Question

Eyes and Mouth started an accounting firm on January 1, 2018. Each partner brought
GHC15,000 but Eyes made an additional payment of GHC10,000 to the firm. The profit for the
first year was GHC8,500, and during the course of the year each partner had taken GHC2,400
from the firm for personal use.
Requirement One: Prepare
i. The partners appropriation account for the first year (January 1 to December, 2018)
ii. Partners current accounts for the first year (January 1 to December, 2018)
iii. The extract of the statement of financial position as at December 31, 2018.
During the second year of operations (2019), Eyes and Mouth admitted Nose who brought
GHC5,000 as capital to improve the finances of the firm. An agreement was reached which
provides that Eyes receive a commission of 5% of the profit. Nose is allowed a salary of
GHC600. Interest is allowed on capital and charged on drawings at 6% per annum. Interest on
the loan was raised to 8% per annum.
Profit are shared equally for the first GHC3,000, and any profit above GHC3,000 is to be shared
in the ratios 4:4:1 respectively. Profit for the year 2019 before any adjustments above were
GHC22,000 and the drawings were GHC3,600 each for Eyes and Mouth and GHC2,400 for
Nose. It is assumed that funds were drawn out regularly throughout the year.
Requirement Two: Prepare the appropriation account for the year ended 2019.
If Arms and Legs are in partnership on December 31, 2019; sharing profits and losses in the
ratios of 3:2 respectively; when they agree to admit Head into the partnership on the following
terms: Assets are to be revalued as follows: Premises GHC9,500; Machinery GHC2,500;
Inventory GHC4,500; Goodwill GHC1,000. A provision for Bad debts of GHC300 is to be
created.
The statement of financial position prior to the admission of Head, and the adjustments given
above, was as follows:

Head was to bring in GHC5,000 as his capital contribution for a quarter share of the future
profits; Arms and Legs as between themselves continuing to share profit profits in the same
ratios as previously. The goodwill is to be written off immediately following the introduction of
the new partner.
Requirement Three: Prepare
i. the Revaluation Account,
ii. the Capital Accounts of the partners immediately after the introduction of the new partner and
iii. the Statement of Financial Position of the new firm Arms, Legs and Head as it will appear
January 1, 2020.

Head was to bring in GHC5,000 as his capital contribution for a quarter share of the future
profits; Arms and Legs as between themselves continuing to share profit profits in the same
ratios as previously. The goodwill is to be written off immediately following the introduction of
the new partner.
Requirement Three: Prepare
i. the Revaluation Account,
ii. the Capital Accounts of the partners immediately after the introduction of the new partner and
iii. the Statement of Financial Position of the new firm Arms, Legs and Head as it will appear
January 1, 2020.

Answer 1

ANSWER TO REQUIREMENT ONE

1) Partners appropriation account for the year ened on 31.12.2018

DATE	PARTICULERS	AMOUNT	DATE	PARTICULERS	AMOUNT
			31.12.2018	BY Profit & loss account	8500.00
31.12.2018	To, Profit trasfered to partners current account EYES-4250 MOUTH-4250	8500.00
		8500.00			8500.00

2) Partners current accounts for the year ended on 31.12.2018

PARTICULERS	AMOUNT EYES	AMOUNT MOUTH	PARTICULERS	AMOUNT EYES	AMOUNT MOUTH
TO, Drawings	2400.00	2400.00	BY Partners	4250.00	4250.00
To, Partners capital a/c	1850.00	1850.00
	4250.00	4250.00		4250.00	4250.00

3) The extract of the statement of financial position as at December 31, 2018

BALANCE SHEET AS ON 31.12.218

LIABILITIES	AMOUNT	ASSETS	AMOUNT
PARTERNS CAPITAL	33700.00
EYES-16850
MOUTH-16850
PARTNERS LOAN	10000.00
EYES-10000

ANSWER TO REQUIREMENT TWO

1) Partners appropriation account for the year ened on 31.12.2019

PARTICULERS	AMOUNT	PARTICLUERS	AMOUNT
To, Interest on partners loan	800.00	BY Profit & Loss a/c	22000.00
EYES-800		By Interest on Drwaings	576.00
To, Interest on Partneres Capital	2322.00	EYES-216
EYES-1011		MOUTH-216
MOUTH-1011		NOSE-144
NOSE-300
TO, SALARY(NOSE)	600.00
TO, Commission - EYES	1100.00
TO, Partners Capital A/c	17754.00
EYES-7557.33
MOUTH-7557.33
NOSE- 2639.33
	22576.00		22576.00