010
Bought ledger, debit balance 31/12/2018 3,340
Bought ledger, credit balance 31/12/2018 55,340
Show all necessary workings.
You are required to prepare:
(a)
Credit
Sales
(b)
Credit
Purchases
(c)
Total
Sales
(d)
Total
Purchases
SUGGESTED
SOLUTIONS:
(a) Credit Sales
= N781,540 see working 1
(b)
Credit Purchases = N513,620 see working 2
(c)
Total Sales = Credit Sales + Cash Sales
Total
Sales = N781,540 + N19,360 = N 800,900
(d)
Total Purchases = Credit Purchases + Cash Purchases
Total
Purchases = N513,620 + N 27,380 = N 541,000
Workings:
i.
|
AIYEGBAMI ENTERPRISES
|
|||||||
SALES LEDGER CONTROL ACCOUNT
|
||||||||
Date
|
Particular
|
Folio
|
Amount
|
Date
|
Particular
|
Folio
|
Amount
|
|
N
|
N
|
|||||||
01/01/2018
|
Balance
|
b/f
|
98,260
|
01/01/2018
|
Balance
|
b/d
|
2,370
|
|
Sales
|
781,540
|
Set-Off
|
6,220
|
|||||
Dishonoured Bills
|
7,500
|
Bad debts
|
5,260
|
|||||
Cash
|
1,270
|
Bills Receivable
|
34,730
|
|||||
Return Inwards
|
7,450
|
|||||||
Cash
|
689,230
|
|||||||
Discount Allowed
|
24,750
|
|||||||
31/12/2018
|
Balance
|
c/d
|
2,010
|
31/12/2018
|
Balance
|
c/d
|
120,570
|
|
890,580
|
890580
|
|||||||
01/01/2019
|
Balance
|
b/d
|
120,570
|
01/01/2019
|
Balance
|
b/d
|
2,010
|
|
ii.
|
AIYEGBAMI ENTERPRISES
|
||||||||
PURCHASES LEDGER CONTROL ACCOUNT
|
|||||||||
Date
|
Particular
|
Folio
|
Amount
|
Date
|
Particular
|
Folio
|
Amount
|
||
N
|
N
|
||||||||
01/01/2018
|
Balance
|
b/f
|
4,210
|
01/01/2018
|
Balance
|
b/f
|
72,190
|
||
Set-Off
|
6,220
|
Purchases
|
513,620
|
||||||
Return Outwards
|
8,920
|
||||||||
Cash
|
495,140
|
||||||||
Discount Received
|
19,320
|
||||||||
31/12/2018
|
Balance
|
c/d
|
55,340
|
31/12/2018
|
Balance
|
c/d
|
3,340
|
||
589,150
|
589,150
|
||||||||
01/01/2019
|
Balance
|
b/d
|
3,340
|
01/01/2019
|
Balance
|
b/d
|
55,340
|
||
ILLUSTRATION
2
The following balances were extracted from the books
of Feyisola Enterprises on
31st
December, 2018.
N
Sales ledger, debit balance 1/1/2018 98,260
Sales ledger, credit balance 1/1/2018 2,370
Bought ledger, credit balance 1/1/2018 72,190
Bought ledger, debit balance 1/1/2018 4,210
Cash purchases 27,380
Cash sales 19,360
Accounts settled by contra 6,220
Bills dishonoured 7,500
Bills debts written off 5,260
Bills of exchange drawn on customers 34,730
Returns Inward 7,450
Returns Outwards 8,920
Cash received from debtors
689,230
Cash paid to suppliers 495,140
Discount Received 19,320
Discount Allowed
24,750
Cash refunded to customers 1,270
Sales ledger, debit balance 31/12/2018 120,570
Sales ledger, credit balance 31/12/2018 2,010
Bought ledger, debit balance 31/12/2018 3,340
Bought ledger, credit balance 31/12/2018 55,340
Show all necessary workings.
You are required to prepare:
(a)
Total
Debtors Accounts
(b)
Total
Creditors Accounts
(c)
Total
Sales
(d)
Total
Purchases
SUGGESTED
SOLUTIONS:
(a)
|
FEYISOLA ENTERPRISES
|
|||||||
TOTAL DEBTORS ACCOUNT
|
||||||||
Date
|
Particular
|
Folio
|
Amount
|
Date
|
Particular
|
Folio
|
Amount
|
|
N
|
N
|
|||||||
01/01/2018
|
Balance
|
b/f
|
98,260
|
01/01/2018
|
Balance
|
b/d
|
2,370
|
|
Sales
|
781,540
|
Set-Off
|
6,220
|
|||||
Dishonoured Bills
|
7,500
|
Bad debts
|
5,260
|
|||||
Cash
|
1,270
|
Bills Receivable
|
34,730
|
|||||
Return Inwards
|
7,450
|
|||||||
Cash
|
689,230
|
|||||||
Discount Allowed
|
24,750
|
|||||||
31/12/2018
|
Balance
|
c/d
|
2,010
|
31/12/2018
|
Balance
|
c/d
|
120,570
|
|
890,580
|
890580
|
|||||||
01/01/2019
|
Balance
|
b/d
|
120,570
|
01/01/2019
|
Balance
|
b/d
|
2,010
|
|
(b)
|
FEYISOLA ENTERPRISES
|
||||||||
TOTAL CREDITORS ACCOUNT
|
|||||||||
Date
|
Particular
|
Folio
|
Amount
|
Date
|
Particular
|
Folio
|
Amount
|
||
N
|
N
|
||||||||
01/01/2018
|
Balance
|
b/f
|
4,210
|
01/01/2018
|
Balance
|
b/f
|
72,190
|
||
Set-Off
|
6,220
|
Purchases
|
513,620
|
||||||
Return Outwards
|
8,920
|
||||||||
Cash
|
495,140
|
||||||||
Discount Received
|
19,320
|
||||||||
31/12/2018
|
Balance
|
c/d
|
55,340
|
31/12/2018
|
Balance
|
c/d
|
3,340
|
||
589,150
|
589,150
|
||||||||
01/01/2019
|
Balance
|
b/d
|
3,340
|
01/01/2019
|
Balance
|
b/d
|
55,340
|
||
(c)
Total Sales = Credit Sales + Cash Sales
Total
Sales = N781,540 + N19,360 = N 800,900
(d)
Total Purchases = Credit Purchases + Cash Purchases
Total
Purchases = N513,620 + N 27,380 = N 541,000
ILLUSTRATION
3
Pin and Sim formed a partnership on 1st January,
2018. The partnership agreement contains the following:
i. The partners fixed capital are Pin N30,000 and
Sim N24,000.
ii. Sim to receive a salary of N1,800 per year.
iii. Interest on capital to be calculated at 5% per
annum.
iv. Interest is to be charged on drawing at the rate
of 2%.
v. Pin and
Sim to share profit in ratio 3:2 respectively.
During the year to 31st December 2018, drawings were
Pin N2,250 , Sim N1,750 and the net profit was N13,500. The partners decided to
maintain fixed capital account.
You are required to show:
(a)
The
Profit and Loss Appropriation Account for the year ended 31st December 2018.
(b)
The
partners Current Account
(c)
Statement
of Financial Position ( Extract ) as at 31st December 2018
SUGGESTED
SOLUTIONS:
PIN AND SIM
(a) THE
PROFIT AND LOSS APPROPRIATION
|
|||||
FOR THE YEAR ENDED 31ST DECEMBER, 2018
|
|||||
N
|
N
|
N
|
N
|
||
Interest on Capital:
|
Net Profit
|
13,500
|
|||
Pin (30,000 X 5%)
|
1,500
|
Interest on Drawings:
|
|||
Sim (24,000 X 5%)
|
1,200
|
Pin (2,250 X 2%)
|
45
|
||
2,700
|
Sim ( 1,750 X 2%)
|
35
|
|||
Salary-Sim
|
1,800
|
80
|
|||
Share of Profit:
|
|||||
Pin (3/5 X 9,080)
|
5,448
|
||||
Sim ( 2/5 X 9,080)
|
3,632
|
||||
9,080
|
|||||
13,580
|
13,580
|
||||
(b) PIN
AND SIM
THE PARTNERS CURRENT ACCOUNT
|
|||||
Pin
|
Sim
|
Pin
|
Sim
|
||
N
|
N
|
N
|
N
|
||
Drawings
|
2,250
|
1,750
|
Salary
|
1,800
|
|
Interest on drawings
|
45
|
35
|
Interest on Capital
|
1,500
|
1,200
|
Balance c/d
|
4,653
|
4,847
|
Share of Profit
|
5,448
|
3,632
|
6,948
|
6,632
|
6,948
|
6,632
|
||
Balance b/d
|
4,653
|
4,847
|
|||
(c ) PIN
AND SIM
STATEMENT OF FINANCIAL POSITION (EXTRACT)
|
|||
AS AT 31ST DECEMBER, 2018
|
|||
N
|
N
|
||
Capital Accounts:
|
|||
Pin
|
30,000
|
||
Sim
|
24,000
|
||
54,000
|
|||
Current Accounts:
|
|||
Pin
|
4,653
|
||
Sim
|
4,847
|
||
9,500
|
|||
63,500
|
|||
ILLUSTRATION
4
The following list of balances was extracted from
the records of Alasela Textile Mills on 31st December, 2018.
N
Stock of raw cotton: 1st January 2018 22,100
Stock of raw cotton: 31st December 2018 23,400
Purchase of raw cotton 234,500
Carriage on raw cotton brought 67,900
Direct wages 111,300
Factory Expenses:
Depreciation on plant and machinery 45,300
Salaries 71,200
Power and heat 66,100
Insurance and maintenance 17,500
Required:
Prepare manufacturing account for the year ended 31st
December, 2018.
SUGGESTED
SOLUTIONS:
ALASELA TEXTILE MILLS
|
||||
MANUFACTURING ACCOUNT
|
||||
FOR THE YEAR ENDED 31ST DECEMBER, 2018
|
||||
N
|
N
|
N
|
||
Opening Stock of Raw Cotton
|
22,100
|
Cost of finished goods produced
|
612,500
|
|
Add: Purchases of Raw Cotton
|
234,500
|
|||
Add: Carriage on Raw Cotton bought
|
67,900
|
|||
302,400
|
||||
Cost of Raw Cotton available for use
|
324,500
|
|||
Less: Closing Stock of Raw Cotton
|
23,400
|
|||
Cost of Raw Cotton used
|
301,100
|
|||
Direct Wages
|
111,300
|
|||
Prime Cost
|
412,400
|
|||
Factory Expenses:
|
||||
Depreciation on plant and machinery
|
45,300
|
|||
Salaries
|
71,200
|
|||
Power and heat
|
66,100
|
|||
Insurance and maintenance
|
17,500
|
|||
200,100
|
||||
612,500
|
612,500
|
|||
ILLUSTRATION
5
On 1st September 2018, Alatise purchased a business
for N5,770 and paid for it the same day. The assets and liabilities of the
business on that day were as follows with the one on 31st October 2019.
1st
September, 2018 31st
October, 2019
N N
Freehold Premises 3,000 3,000
Equipment 300 450
Shop Fittings 900 1,100
Stock-In-Trade 1,400 1,600
Debtors 320 640
Creditors 150
90
Cash at Bank - 390
On 1st September, 2018, Alatise opened a business
account into which he paid N350. During the year his drawings were:
Cash N1,100
Goods N140
He also brought in additional cash capital of N700.
You are required to prepare a statement showing the
profit or loss of the business for the year ended 31st October 2019 after
taking into consideration the following:
(i)
Depreciation
of: Shop Fittings N100 and
Equipment N30
(ii)
N80
was written off as bad debts.
SUGGESTED
SOLUTIONS:
ALATISE
|
|||||
STATEMENT OF AFFAIRS
|
|||||
AS AT SEPTEMBER 1, 2018
|
|||||
DR
|
CR
|
||||
N
|
N
|
||||
Freehold Premises
|
3,000
|
||||
Equipment
|
300
|
||||
Shop Fittings
|
900
|
||||
Stock in trade
|
1,400
|
||||
Debtors
|
320
|
||||
Bank
|
350
|
||||
Creditors
|
150
|
||||
Capital (Difference)
|
6,120
|
||||
6,270
|
6,270
|
||||
ADJUSTMENTS
|
|||||
AS AT 31ST OCTOBER, 2019
|
|||||
DR
|
CR
|
||||
N
|
N
|
||||
i. Depreciation Account
|
130
|
||||
Shop Fittings
|
100
|
||||
Equipment
|
30
|
||||
ii. Bad Debt Account
|
80
|
||||
Debtors
|
80
|
||||
ALATISE
|
|||||
STATEMENT OF AFFAIRS
|
|||||
AS AT OCTOBER 31, 2019
|
|||||
DR
|
CR
|
||||
N
|
N
|
||||
Freehold Premises
|
3,000
|
||||
Equipment
|
420
|
||||
Shop Fittings
|
1,000
|
||||
Stock in trade
|
1,600
|
||||
Debtors
|
560
|
||||
Cash at Bank
|
390
|
||||
Creditors
|
90
|
||||
Capital (Difference)
|
6,880
|
||||
6,970
|
6,970
|
||||
ALATISE
|
|||||
STATEMENT OF PROFIT OR LOSS
|
|||||
FOR THE YEAR ENDED 31ST OCTOBER, 2019
|
|||||
N
|
N
|
||||
Closing Capital
|
6,880
|
||||
Add: Drawing
|
1,140
|
||||
8,020
|
|||||
Less:
|
|||||
Additional Capital
|
700
|
||||
Opening Stock
|
6,120
|
||||
6,820
|
|||||
Net Profit
|
1,200
|
||||
ILLUSTRATION
6
Ayefele Nigeria Limited issued 200,000 ordinary
shares of N1.00 each atN1.20 per
share payable as follows:
i.
25k
per share on application.
ii.
40k
per share on allotment (including the premium)
iii.
35k
per share on first call
iv.
20k
per share on second and final call
Required: Show the ledger accounts to record the above transactions.
SUGGESTED SOLUTIONS:
AIYEFELE NIGERIA LIMITED
|
|||||||||
ORDINARY SHARE APPLICATION ACCOUNT
|
|||||||||
N
|
N
|
||||||||
Ordinary Share Capital
|
50,000
|
Cash
|
50,000
|
||||||
(200,000 X 0.25)
|
|||||||||
50,000
|
50,000
|
||||||||
ORDINARY SHARE ALLOTMENT ACCOUNT
|
|||||||||
N
|
N
|
||||||||
Ordinary Share Capital
|
40,000
|
Cash
|
80,000
|
||||||
[200,000 X (0.40-0.20)]
|
|||||||||
Share Premium
|
40,000
|
||||||||
[200,000 X (1.20-1.00)]
|
|||||||||
80,000
|
80,000
|
||||||||
ORDINARY SHARE FIRST CALL ACCOUNT
|
|||||||||
N
|
N
|
||||||||
Ordinary Share Capital
|
70,000
|
Cash
|
70,000
|
||||||
[200,000 X 0.35]
|
|||||||||
70,000
|
70,000
|
||||||||
ORDINARY SHARE SECOND AND FINAL CALL
ACCOUNT
|
|||||||||
N
|
N
|
||||||||
Ordinary Share Capital
|
40,000
|
Cash
|
40,000
|
||||||
[200,000 X 0.20]
|
|||||||||
40,000
|
40,000
|
||||||||
ORDINARY SHARE CAPITAL ACCOUNT
|
|||||||||
N
|
N
|
||||||||
Balance c/d
|
200,000
|
Ordinary Share Application
|
50,000
|
||||||
Ordinary Share Allotment
|
40,000
|
||||||||
Ordinary Share First Call
|
70,000
|
||||||||
Ordinary Share Second and Final Call
|
40,000
|
||||||||
200,000
|
200,000
|
||||||||
Balance b/d
|
200,000
|
||||||||
SHARE PREMIUM ACCOUNT
|
|||
N
|
N
|
||
Balance c/d
|
40,000
|
Ordinary Share Allotment
|
40,000
|
40,000
|
40,000
|
||
Balance b/d
|
40,000
|
||
CASH ACCOUNT
|
|||
N
|
N
|
||
Ordinary Share Application
|
50,000
|
Balance c/d
|
240,000
|
Ordinary Share Allotment
|
80,000
|
||
Ordinary Share First Call
|
70,000
|
||
Ordinary Share Second and Final Call
|
40,000
|
||
240,000
|
240,000
|
||
Balance b/d
|
240,000
|
STATEMENT OF FINANCIAL POSITION
|
|||
N
|
N
|
||
Share Capital:
|
Current Assets:
|
||
200,000 Ordinary Share
|
Cash
|
240,000
|
|
of N1.00 each
|
200,000
|
||
Share Premium
|
40,000
|
||
240,000
|
240,000
|
||
ILLUSTRATION
7
Ajimatanraeje Nigeria Limited issued 500,000
ordinary shares of N1.00 each atN1.50
per
share payable as follows:
i.
30k
per share on application.
ii.
75k
per share on allotment (including the premium)
iii.
20k
per share on first call
iv.
25k
per share on second and final call
Required: Show the ledger accounts to record
the above transactions.
SUGGESTED
SOLUTIONS:
AJIMATANRAEJE NIGERIA LIMITED
|
|||||||||
ORDINARY SHARE APPLICATION ACCOUNT
|
|||||||||
N
|
N
|
||||||||
Ordinary Share Capital
|
150,000
|
Cash
|
150,000
|
||||||
(500,000 X 0.30)
|
|||||||||
150,000
|
150,000
|
||||||||
ORDINARY SHARE ALLOTMENT ACCOUNT
|
|||||||||
N
|
N
|
||||||||
Ordinary Share Capital
|
125,000
|
Cash
|
375,000
|
||||||
[500,000 X (0.75-0.50)]
|
|||||||||
Share Premium
|
250,000
|
||||||||
[500,000 X (1.50-1.00)]
|
|||||||||
375,000
|
375,000
|
||||||||
ORDINARY SHARE FIRST CALL ACCOUNT
|
|||||||||
N
|
N
|
||||||||
Ordinary Share Capital
|
100,000
|
Cash
|
100,000
|
||||||
[500,000 X 0.20]
|
|||||||||
100,000
|
100,000
|
||||||||
ORDINARY SHARE SECOND AND FINAL CALL
ACCOUNT
|
|||||||||
N
|
N
|
||||||||
Ordinary Share Capital
|
125,000
|
Cash
|
125,000
|
||||||
[500,000 X 0.25]
|
|||||||||
125,000
|
125,000
|
||||||||
ORDINARY SHARE CAPITAL ACCOUNT
|
|||||||||
N
|
N
|
||||||||
Balance c/d
|
500,000
|
Ordinary Share Application
|
150,000
|
||||||
Ordinary Share Allotment
|
125,000
|
||||||||
Ordinary Share First Call
|
100,000
|
||||||||
Ordinary Share Second and Final Call
|
125,000
|
||||||||
500,000
|
500,000
|
||||||||
Balance b/d
|
500,000
|
||||||||
SHARE PREMIUM ACCOUNT
|
|||
N
|
N
|
||
Balance c/d
|
250,000
|
Ordinary Share Allotment
|
250,000
|
250,000
|
250,000
|
||
Balance b/d
|
250,000
|
||
CASH ACCOUNT
|
|||
N
|
N
|
||
Ordinary Share Application
|
150,000
|
Balance c/d
|
750,000
|
Ordinary Share Allotment
|
375,000
|
||
Ordinary Share First Call
|
100,000
|
||
Ordinary Share Second and Final Call
|
125,000
|
||
750,000
|
750,000
|
||
Balance b/d
|
750,000
|
STATEMENT OF FINANCIAL POSITION
|
|||
N
|
N
|
||
Share Capital:
|
Current Assets:
|
||
500,000 Ordinary Share
|
Cash
|
750,000
|
|
of N1.00 each
|
500,000
|
||
Share Premium
|
250,000
|
||
750,000
|
750,000
|
||
ILLUSTRATION
8
Differentiate between the following terms:
a.
Ordinary Shares and Preference Shares.
b.
Authorised Share Capital and Issued Share Capital
c. Called
Share Capital and Paid Up Capital
SUGGESTED
SOLUTIONS:
(a) Ordinary Shares entitle their holders to divisible
profit of the company remaining after
prior interests
have been satisfied whereas Preference Shares entitle to dividends at a
predetermined rate before any other class of shareholders are paid.
(b) Authorised Share Capital is the registered
capital of the company as contained in the
Memorandum of Association while Issued
Share Capital is the portion of the authorised
capital which is issued to the public for
subscription.
(c) Called Share Capital is the portion of the
issued capital that has been called whereas Paid
Up Capital is
the portion of the called capital to which favourable responses have been
received. It represents the actual amount paid by the shareholders in respect
of the calls made on them.
ILLUSTRATION
9
Write short note on the following:
i. Prime Cost ii. Direct Labour Cost iii.
Cost of Raw Material Consumed
iv. Production Overhead Expenses v. Work-In-Progress
SUGGESTED
SOLUTIONS:
i. Prime Cost:
This is total direct costs which
comprises of direct material cost, direct labour cost and direct expenses.
ii. Direct
Labour Cost: This will be given in
form of manufacturing wages.
iii. Cost of Raw Material Consumed: This is the direct material cost used as a
component part of prime cost.
iv. Production
Overhead Expenses: These are expenses relating to the factory such as
Factory rent, factory rates, salary of production supervisor, factory lighting
and heating, depreciation on plant and machinery, servicing and repairs of
plant and machinery etc.
v. Work-In-Progress:
The cost of production may be
effected by the effect of goods which are not fully completed at the beginning
and at the end of the accounting period. These are semi-finished or partly
finished goods.
ILLUSTRATION
10
State six types of non-profit oriented organisation.
SUGGESTED
SOLUTIONS:
The six types of non-profit oriented organisation.
i.
Government Ministries, Departments, Agencies and Corporations at
Federal, State and
Local
Government Levels.
ii. Public
Educational Institutions at all levels e.g. Nursery, Primary, secondary and
Universities etc.
iii. Health and welfare-Public hospitals, Maternity,
Red Cross, Herbal Homes etc.
iv. Religious-Churches, Mosques and other religious
organisation.
v.
Charitable-Community development associations, United Funds and Appeals,
Clubs and
Societies.
vi. Foundation-Private trusts and incorporated
organisations for educational religious or
ideological purposes e.g. professional chairs in Universities.
ILLUSTRATION
11
Differentiate between
non-profit oriented organisation and profit oriented organisation.
SUGGESTED
SOLUTIONS:
The between non-profit oriented
organisation and profit oriented organisation
(i) The main objective of a profit
oriented organisation is to maximize profit while that of
non-profit oriented organisation is
to provide adequate welfare to the people at reasonable costs.
(ii) non-profit oriented
organisation revenue is derived from the public in the form of taxation, fines,
fees etc., whereas profit oriented organisation obtain their income principally
from the sales of goods and services.
(iii) In non-profit oriented
organisation, financial transactions are recorded on cash basis while in profit
oriented organisation, it is on accrual basis.
(iv) In non-profit oriented organisation,
tangible fixed assets such as land and building, plant and machinery are not
shown in the balance sheet, whereas in profit oriented organisation these are
reflected, showing the historical cost, accumulated depreciation and the net
book
value of each.
(v) In non-profit oriented organisation,
current assets such as stocks and debtors are not shown in the balance sheet.
Debtors and creditors are not reckoned with until money is received or paid.
The current assets and current liabilities are shown in profit oriented
organisation.
ILLUSTRATION
12
Enumerate three accounting records and financial
statements of social clubs.
SUGGESTED
SOLUTIONS:
The three accounting records and
financial statements of social clubs consist of:
i. Receipts and Payments Account
ii. Income and Expenditure
Account
iii. Statement of Affairs
ILLUSTRATION
13
Define partnership and state the
contents of partnership deed.
SUGGESTED
SOLUTIONS:
Partnership is defined in the
Partnership Act 1890 as “the relation which subsists between persons carrying
on a business in common with a view of profit”.
The partnership deed or agreement
is a set of rules and/or procedures relating to the interests of partners in
the property of the partnership and their respective rights and duties. Such
rules govern the internal management of the firm and its financial affairs.
The contents of a partnership
deed will include the followings:
i.
The
rights and duties of each partner.
ii.
The
amount of capital to be contributed by each partner.
iii.
The
share of profits and losses.
iv.
The
amount of drawings by each partner in anticipation of profit.
v.
The
salaries (if any) to be paid to the partners.
vi.
The
rate of interest (if any) to be allowed on capital.
vii.
The
rate of interest (if any) to be charged on drawings.
viii.
Rules
on the recording of partnership transactions and preparation of financial
statement.
ix.
Whether
or not the accounts of the partnership should be audited.
x.
The
circumstance under which the partnership shall be dissolved.
xi.
Statements
of the entitlement of a retiring or deceased partner.
xii.
The
basis and policy in respect of goodwill.
ILLUSTRATION
14
In the absence of an agreement by the partners,
Section 24 of the Partnership Act 1890 shall apply. State the provisions.
SUGGESTED
SOLUTIONS:
In the absence of an agreement by
the partners, Section 24 of the Partnership Act 1890 shall apply. It provides
that:
i.
Capital
shall be contributed equally by the partners.
ii.
Profit
or Loss shall be shared equally among the partners.
iii.
A
partner is entitled to be indemnified in respect of payments made and personal
liabilities incurred in the course of the
partnership business.
iv.
Interest
shall be paid at 5% on monies provided by any partner in excess of his agreed
capital contribution.
v.
No
interest shall be paid on capital.
vi.
No
remuneration shall be paid to partners for running the partnership business.
vii.
Every partner may partake in the running of the
affairs of the partnership.
viii.
Introduction of a new partner shall be with the consent of all existing
partners.
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