2022 May/June · Paper 12 · Q141 markPartnership Act and agreements
2022 May/June · Paper 12 · Q151 markAdmission, retirement and goodwill
2022 May/June · Paper 12 · Q161 markAppropriation and current accounts
2022 May/June · Paper 22 · Q1 (a, b, c)19 marksAppropriation and current accounts · Partnership statement of profit or loss
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Practice questions
Original questions written by HomiLabs in the style of the exam, with answers and mark schemes. They are not
Cambridge past paper questions and have not been reviewed by Cambridge. Try each one before opening the answer.
Q1Admission, retirement and goodwill · Core · Paper 1 style · 1 mark
(a)The partners of Hilltop Traders, Quetta, agree to value goodwill at two years' purchase of the average profit of the last three years. Profits were: year 1 $84,000; year 2 $96,000; year 3 $105,000.What is the value of goodwill?[1]
Show answer
(a) B $190,000
Average profit = (84,000 + 96,000 + 105,000) ÷ 3 = $95,000; × 2 years = $190,000. A is the average only; C uses the latest year; D is the total of three years.
Q2Admission, retirement and goodwill · Core · Paper 2 style · 5 marks
Jabbar and Sons, a partnership of opticians in Peshawar, made these profits:Year Profit $ Weight2023 72,000 12024 81,000 22025 90,000 3The partners agree to value goodwill at three years' purchase of the weighted average profit.
(a)Calculate the weighted average profit.[2]
(b)Calculate the value of goodwill.[1]
(c)State two factors that may give a business goodwill.[2]
(c) For example: a good reputation; a loyal customer base.
1 mark each for any two: reputation; loyal customers; good location; skilled staff; brand name; good supplier relationships.
Q3Admission, retirement and goodwill · Core · Paper 2 style · 5 marks
Usman, Vania and Waleed are partners sharing profits 2:2:1. Waleed retires on 30 June 2026. Goodwill is valued at $45,000. The partners decide that a goodwill account will be opened and kept in the books.
(a)Prepare the journal entry to record the goodwill. A narrative is not required.[3]
(b)Explain why many businesses do not keep a goodwill account in the books after a change of partners.[2]
Dr goodwill 45,000 (B1); Cr capitals in the old ratio 2:2:1 (M1): 18,000, 18,000, 9,000 (A1).
(b) Goodwill generated inside the business cannot be measured reliably, so IAS 38 does not allow internally generated goodwill to be recognised as an asset; it is written off to the partners' capital accounts.
1 mark: value is subjective / cannot be measured reliably / can change quickly. 1 mark: accounting standards (IAS 38) / prudence do not allow internally generated goodwill to be shown.
Q4Admission, retirement and goodwill · Core · Paper 2 style · 7 marks
Kamran and Laila run a bakery in Islamabad, sharing profits equally. On 1 April 2026 Mehwish is admitted for a one-quarter share of profits; Kamran and Laila will share the remaining three-quarters equally. Goodwill is valued at $72,000 and is not to be recorded in the books.
(a)Explain why an adjustment for goodwill is needed when a new partner is admitted.[2]
(b)Calculate the net amount credited or debited to each partner's capital account for goodwill.[3]
(c)Prepare a single journal entry to record the net goodwill adjustment. A narrative is not required.[2]
Show answer
(a) The old partners built up the goodwill; without an adjustment the new partner would share in the value they created, so the old partners must be compensated for the share they give up.
1 mark: goodwill was created by the existing partners. 1 mark: new partner gains a share of it / old partners lose part of their share and must be compensated.
Dr Mehwish 18,000 (1); Cr Kamran 9,000 and Laila 9,000 (1).
Q5Admission, retirement and goodwill · Standard · Paper 1 style · 1 mark
(a)Ali and Bilal share profits 3:2. Chand is admitted and the new ratio is Ali 2, Bilal 2, Chand 1. Goodwill is valued at $60,000 but no goodwill account is to remain in the books.What is the net effect of the goodwill adjustment on Ali's capital account?[1]
Show answer
(a) A credit $12,000
Goodwill created in old ratio: Ali credited 3/5 × 60,000 = 36,000. Written off in new ratio: Ali debited 2/5 × 60,000 = 24,000. Net credit $12,000. D is Bilal's position (24,000 − 24,000 = 0), not Ali's.
Q6Admission, retirement and goodwill · Standard · Paper 2 style · 8 marks
Sana and Tariq run a furniture business in Faisalabad, sharing profits and losses 3:2. Their capital account balances on 31 December 2025 were Sana $80,000 and Tariq $60,000.On 1 January 2026 Umar was admitted as a partner and paid $50,000 into the business bank account as his capital. It was agreed that:1 land would be revalued from $120,000 to $150,0002 inventory would be written down by $4,0003 goodwill would be valued at $45,000; no goodwill account would be kept in the books4 the new profit sharing ratio would be Sana 2, Tariq 2, Umar 1.
(a)Prepare the revaluation account.[2]
(b)Prepare the partners' capital accounts in columnar form, showing the balances carried down on 1 January 2026.[6]
Show answer
(a)Revaluation account $DrInventory 4,000Profit on revaluation: Sana (3/5) 15,600 Tariq (2/5) 10,400 30,000CrLand 30,000 30,000
Dr inventory 4,000 (1); Cr land 30,000 and profit 26,000 shared 3:2, Sana 15,600 and Tariq 10,400 (1).
(b)Capital accounts Sana Tariq UmarDrGoodwill written off (2:2:1) 18,000 18,000 9,000Balance c/d 104,600 70,400 41,000 122,600 88,400 50,000CrBalance b/d 80,000 60,000Bank 50,000Revaluation profit 15,600 10,400Goodwill created (3:2) 27,000 18,000 122,600 88,400 50,000
B1 opening balances and bank; B1 revaluation profit 15,600/10,400; B1 goodwill created 27,000/18,000; B1 goodwill written off 18,000/18,000/9,000; B1 each correct closing balance (max 2): Sana 104,600, Tariq 70,400, Umar 41,000.
Q7Admission, retirement and goodwill · Standard · Paper 2 style · 6 marks
Rafay, Saad and Zoya are partners in a software firm in Lahore, sharing profits 4:3:3. Saad retires on 31 August 2026. Rafay and Zoya will continue, sharing profits equally. Goodwill is valued at $90,000. No goodwill account is to appear in the books; the adjustment is to be made through the capital accounts.
(a)Calculate the net goodwill adjustment for each partner, stating whether it is a debit or a credit.[3]
(b)Prepare the journal entry to record the adjustment, including a narrative.[3]
(b) Dr $ Cr $Capital – Rafay 9,000Capital – Zoya 18,000Capital – Saad 27,000Narrative: adjustment for Saad's share of goodwill on his retirement; no goodwill account kept.
Debits (1); credit (1); narrative (1).
Q8Admission, retirement and goodwill · Standard · Paper 1 style · 1 mark
(a)Xavier and Yusra share profits 3:2. Zain is admitted and the new ratio is Xavier 2, Yusra 1, Zain 1. On admission the building is revalued upwards by $40,000 and machinery downwards by $15,000.What is the entry in Yusra's capital account for the revaluation?[1]
Show answer
(a) B credit $10,000
Net revaluation profit 25,000 belongs to the old partners in the old ratio: Yusra 2/5 × 25,000 = 10,000 credit. A wrongly uses the new ratio (1/4); C ignores the machinery loss.
Q9Admission, retirement and goodwill · Challenge · Paper 3 style · 8 marks
Farah, Gul and Hina are partners in a travel agency in Karachi, sharing profits and losses 2:2:1. Hina retired on 31 December 2025. On that date the balances were:Capital accounts: Farah $70,000; Gul $60,000; Hina $40,000Current accounts: Farah $5,000 credit; Gul $3,000 debit; Hina $6,500 creditIt was agreed that:1 premises would be revalued upwards by $25,000 and office equipment downwards by $5,0002 goodwill was valued at $50,000; no goodwill account would remain in the books3 Hina's current account would be transferred to her capital account4 Hina would receive $20,000 in cash immediately and the rest of the amount due to her would be transferred to a loan account5 Farah and Gul would share profits equally in future.
(a)Prepare the capital accounts of Farah, Gul and Hina in columnar form on 31 December 2025.[6]
(b)State the balance on Hina's loan account.[1]
(c)Suggest one reason why the partners agreed to transfer part of the amount due to Hina to a loan account.[1]
Show answer
(a)Capital accounts Farah Gul HinaDrGoodwill written off (1:1) 25,000 25,000Bank 20,000Hina loan account 40,500Balance c/d 73,000 63,000 98,000 88,000 60,500CrBalance b/d 70,000 60,000 40,000Current account 6,500Revaluation profit (2:2:1) 8,000 8,000 4,000Goodwill created (2:2:1) 20,000 20,000 10,000 98,000 88,000 60,500
Revaluation profit = 25,000 − 5,000 = 20,000 shared 2:2:1 (B1). Goodwill created 20,000/20,000/10,000 (B1); written off 25,000/25,000 (B1). Current account transfer 6,500 (B1). Bank 20,000 and loan 40,500 (B1). Closing balances Farah 73,000 and Gul 63,000 (B1).
(b) $40,500
60,500 due − 20,000 cash = 40,500 (B1).
(c) Paying the full amount in cash at once would leave the business short of working capital.
Any one: protects the bank balance / liquidity; avoids selling assets; gives time to raise finance.
Q10Admission, retirement and goodwill · Challenge · Paper 3 style · 8 marks
Nadia and Omar own a wholesale rice business in Hyderabad, sharing profits 3:1. Their capitals on 31 March 2026 were Nadia $90,000 and Omar $50,000.On 1 April 2026 Pervez was admitted. He brought in $30,000 cash and a delivery vehicle valued at $18,000 as his capital. It was agreed that:1 premises would be revalued from $160,000 to $200,0002 inventory, shown at $42,000, would be reduced to its net realisable value of $38,5003 a provision for doubtful debts of 5% would be created on trade receivables of $30,0004 goodwill was valued at $64,000; it would not be kept in the books5 the new profit sharing ratio would be Nadia 2, Omar 1, Pervez 1.
(a)Prepare the revaluation account.[3]
(b)Prepare the capital accounts of all three partners in columnar form on 1 April 2026.[5]
B1 Pervez's cash and vehicle; B1 revaluation profit; B1 goodwill created 48,000/16,000; B1 goodwill written off 32,000/16,000/16,000; B1 closing balances Nadia 132,250, Omar 58,750, Pervez 32,000.
Q11Admission, retirement and goodwill · Challenge · Paper 2 style · 6 marks
Daud and Esha have shared profits equally in their pharmacy in Multan. From 1 July 2026 they agree to share profits Daud 3, Esha 2, because Daud will work full time. Capital balances on 30 June 2026: Daud $50,000; Esha $45,000.It is agreed that goodwill is worth $80,000 (not to be kept in the books) and that the shop property is revalued upwards by $20,000.
(a)Explain why a goodwill adjustment is needed even though no partner is joining or leaving.[2]
(b)Calculate the balance on each partner's capital account after the adjustments.[4]
Show answer
(a) Daud gains an extra 1/10 share of future profits, including profits from goodwill built up jointly; Esha gives up that share and must be compensated by Daud.
1 mark: change in ratio transfers a share of goodwill. 1 mark: the gaining partner compensates the losing partner.
(b) Daud $52,000; Esha $63,000.
Revaluation +10,000 each (B1). Goodwill: created 40,000 each, written off 48,000/32,000 (M1) → Daud net −8,000, Esha net +8,000 (A1). Daud 50,000 + 10,000 − 8,000 = 52,000; Esha 45,000 + 10,000 + 8,000 = 63,000 (A1).
Q12Admission, retirement and goodwill · Challenge · Paper 3 style · 6 marks
Imran retired from a partnership of engineers in Rawalpindi on 31 December 2025. The amount due to him was $84,000. He received $24,000 in cash on that date. The balance became a loan, repaid in three equal annual instalments starting on 31 December 2026. Interest at 8% per annum on the balance outstanding during each year is paid with each instalment.
(a)Calculate the amount of each loan instalment.[1]
(b)Calculate the total amount (instalment plus interest) paid to Imran on 31 December 2026, 2027 and 2028.[3]
(c)State one advantage and one disadvantage, for the continuing partners, of this arrangement compared with paying Imran in full immediately.[2]
Show answer
(a) $20,000
(84,000 − 24,000) ÷ 3 = 20,000 (B1).
(b)Date Instalment $ Interest $ Total $31 Dec 2026 20,000 4,800 24,80031 Dec 2027 20,000 3,200 23,20031 Dec 2028 20,000 1,600 21,600
(c) Advantage: cash outflow is spread, protecting liquidity. Disadvantage: interest of $9,600 in total is payable and reduces profit.
1 mark for an advantage (liquidity / no need to borrow from a bank / no need to sell assets); 1 mark for a disadvantage (interest cost / fixed commitment / Imran remains a creditor).
Q13Appropriation and current accounts · Core · Paper 1 style · 1 mark
(a)Jamil and Kiran share residual profits equally. Profit for the year was $96,000. Jamil receives a salary of $12,000. Interest on capital is 6% per annum; capitals are Jamil $50,000 and Kiran $70,000.What is Kiran's total share of the profit?[1]
Show answer
(a) B $42,600
Interest on capital: Jamil 3,000, Kiran 4,200. Residual = 96,000 − 12,000 − 7,200 = 76,800; half = 38,400. Kiran's total = 4,200 + 38,400 = 42,600. A omits interest on capital; D forgets to deduct Jamil's salary.
Q14Appropriation and current accounts · Core · Paper 2 style · 7 marks
Waqas and Yasmin run a printing business in Karachi, sharing residual profits 2:1. For the year ended 30 June 2026 the profit for the year was $65,000. The partnership agreement provides for:• interest on capital at 5% per annum: capitals Waqas $80,000 and Yasmin $40,000• a salary for Yasmin of $9,000 a year• interest on drawings: Waqas $600 and Yasmin $400 for the year.
(a)Prepare the appropriation account for the year ended 30 June 2026.[5]
(b)Explain why Yasmin's salary is shown in the appropriation account and not in the statement of profit or loss.[2]
Show answer
(a)Appropriation account $ $Profit for the year 65,000Add interest on drawings: Waqas 600 Yasmin 400 1,000 66,000Less interest on capital: Waqas 4,000 Yasmin 2,000Less salary: Yasmin 9,000 (15,000)Residual profit 51,000Share of profit: Waqas (2/3) 34,000 Yasmin (1/3) 17,000 51,000
B1 interest on drawings added; B1 interest on capital 4,000/2,000; B1 salary 9,000; B1 residual 51,000; B1 shares 34,000/17,000.
(b) A partner is an owner, not an employee; her salary is a way of sharing profit, so it is an appropriation of profit rather than an expense of earning it.
1 mark: partner is an owner / not an employee. 1 mark: salary is a division of profit, not a cost of running the business.
Q15Appropriation and current accounts · Core · Paper 2 style · 6 marks
Laraib is a partner in a beauty salon in Islamabad. For the year ended 31 December 2025: current account balance 1 January 2025 $1,400 debit; interest on capital $2,500; salary $8,000; share of residual profit $21,300; cash drawings $30,000; interest on drawings $750; goods taken for own use $1,600.
(a)Prepare Laraib's current account for the year ended 31 December 2025.[4]
(b)Explain what a debit balance on a partner's current account shows.[2]
Show answer
(a)Current account – Laraib $DrBalance b/d 1,400Drawings – cash 30,000Drawings – goods 1,600Interest on drawings 750 33,750CrInterest on capital 2,500Salary 8,000Share of profit 21,300Balance c/d 1,950 33,750Balance b/d 1 January 2026: $1,950 debit
B1 opening debit balance; B1 drawings, goods and interest on drawings on debit side; B1 credits; B1 closing debit balance 1,950 b/d.
(b) The partner has withdrawn more than her share of profits and other entitlements, so she owes the partnership money.
1 mark: drawings exceed profit entitlement. 1 mark: partner owes the business / reduces capital employed.
Q16Appropriation and current accounts · Core · Paper 2 style · 6 marks
A partnership keeps fixed capital accounts and separate current accounts for each partner.
(a)State two items that are credited to a partner's current account.[2]
(b)State two items that are debited to a partner's current account.[2]
(c)Explain one advantage of keeping fixed capital accounts with separate current accounts.[2]
Show answer
(a) Interest on capital; share of residual profit.
1 mark each for any two: interest on capital; partner's salary; share of profit; commission to partner.
(b) Drawings; interest on drawings.
1 mark each for any two: cash drawings; goods taken for own use; interest on drawings; share of a loss.
(c) Fixed capitals show the long-term investment agreed in the agreement, while the current account shows clearly how profit entitlements compare with drawings each year.
1 mark: capital stays at the agreed amount / used for interest on capital. 1 mark: current account shows profit share versus drawings / easy to see overdrawing.
Q17Appropriation and current accounts · Standard · Paper 2 style · 5 marks
Nabeel is a partner in a clothing shop in Sialkot. The partnership agreement charges interest on drawings at 10% per annum. The financial year ends on 31 December 2025. Nabeel's drawings were:1 March 2025 $6,0001 September 2025 $9,0001 December 2025 $12,000
(a)Calculate the interest on Nabeel's drawings for the year.[3]
(b)Explain why a partnership agreement may charge interest on drawings.[2]
(b) It discourages partners from withdrawing cash early or excessively, and it is fair to partners who leave their money in the business, because those who draw early benefit from the use of business funds.
1 mark each for two points: discourages drawings / protects working capital; fairness between partners who draw different amounts or at different times.
Q18Appropriation and current accounts · Standard · Paper 2 style · 8 marks
Ahmed, Batool and Cyrus are partners in a garden nursery in Lahore, sharing residual profits 2:2:1. Information for the year ended 31 December 2025: Ahmed $ Batool $ Cyrus $Capital (fixed) 100,000 80,000 60,000Current account 1 Jan 2025 2,500 Cr 1,800 Dr 3,100 CrDrawings 30,000 24,000 20,000Interest on drawings 1,200 900 600Interest on capital is 4% per annum. Cyrus receives a salary of $15,000. Profit for the year was $87,300.
(a)Prepare the appropriation account for the year ended 31 December 2025.[4]
(b)Prepare the partners' current accounts in columnar form for the year.[4]
Show answer
(a)Appropriation account $Profit for the year 87,300Add interest on drawings (1,200 + 900 + 600) 2,700 90,000Less interest on capital (4,000 + 3,200 + 2,400) (9,600)Less salary – Cyrus (15,000)Residual profit 65,400Ahmed (2/5) 26,160Batool (2/5) 26,160Cyrus (1/5) 13,080
B1 interest on drawings; B1 interest on capital; B1 salary and residual 65,400; B1 shares 26,160/26,160/13,080.
(b)Current accounts Ahmed Batool CyrusDrBalance b/d 1,800Drawings 30,000 24,000 20,000Interest on drawings 1,200 900 600Balance c/d 1,460 2,660 12,980 32,660 29,360 33,580CrBalance b/d 2,500 3,100Interest on capital 4,000 3,200 2,400Salary 15,000Share of profit 26,160 26,160 13,080 32,660 29,360 33,580
B1 opening balances on correct sides; B1 drawings and interest on drawings; B1 credits; B1 closing credit balances Ahmed 1,460, Batool 2,660, Cyrus 12,980.
Q19Appropriation and current accounts · Standard · Paper 2 style · 6 marks
Hamid and Iqra share profits 3:2 in a mobile phone repair business in Gujranwala. Hamid also lent the business $30,000 at 6% per annum interest for the whole year. No interest has been paid. A trainee bookkeeper calculated the profit for the year as $48,600 and then showed the loan interest in the appropriation account.
(a)Explain why interest on Hamid's loan should not be shown in the appropriation account.[2]
(b)Calculate the correct profit for the year.[1]
(c)Calculate each partner's share of the correct profit.[2]
(d)Calculate Hamid's total income from the business for the year.[1]
Show answer
(a) The loan is not part of Hamid's capital; the business owes it as a lender would be owed, so the interest is an expense charged in the statement of profit or loss before profit is calculated.
1 mark: loan is a liability / Hamid acts as a lender. 1 mark: interest is an expense in the statement of profit or loss.
(b) $46,800
48,600 − 30,000 × 6% (1,800) = 46,800 (B1).
(c) Hamid $28,080; Iqra $18,720.
46,800 × 3/5 = 28,080 (B1); × 2/5 = 18,720 (B1).
(d) $29,880
1,800 + 28,080 = 29,880 (B1).
Q20Appropriation and current accounts · Standard · Paper 1 style · 1 mark
(a)In a partnership, which change would reduce the residual profit shared between the partners?[1]
Show answer
(a) B an increase in the salaries paid to partners
Salaries are deducted before residual profit, so higher salaries reduce it. A and D increase residual profit; C removes loan interest expense, raising profit.
Q21Appropriation and current accounts · Challenge · Paper 1 style · 1 mark
(a)Parvez, Qasim and Rubina share profits 3:2:1. Rubina is guaranteed a minimum share of $15,000; any shortfall is borne by Parvez and Qasim in their profit sharing ratio. The residual profit for the year is $72,000.What is Parvez's final share of the residual profit?[1]
Show answer
(a) A $34,200
Rubina's share = 72,000 × 1/6 = 12,000; shortfall 3,000 borne 3:2, Parvez 1,800. Parvez = 72,000 × 3/6 − 1,800 = 34,200. B shares the shortfall equally; D charges it all to Parvez.
Q22Appropriation and current accounts · Challenge · Paper 2 style · 8 marks
Ella, Faisal and Ghazala run a catering business in Dubai, sharing residual profits equally. Interest on capital is 5% per annum on capitals of Ella $60,000, Faisal $40,000 and Ghazala $20,000. Faisal receives a salary of $6,000. Ghazala, a new partner, is guaranteed that her total income from the partnership (interest on capital plus share of profit) will be at least $20,000; any shortfall is borne by Ella and Faisal in the ratio 3:2.Profit for the year ended 31 March 2026 was $54,000.
(a)Prepare the appropriation account for the year ended 31 March 2026.[6]
(b)Give two reasons why a partner might be offered a guaranteed minimum income.[2]
Show answer
(a)Appropriation account $ $Profit for the year 54,000Interest on capital: Ella 3,000 Faisal 2,000 Ghazala 1,000Salary: Faisal 6,000 (12,000)Residual profit 42,000Share of profit: Ella (14,000 − 3,000) 11,000 Faisal (14,000 − 2,000) 12,000 Ghazala (14,000 + 5,000) 19,000 42,000
B1 interest on capital; B1 salary; B1 residual 42,000 and equal shares 14,000; M1 Ghazala's total 1,000 + 14,000 = 15,000, shortfall 5,000; A1 shortfall split Ella 3,000, Faisal 2,000; A1 final shares 11,000/12,000/19,000.
(b) To attract a new partner with skills or contacts to join; to give a junior partner a secure income while the business grows.
1 mark each: attract/keep a partner with valuable skills; security of income for a new or junior partner; compensation for giving up a salaried job; reward for bringing customers.
Q23Appropriation and current accounts · Challenge · Paper 3 style · 8 marks
Junaid and Khadija share residual profits 3:2. After interest on capital (Junaid $3,000, Khadija $2,000) the draft profit for the year ended 30 September 2026 of $72,000 had been appropriated, giving residual shares of Junaid $40,200 and Khadija $26,800. The following errors were then found:1 closing inventory had been overstated by $4,5002 electricity owing of $1,200 had not been recorded3 goods costing $2,000 taken by Khadija for her own use had not been recorded4 depreciation of $3,000 on a vehicle had been omitted.
(a)Prepare a statement showing the corrected profit for the year.[4]
(b)Calculate the corrected residual profit shares.[2]
(c)Calculate the overall effect of the corrections on Khadija's current account balance.[2]
Share of profit falls 26,800 − 24,120 = 2,680 (M1); drawings rise 2,000; total reduction 4,680 (A1).
Q24Appropriation and current accounts · Challenge · Paper 2 style · 7 marks
Mansoor and Nida share residual profits equally in a courier business in Peshawar. For the year ended 31 March 2026: Mansoor $ Nida $Interest on capital 3,600 2,400Salary 10,000Interest on drawings 500 300Current account 1 April 2025 2,000 Cr 1,500 DrDrawings 28,000 35,000Mansoor's current account balance on 31 March 2026 was $4,100 credit. The profit for the year was mislaid.
(a)Calculate Mansoor's share of the residual profit.[2]
(b)Calculate the profit for the year.[3]
(c)Calculate Nida's current account balance on 31 March 2026.[2]
Q25Partnership statement of profit or loss · Core · Paper 2 style · 6 marks
The draft profit for the year of a partnership running a tuition centre in Lahore was $58,400. The following items were then discovered:1 rent of $1,200 paid in advance had been charged as an expense of this year2 wages of $900 owing at the year end had been omitted3 interest of $1,500 on a partner's loan had been shown in the appropriation account4 depreciation of $4,000 on furniture had not been charged.
(a)Prepare a statement showing the corrected profit for the year.[4]
(b)State two items that appear in a partnership appropriation account but not in a sole trader's statement of profit or loss.[2]
1 mark for each correctly treated item, with final 53,200.
(b) Interest on capital; partners' salaries.
1 mark each for any two: interest on capital; partners' salaries; interest on drawings; share of residual profit.
Q26Partnership statement of profit or loss · Standard · Paper 2 style · 8 marks
Osman and Parveen own a hardware shop in Rawalpindi. Information for the year ended 31 March 2026: $Revenue 412,000Sales returns 6,000Inventory 1 April 2025 38,000Purchases 236,000Carriage inwards 4,500Inventory 31 March 2026 41,500Wages paid 52,000Rent paid 18,000General expenses 9,800Irrecoverable debts 1,200Discounts received 1,700Equipment at cost 60,000Loan from Osman (received 1 April 2025) 40,000Additional information:1 wages of $2,400 were owing at 31 March 20262 rent paid includes $1,500 for April 20263 equipment is depreciated at 10% per annum on cost4 interest on Osman's loan is 5% per annum; none has been paid.
(a)Prepare the first part of the statement of profit or loss for the year ended 31 March 2026, down to gross profit.[3]
(b)Complete the statement of profit or loss to show the profit for the year.[5]
Show answer
(a)Statement of profit or loss (extract) $ $Revenue 412,000Less sales returns (6,000) 406,000Inventory 1 April 2025 38,000Purchases 236,000Carriage inwards 4,500Less inventory 31 March 2026 (41,500)Cost of sales (237,000)Gross profit 169,000
B1 net revenue 406,000; B1 cost of sales 237,000 (carriage inwards included); B1 gross profit 169,000.
(b)Statement of profit or loss (continued) $ $Gross profit 169,000Discounts received 1,700 170,700Wages (52,000 + 2,400) 54,400Rent (18,000 − 1,500) 16,500General expenses 9,800Depreciation – equipment 6,000Irrecoverable debts 1,200Interest on Osman's loan 2,000Total expenses (89,900)Profit for the year 80,800
B1 discount received added; B1 wages 54,400; B1 rent 16,500; B1 depreciation 6,000 and loan interest 2,000 as expenses; B1 profit 80,800 (own figure rule).
Q27Partnership statement of profit or loss · Standard · Paper 1 style · 1 mark
(a)Which item is charged in a partnership's statement of profit or loss rather than in its appropriation account?[1]
Show answer
(a) B interest on a loan made to the business by a partner
A partner's loan is a liability of the business, so its interest is an expense. A, C and D are ways of dividing profit between the owners and belong in the appropriation account.
Q28Partnership statement of profit or loss · Challenge · Paper 2 style · 8 marks
Quratulain and Rashid run a printing and design studio in Karachi, sharing residual profits equally. Information for the year ended 31 December 2025: $Fees from customers 186,000Inventory of materials 1 January 2025 3,200Purchases of materials 40,300Inventory of materials 31 December 2025 2,500Staff wages 48,000Rent paid 15,600Electricity 7,400Insurance paid 3,600Printers: carrying amount 1 January 2025 36,000Loan from Rashid (since 1 January 2025) 20,000Additional information:1 rent of $1,300 is owing2 insurance paid includes $900 for 20263 printers are depreciated at 25% per annum using the reducing balance method4 Rashid's loan carries interest at 7% per annum; none has been paid5 interest on capital is 5% per annum: capitals Quratulain $50,000, Rashid $30,0006 Quratulain receives a salary of $12,000.
(a)Prepare the statement of profit or loss for the year ended 31 December 2025.[5]
(b)Prepare the appropriation account for the year ended 31 December 2025.[3]
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(a)Statement of profit or loss $ $Fees 186,000Cost of materials used (3,200 + 40,300 − 2,500) (41,000) 145,000Staff wages 48,000Rent (15,600 + 1,300) 16,900Electricity 7,400Insurance (3,600 − 900) 2,700Depreciation – printers 9,000Loan interest – Rashid 1,400Total expenses (85,400)Profit for the year 59,600
B1 materials used 41,000; B1 rent 16,900 and insurance 2,700; B1 depreciation 9,000; B1 loan interest 1,400 as an expense; B1 profit 59,600.
(b)Appropriation account $Profit for the year 59,600Interest on capital: Quratulain (2,500) Rashid (1,500)Salary: Quratulain (12,000)Residual profit 43,600Quratulain (1/2) 21,800Rashid (1/2) 21,800
B1 interest on capital; B1 salary; B1 residual 43,600 shared 21,800 each (own figure rule).
Q29Partnership Act and agreements · Core · Paper 2 style · 6 marks
Asma and Bushra started a partnership without a written partnership agreement.
(a)State four provisions of the Partnership Act 1890 that will apply to their partnership.[4]
(b)Suggest why the partners should draw up a written partnership agreement.[2]
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(a) Profits and losses are shared equally; no interest is allowed on capital; no interest is charged on drawings; no salaries are paid to partners; interest of 5% per annum is paid on partners' loans.
1 mark each for any four of the five provisions listed.
(b) So that terms such as profit sharing, salaries and interest suit their different capital and work contributions, and to avoid disputes later.
1 mark: tailor terms to contributions (capital, time, skills). 1 mark: reduce disputes / clear rules for admission, retirement, dissolution.
Q30Partnership Act and agreements · Standard · Paper 2 style · 6 marks
Shoaib and Tahira formed a partnership without any agreement. Shoaib contributed capital of $60,000 and also lent the business $20,000 at the start of the year. Tahira contributed capital of $40,000 and works full time in the business; Shoaib works part time. The profit for the year before any interest on Shoaib's loan was $50,000. Shoaib claims profits should be shared in the ratio of capitals.
(a)Calculate each partner's share of the profit as required by the Partnership Act 1890.[3]
(b)Calculate Shoaib's total income from the business for the year.[1]
(c)Explain whether Shoaib's claim is valid.[2]
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(a) Shoaib $24,500; Tahira $24,500.
Loan interest 5% × 20,000 = 1,000 is an expense (M1); profit 49,000 (A1) shared equally 24,500 each (A1).
(b) $25,500
24,500 + 1,000 = 25,500 (B1).
(c) No. Without an agreement the Act requires equal sharing of profits, whatever the capital contributed.
1 mark: claim not valid. 1 mark: the Act applies when there is no agreement – equal shares, no interest on capital.
Similar questions
Questions that test the same subtopic in different years, grouped so you can work on one skill at a time.
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Admission, retirement and goodwill4 questions · 4/9 sessions
