Practice Questions
Practice Questions: Accounting for Partnerships
This practice set tests the main partnership concepts: the Partnership Agreement and Section 26, the Profit and Loss Appropriation Account, Capital and Current Accounts, and the dissolution of a partnership. Attempt each question yourself before checking the worked steps.
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Steps for answering calculation questions
- First identify the capital method used: the Fixed Capital Method needs a separate Capital Account and Current Account, while the Fluctuating Capital Method records all adjustments in a single Capital Account.
- Prepare the Profit and Loss Appropriation Account in order: begin with net profit, add interest on drawings, then deduct interest on capital and salary/allowance/bonus, and finally distribute the residual profit by the sharing ratio.
- For interest on drawings and interest on a partner's loan, always adjust for the time period (number of months) whenever dates are given in the question.
- Check the stated basis of profit sharing (equally, ratio of opening capital balances or a fixed ratio) and use only the basis stated in the question.
Partnership dissolution checklist
- Transfer all assets at book value to the debit of the Realisation Account, and record the proceeds from asset disposals on the credit side.
- Record dissolution expenses on the debit of the Realisation Account; the profit or loss on realisation is then transferred to partners' Capital Accounts by the sharing ratio.
- Settle liabilities such as creditors through the Bank Account first, before paying any remaining cash to the partners.
- If a partner's Capital Account shows a debit balance, determine whether that partner can bring in cash or is insolvent, before finalising the last cash distribution.
| Item | Chong (RM) | Devi (RM) | Total (RM) |
|---|---|---|---|
| Net profit | - | - | 50,000 |
| Add: Interest on drawings | 500 | 300 | 800 |
| 50,800 | |||
| Less: Interest on capital | 4,000 | 3,000 | 7,000 |
| Less: Salary (Devi) | - | 6,000 | 6,000 |
| Residual profit to distribute | 37,800 | ||
| Share of profit (3:2) | 22,680 | 15,120 | 37,800 |
Amounts on the 'Less' rows are deducted from profit and amounts on the 'Add' rows are added. This table shows the statement format of the appropriation for Question 3.
Practice Questions
Question 1
The Wira & Zana partnership operates without a Partnership Agreement. State FOUR provisions of Section 26 of the Partnership Act 1961 relating to the accounting aspects, and explain one implication of having no Partnership Agreement.
Answer
Provisions of Section 26 when there is no Partnership Agreement:
1. Profit or loss is shared equally among all partners.
2. No interest on capital is given to partners.
3. No interest on drawings is charged to partners.
4. No salary is paid to any partner.
5. Interest of 8% per annum is paid on a loan given by a partner to the firm.
Implication: A partner who contributes more capital or works more receives no extra return, which may cause disputes; distribution must follow these statutory provisions rather than the partners' wishes.
Question 2
Seri Murni Partnership: Aisyah's capital RM60,000 and Balan's capital RM40,000 throughout the year ended 31 December 2025. The deed provides interest on capital of 5% per annum and interest on drawings of 6% per annum. Aisyah withdrew RM12,000 on 1 July 2025 and Balan withdrew RM6,000 on 1 October 2025. Calculate the interest on capital and interest on drawings for each partner.
Answer
Interest on capital:
Aisyah = RM60,000 × 5% = RM3,000
Balan = RM40,000 × 5% = RM2,000
Interest on drawings (by time period):
Aisyah = RM12,000 × 6% × 6/12 = RM360 (1 Jul–31 Dec = 6 months)
Balan = RM6,000 × 6% × 3/12 = RM90 (1 Oct–31 Dec = 3 months)
Question 3
Chong & Devi Partnership earned a net profit of RM50,000 for the year ended 31 December 2025. The deed provides: interest on capital Chong RM4,000 and Devi RM3,000; salary Devi RM6,000; interest on drawings Chong RM500 and Devi RM300; and the residual profit is shared in the ratio 3:2. Prepare the appropriation of profit in statement form and determine each partner's share of profit.
Answer
Net profit: RM50,000
Add interest on drawings (500 + 300): RM800 → RM50,800
Less interest on capital (4,000 + 3,000): (RM7,000)
Less salary Devi: (RM6,000)
Residual profit to distribute: RM37,800
Profit share 3:2:
Chong = 37,800 × 3/5 = RM22,680
Devi = 37,800 × 2/5 = RM15,120
(See the appropriation table below for the full layout.)
Question 4
The Fixed Capital Method is used. Farid's Current Account has an opening credit balance of RM2,000. During the year: interest on capital RM3,000, salary RM8,000, share of profit RM15,000, drawings RM10,000 and interest on drawings RM400. Calculate the closing balance of Farid's Current Account and state whether it is a debit or credit balance.
Answer
Opening credit balance: RM2,000
Add: interest on capital RM3,000 + salary RM8,000 + share of profit RM15,000 = RM26,000
Less: drawings RM10,000 + interest on drawings RM400 = RM10,400
Closing balance = 2,000 + 26,000 − 10,400 = RM17,600 (credit balance)
Note: Under the Fixed Capital Method, the Capital Account stays unchanged at the original capital; all the adjustments above are recorded in the Current Account.
Question 5
Ganesh and Hui agree to share profit in the ratio of their opening capital balances. Opening capital: Ganesh RM80,000 and Hui RM120,000. The distributable profit is RM45,000. Calculate each partner's share of profit and show your check.
Answer
Opening capital ratio = 80,000 : 120,000 = 2 : 3 (total 5 parts)
Ganesh = 45,000 × 2/5 = RM18,000
Hui = 45,000 × 3/5 = RM27,000
Check: 18,000 + 27,000 = RM45,000 (equals the distributable profit).
Question 6
Indah Partnership is dissolved. Book values of assets: machinery RM30,000, inventory RM10,000 and debtors RM8,000. On dissolution: machinery sold for RM25,000, inventory sold for RM8,000 and debtors paid RM7,500. Dissolution expenses of RM1,000 were paid and creditors of RM12,000 were settled in full at book value. Calculate the profit or loss on realisation and its distribution if the two partners share equally.
Answer
Book value of assets transferred to Realisation Account = 30,000 + 10,000 + 8,000 = RM48,000
Proceeds from realisation of assets = 25,000 + 8,000 + 7,500 = RM40,500
Dissolution expenses = RM1,000
Loss on realisation = 48,000 − 40,500 + 1,000 = RM8,500
(Creditors were settled at their book value of RM12,000, so no profit/loss arises from creditors.)
Distribution of loss (equally): each partner bears 8,500 ÷ 2 = RM4,250 (debited to each partner's Capital Account).
Question 7
At the end of the dissolution of Jaya Partnership, Kamal's Capital Account has a debit balance of RM6,000 while Lina's Capital Account has a credit balance of RM20,000. Discuss the treatment of Kamal's debit balance if (a) Kamal is able to bring in cash, and (b) Kamal is insolvent and unable to pay.
Answer
(a) If Kamal can bring in cash:
Kamal pays RM6,000 to the firm (Debit Bank Account, Credit Kamal's Capital Account). Lina then receives her full RM20,000 from the remaining cash.
(b) If Kamal is insolvent:
The uncollectible debit balance of RM6,000 is a loss borne by the solvent partner, Lina. This loss is shared according to the agreed terms, usually the ratio of the last agreed capital balances under the Garner v Murray principle, or the profit-sharing ratio if the agreement so provides. Lina's Capital Account is debited RM6,000, so the payment to Lina becomes 20,000 − 6,000 = RM14,000.
What is the main difference in the Capital Account between the Fixed Capital Method and the Fluctuating Capital Method?
Where is interest on a partner's loan recorded?
Is a partner's salary a cash expense of the business?
Other resources for this chapter
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