Partnership Accounts Practice Questions — JAMB UTME — Page 2

Question 21Question →

Zainab and Tariq are partners sharing profits and losses in the ratio $3:2$ . On 1st January 2025, their fixed capital balances were $\text{₦}800,000$ and $\text{₦}500,000$ , while their current account balances were $\text{₦}45,000$ (Credit) and $\text{₦}12,000$ (Debit) respectively. Zainab had also granted a loan of $\text{₦}100,000$ to the firm on 1st January 2025 at $10\%$ interest per annum. For the year ended 31st December 2025, the net profit before charging loan interest was $\text{��}340,000$ .

Additional partnership details for the year:
- Interest on capital is allowed at $5\%$ per annum on fixed capital.
- Tariq is entitled to an annual partner salary of $\text{₦}35,000$ .
- Interest on drawings charged: Zainab $\text{₦}5,000$ , Tariq $\text{₦}3,000$ .
- Drawings made during the year: Zainab $\text{₦}50,000$ , Tariq $\text{₦}30,000$ .

If the partners decide to switch from a fixed capital system to a fluctuating capital system at year-end by amalgamating their current account balances into their capital accounts, what is the closing balance of Tariq's Capital Account as at 31st December 2025?

₦610,200

₦614,200

₦634,200

₦670,200

Show answer & explanation

Answer: ₦610,200

Answer

The closing balance of Tariq's Capital Account as at 31st December 2025 under the fluctuating capital system is ₦610,200.

The correct answer is derived by first deducting the ₦10,000 interest on Zainab's loan from net profit to arrive at an adjusted net profit of ₦330,000. Adding total interest on drawings (₦8,000) and deducting interest on capital (₦65,000) and partner salary (₦35,000) yields a residual profit of ₦238,000, of which Tariq's 2/5 share is ₦95,200. Combining Tariq's credits (₦25,000 interest on capital + ₦35,000 salary + ₦95,200 profit share) and deducting his debits (₦12,000 opening debit balance + ₦30,000 drawings + ₦3,000 interest on drawings) gives a net current account balance of ₦110,200 (Credit). Merging this with his fixed capital of ₦500,000 yields a total fluctuating closing capital of ₦610,200.

Step-by-Step Solution

1

Calculate the correct Net Profit after charging interest on partner loan

Net Profit = ₦340,000 - (10% of ₦100,000) = ₦330,000

Interest on partner's loan is a charge against profit (debited to P&L account), not an appropriation of profit.

2

Compute total appropriations and residual profit available for sharing

Divisible Profit = ₦330,000 + ₦8,000 (Interest on Drawings) - ₦65,000 (Interest on Capital) - ₦35,000 (Tariq's Salary) = ₦238,000

Interest on drawings increases profits available for distribution, while interest on capital and salary reduce it.

3

Calculate Tariq's share of residual profit

Tariq's Share = (2 / 5) * ₦238,000 = ₦95,200

Profits are shared in the agreed ratio of 3:2.

4

Determine Tariq's ending Current Account balance

Credit items = ₦25,000 (Interest on Capital) + ₦35,000 (Salary) + ₦95,200 (Share of Profit) = ₦155,200. Debit items = ₦12,000 (Opening Dr Balance) + ₦30,000 (Drawings) + ₦3,000 (Interest on Drawings) = ₦45,000. Net Current Account Balance = ₦155,200 - ₦45,000 = ₦110,200 (Credit)

Debits (drawings, interest on drawings, opening debit balance) are subtracted from credits (salary, interest on capital, profit share).

5

Calculate Tariq's closing fluctuating capital account balance

Closing Capital Balance = Opening Fixed Capital (₦500,000) + Ending Current Account Balance (₦110,200) = ₦610,200

Under a fluctuating capital system, capital and current account entries are combined into a single capital account.

Key Concept

Fixed vs Fluctuating Capital Accounts in Partnership Accounting

Estimated Time:3m 0s

Question 22Question →

Zainab and Chidi are partners in a firm. For the year ended 31 December 2025, the firm reported a net profit of ₦450,000 before accounting for interest on Chidi's loan of ₦50,000 at 10% per annum.

According to their partnership agreement:
- Interest on capital: Zainab ₦20,000; Chidi ₦15,000
- Annual salary: Zainab ₦60,000
- Interest on drawings: Zainab ₦5,000; Chidi ₦4,000
- Profit-sharing ratio: 3:2

What is the net divisible profit to be shared between the partners?

Show answer & explanation

Answer: 359000

Answer

The net divisible profit to be shared between the partners is ₦359,000.

The correct net divisible profit is ₦359,000. Interest on a partner's loan is a charge against profit and must be deducted to find the true net profit (₦450,000 - ₦5,000 = ₦445,000). Adding total interest on drawings (₦9,000) yields ₦454,000. Deducting interest on capital (₦35,000) and partner salary (₦60,000) leaves ₦359,000 as net divisible profit.

Step-by-Step Solution

1

Calculate interest on partner's loan and adjust the Net Profit

Adjusted Net Profit = ₦445,000

Interest on a partner's loan (10% of ₦50,000 = ₦5,000) is a charge against profit (debited to Profit and Loss Account), not an appropriation.

2

Add Interest on Drawings to Adjusted Net Profit

Total available profit = ₦454,000

Interest on drawings (₦5,000 + ₦4,000 = ₦9,000) is an income to the partnership and increases divisible profit.

3

Subtract Appropriations (Interest on Capital and Partner Salary)

Net Divisible Profit = ₦359,000

Interest on capital (₦20,000 + ₦15,000 = ₦35,000) and partner salary (₦60,000) are appropriations of profit and reduce the total profit available for sharing.

Key Concept

Distinction between charges against profit (e.g., loan interest) and appropriations of profit (e.g., interest on capital, salaries, interest on drawings).

Question 23Question →

Ngozi and Bello are partners in a firm sharing profits and losses in the ratio of $3:2$ . They admit Emeka into the partnership for a $\frac{1}{4}$ share of future profits. Emeka pays $\mathcal{N}20,000$ in cash as his share of premium for goodwill, which is to be retained in the business. Which of the following correctly describes the ledger entry required to credit the existing partners for the goodwill premium?

Credit Ngozi's Capital Account with

\mathcal{N}12,000

and Bello's Capital Account with

\mathcal{N}8,000

Credit Ngozi's Capital Account with

\mathcal{N}10,000

and Bello's Capital Account with

\mathcal{N}10,000

Debit Ngozi's Capital Account with

\mathcal{N}12,000

and Bello's Capital Account with

\mathcal{N}8,000

Credit Ngozi's Capital Account with

\mathcal{N}15,000

and Bello's Capital Account with

\mathcal{N}5,000

Show answer & explanation

Answer: Credit Ngozi's Capital Account with $\mathcal{N}12,000$ and Bello's Capital Account with $\mathcal{N}8,000$

Answer

Credit Ngozi's Capital Account with

\mathcal{N}12,000

and Bello's Capital Account with

\mathcal{N}8,000

When an incoming partner brings cash for premium for goodwill, the cash is debited to the Bank/Cash account and credited to the existing partners' capital accounts in their sacrificing ratio. With an old ratio of

3:2

, Ngozi receives

\frac{3}{5} \times \mathcal{N}20,000 = \mathcal{N}12,000

and Bello receives

\frac{2}{5} \times \mathcal{N}20,000 = \mathcal{N}8,000

.

Step-by-Step Solution

1

Determine the sacrificing ratio of the existing partners

Since no new ratio is explicitly stated, the sacrificing ratio equals the old profit-sharing ratio of

3:2

(total parts =

3 + 2 = 5

).

When a new partner is admitted without specific new ratio details, existing partners sacrifice in their old profit-sharing ratio.

2

Calculate Ngozi's share of the goodwill premium

Ngozi's share =

\frac{3}{5} \times \mathcal{N}20,000 = \mathcal{N}12,000

Multiply total premium by Ngozi's proportion of the sacrificing ratio.

3

Calculate Bello's share of the goodwill premium

Bello's share =

\frac{2}{5} \times \mathcal{N}20,000 = \mathcal{N}8,000

Multiply total premium by Bello's proportion of the sacrificing ratio.

4

Formulate the credit entry to capital accounts

Credit Ngozi's Capital Account with

\mathcal{N}12,000

and Bello's Capital Account with

\mathcal{N}8,000

.

Goodwill premium brought in cash is credited to old partners' capital accounts to compensate them for sacrificing future profit shares.

Key Concept

Accounting treatment of premium for goodwill on admission of a partner

Question 24Question →

Ade, Bola, and Femi are in a partnership sharing profits and losses in the ratio of $3:2:1$ respectively. Bola decides to retire from the business. On the date of his retirement, a revaluation of assets yielded a profit of $\text{₦}12,000$ . What is Bola's share of the revaluation profit?

\text{₦}4,000

\text{₦}6,000

\text{₦}2,000

\text{₦}12,000

Show answer & explanation

Answer: $\text{₦}4,000$

Answer

Bola's share of the revaluation profit is

\text{₦}4,000

.

The correct answer of

\text{₦}4,000

is obtained by multiplying the total revaluation profit of

\text{₦}12,000

by Bola's profit-sharing fraction of

\frac{2}{3+2+1} = \frac{2}{6}

.

Step-by-Step Solution

1

Calculate the total ratio parts

3 + 2 + 1 = 6

total parts.

The profit-sharing ratio components must be summed to determine each partner's fraction of the total profit.

2

Apportion the revaluation profit to Bola

\frac{2}{6} \times \text{₦}12,000 = \text{₦}4,000

.

Bola's specified proportion is 2 parts out of the total 6 parts.

Key Concept

Revaluation Profit Distribution upon Partner Retirement

Question 25Question →

Emeka and Chidi are partners sharing profits and losses in the ratio $3:1$ . On 1st July 2025, they agree to revalue their assets and liabilities as follows: Machinery recorded at ₦150,000 is revalued to ₦180,000; Furniture recorded at ₦80,000 is revalued to ₦70,000; a provision for doubtful debts of $5\%$ is created on Debtors of ₦60,000; and an unrecorded legal expense of ₦5,000 is recognized. What is Emeka's share of the net revaluation profit or loss?

₦9,000 profit

₦3,000 profit

₦15,000 profit

₦9,000 loss

Show answer & explanation

Answer: ₦9,000 profit

Answer

₦9,000 profit

The net revaluation profit is calculated by subtracting all losses and provisions from the asset appreciation gains: +₦30,000 (Machinery) - ₦10,000 (Furniture) - ₦3,000 (Provision) - ₦5,000 (Legal Expense) = ₦12,000 net profit. Multiplying ₦12,000 by Emeka's share of 3/4 yields ₦9,000 profit.

Step-by-Step Solution

1

Calculate gains and losses on asset and liability revaluation

Gain on Machinery = ₦180,000 - ₦150,000 = +₦30,000. Loss on Furniture = ₦80,000 - ₦70,000 = -₦10,000. Provision for Doubtful Debts = 5% of ₦60,000 = -₦3,000. Unrecorded Legal Expense = -₦5,000.

Increases in asset values are gains (credited), while decreases in asset values, new provisions, and unrecorded liabilities are losses (debited) in the Revaluation Account.

2

Calculate net profit or loss on revaluation

Net Revaluation Profit = ₦30,000 - ₦10,000 - ₦3,000 - ₦5,000 = ��12,000 profit.

Total gains exceed total losses by ₦12,000, creating a net credit balance in the Revaluation Account.

3

Share the net revaluation profit to Emeka using the old profit-sharing ratio

Emeka's Share =

\frac{3}{3 + 1} \times ₦12,000 = \frac{3}{4} \times ₦12,000 = ₦9,000

profit.

Revaluation profit or loss belongs to existing partners and must be divided using their old profit-sharing ratio.

Key Concept

Revaluation Account Profit Determination and Allocation

Question 26Question →

Match each partnership revaluation transaction or event on the left with its correct accounting entry or treatment on the right.

Click a left item, then click its matching right item

Show answer & explanation

Answer

Increase in the book value of Land and Buildings matches Credited to the Revaluation Account; Decrease in the book value of Stock matches Debited to the Revaluation Account; Distribution of net Revaluation Profit matches Credited to Partners' Capital Accounts in the old profit-sharing ratio; Distribution of net Revaluation Loss matches Debited to Partners' Capital Accounts in the old profit-sharing ratio.

In partnership revaluation accounting, gains from asset appreciation or liability reductions are credited to the Revaluation Account, while losses from asset depreciations or unrecorded liabilities are debited. When the account is closed, net profit is credited to the partners' capital accounts in their old profit-sharing ratio, whereas net loss is debited to the partners' capital accounts in their old profit-sharing ratio.

Step-by-Step Solution

1

Identify the nature of asset value adjustments (gains vs. losses).

Asset appreciation increases firm equity (gain), whereas asset depreciation/reduction reduces firm equity (loss).

Revaluation Account rules require crediting gains (increases in assets/decreases in liabilities) and debiting losses (decreases in assets/increases in liabilities).

2

Determine the accounting entry for closing a net revaluation profit balance.

Net revaluation profit is debited to Revaluation Account and credited to existing partners' capital accounts.

Revaluation profit belongs to the existing partners in their old profit-sharing ratio prior to admission or restructuring.

3

Determine the accounting entry for closing a net revaluation loss balance.

Net revaluation loss is credited to Revaluation Account and debited to existing partners' capital accounts.

Revaluation losses reduce partners' capital balances in their old profit-sharing ratio.

Key Concept

Double-entry rules for the Revaluation Account and allocation of revaluation profit/loss in partnership accounts

Question 27Question →

Zainab and Babatunde are partners in a haulage enterprise sharing profits and losses in the ratio of $3:2$ . Prior to the admission of Chijioke, their capital balances were $\text{₦}400,000$ and $\text{₦}300,000$ respectively. Upon admitting Chijioke to a $\frac{1}{5}$ share in the profits, the firm's assets were revalued, resulting in an appreciation of $\text{₦}80,000$ on machinery and a depreciation of $\text{₦}20,000$ on inventory. Additionally, goodwill was valued at $\text{₦}150,000$ , and Chijioke brought in his share of goodwill premium in cash to be distributed to the existing partners. What is the updated balance of Zainab's capital account immediately following these admission adjustments?

Show answer & explanation

Answer: 454000

Answer

The updated balance of Zainab's capital account immediately following the admission adjustments is ₦454,000.

Zainab's capital account begins with ₦400,000. The net gain on revaluation (₦80,000 appreciation minus ₦20,000 depreciation = ₦60,000) is split in the old ratio of 3:2, adding ₦36,000 to her account. The goodwill premium paid by Chijioke is 1/5 of ₦150,000, which equals ₦30,000; Zainab receives 3/5 of this premium (₦18,000). Adding these yields an updated capital balance of ₦454,000.

Step-by-Step Solution

1

Calculate the net gain or loss on revaluation of assets

Net Revaluation Gain = ₦80,000 - ₦20,000 = ₦60,000

Appreciation increases asset value while depreciation decreases it. The net figure represents total gain shared by existing partners.

2

Distribute the net revaluation gain to Zainab using the old profit sharing ratio

Zainab's Share of Revaluation Gain = 3/5 × ₦60,000 = ₦36,000

Revaluation gains belong to existing partners in their old profit sharing ratio.

3

Determine Chijioke's share of goodwill and allocate premium to Zainab

Goodwill Premium = 1/5 × ₦150,000 = ₦30,000; Zainab's Share = 3/5 × ₦30,000 = ₦18,000

The incoming partner pays premium for goodwill proportional to their profit share, which is credited to existing partners in their sacrificing ratio.

4

Sum Zainab's initial capital and all admission credits

Updated Capital Balance = ₦400,000 + ₦36,000 + ₦18,000 = ₦454,000

Capital accounts increase with revaluation gains and goodwill premium credits.

Key Concept

Adjustment of Partner's Capital Account on Admission

Question 28Question →

Bello and Kabir are partners in a trading firm sharing profits and losses in the ratio of $4:1$ . They admit Danladi into the partnership, giving him a $\frac{1}{6}$ share of future profits. The goodwill of the firm is valued at $\text{₦}120,000$ , and Danladi brings in his required share of goodwill in cash. What is the amount of goodwill premium (in Naira) to be credited to Kabir's capital account?

Show answer & explanation

Answer: 4000

Answer

The amount of goodwill premium credited to Kabir's capital account is ₦4,000.

The total goodwill of the firm is

\text{₦}120,000

. Danladi's

\frac{1}{6}

share of goodwill is

\frac{1}{6} \times \text{₦}120,000 = \text{₦}20,000

. This premium is shared between Bello and Kabir in their sacrificing ratio of

4:1

. Therefore, Kabir receives

\frac{1}{5} \times \text{₦}20,000 = \text{₦}4,000

.

Step-by-Step Solution

1

Determine the new partner's share of goodwill

Danladi's share of goodwill =

\frac{1}{6} \times \text{₦}120,000 = \text{₦}20,000

The incoming partner pays a premium for goodwill proportional to their share of future profits.

2

Apportion the goodwill premium to the existing partners

Kabir's share =

\frac{1}{5} \times \text{₦}20,000 = \text{₦}4,000

Goodwill premium brought in cash by a new partner is credited to existing partners in their sacrificing ratio (which equals their old profit-sharing ratio of

4:1

when no new ratio among old partners is specified).

Key Concept

Valuation and distribution of goodwill premium upon admission of a new partner

Question 29Question →

Musa, Emeka, and Audu are partners in a firm sharing profits and losses equally. Upon Audu's death, his capital account balance stands at $\text{₦}45,000$ . The revaluation of assets resulted in a profit where Audu's share is $\text{₦}5,000$ , and his share of goodwill is valued at $\text{₦}10,000$ . What is the total amount payable to Audu's executor?

Show answer & explanation

Answer: 60000

Answer

The total amount payable to Audu's executor is

\text{₦}60,000

.

The total amount due to the deceased partner's executor is calculated by adding all credit adjustments (revaluation profit share and goodwill share) to the partner's opening capital balance:

\text{₦}45,000 + \text{₦}5,000 + \text{₦}10,000 = \text{₦}60,000

.

Step-by-Step Solution

1

Add the deceased partner's initial capital balance, share of revaluation profit, and share of goodwill.

\text{₦}45,000 + \text{₦}5,000 + \text{₦}10,000 = \text{₦}60,000

When a partner dies, their capital account is credited with their balance of capital, share of asset revaluation profits, and share of goodwill before transferring the total amount to the executor's account.

Key Concept

Deceased Partner Settlement

Question 30Question →

Sola and Musa are partners in a consulting firm sharing profits and losses in the ratio of $3:1$ . They admit Obinna into the partnership with a $\frac{1}{5}$ share of future profits. Obinna brings in $\text{₦}120,000$ in cash as goodwill premium to be shared by the existing partners. How much goodwill premium will be credited to Musa's capital account?

\text{₦}90,000

\text{₦}40,000

\text{₦}30,000

\text{₦}24,000

Show answer & explanation

Answer: $\text{₦}30,000$

Answer

Musa will be credited with

\text{₦}30,000

as his share of the goodwill premium.

Goodwill premium paid by an incoming partner is distributed among existing partners in their sacrificing ratio. Since no special agreement is mentioned, Sola and Musa sacrifice in their original profit sharing ratio of

3:1

. Musa's share is

\frac{1}{4} \times \text{₦}120,000 = \text{₦}30,000

.

Step-by-Step Solution

1

Determine the sacrificing ratio of the existing partners

Since no specific sacrifice terms are given, Sola and Musa sacrifice in their old profit sharing ratio of

3:1

.

When a new partner is admitted without a specified new ratio, existing partners sacrifice in proportion to their old ratio.

2

Calculate Musa's share of the goodwill premium

\text{Musa's share} = \frac{1}{3 + 1} \times \text{₦}120,000 = \frac{1}{4} \times \text{₦}120,000 = \text{₦}30,000

.

Goodwill premium brought in cash by an incoming partner is credited to existing partners' capital accounts in their sacrificing ratio.

Key Concept

Distribution of Goodwill Premium upon Admission of a New Partner

Estimated Time:1m 30s

Question 31Question →

Complete the statement regarding the accounting settlement for a retiring partner.

Fill in the blanks below

Upon the retirement of a partner, if the total settlement amount due to them is not immediately paid out in cash or bank, the balance of their capital account is transferred to a account.

Show answer & explanation

Answer

loan

When a partner leaves the firm and the business cannot settle their capital account immediately in cash, the credit balance in the retiring partner's capital account is transferred to a loan account in their name, representing a liability for the continuing partnership.

Step-by-Step Solution

1

Determine the final balance payable to the retiring partner after adjusting for goodwill, revaluation, and reserves.

The net amount due to the retiring partner is established in their capital account.

All share of revaluation profit/loss, goodwill adjustments, and accumulated reserves must be closed into the retiring partner's capital account first.

2

Record the transfer of the unpaid capital balance upon retirement.

Debit the retiring partner's capital account and credit the retiring partner's loan account.

Because the retiring partner ceases to be an owner, the unpaid balance cannot remain in the equity section and must be reclassified as an internal liability (loan) owed by the remaining partners.

Key Concept

Settlement of Retiring Partner's Account via Loan Account

Question 32Question →

Kofi and Ama are partners sharing profits and losses in the ratio $3:2$ . On the dissolution of their partnership, the book values of the assets transferred to the Realization Account were: Buildings ₦ $150,000$ , Plant and Machinery ₦ $80,000$ , Debtors ₦ $50,000$ , and Stock ₦ $30,000$ . The assets were realized as follows: Buildings ₦ $180,000$ , Plant and Machinery ₦ $70,000$ , Debtors ₦ $45,000$ , and Stock ₦ $25,000$ . Dissolution expenses of ₦ $6,000$ were paid. What is Kofi's share of the profit on realization in Naira?

Show answer & explanation

Answer: 2400

Answer

Kofi's share of the realization profit is ₦2,400.

The total realization proceeds from all assets amount to ₦320,000. Subtracting the book value of transferred assets (₦310,000) and the realization expenses (₦6,000) gives a net profit on realization of ₦4,000. Applying Kofi's profit-sharing ratio of 3/5 yields a share of ₦2,400.

Step-by-Step Solution

1

Calculate Total Book Value of Assets

₦310,000

Assets transferred to the Realization Account are debited at their book values:

150,000 + 80,000 + 50,000 + 30,000 = 310,000

.

2

Calculate Total Realized Value of Assets

₦320,000

Gross proceeds from asset sales credited to Realization Account:

180,000 + 70,000 + 45,000 + 25,000 = 320,000

.

3

Determine Net Realization Profit

₦4,000

Net Profit =

\text{Total Credits} - \text{Total Debits} = 320,000 - (310,000 + 6,000) = 4,000

.

4

Apportion Profit to Kofi

₦2,400

Kofi's profit share =

\frac{3}{3+2} \times 4,000 = 2,400

.

Key Concept

Calculation and distribution of net profit or loss on the Realization Account during partnership dissolution

Estimated Time:1m 30s

Question 33Question →

Ade and Femi are partners in a business sharing profits and losses in the ratio $3:2$ . The partnership agreement specifies that the firm maintains fixed capital accounts. On 1st January 2025, Ade's capital account balance was $\text{₦}1,200,000$ and his current account had a credit balance of $\text{₦}150,000$ .

During the year ended 31st December 2025, the following transactions occurred:
- Interest on capital is allowed at $5\%$ per annum on opening capital balances.
- Ade is entitled to an annual partner salary of $\text{₦}200,000$ .
- Ade made total drawings of $\text{₦}180,000$ during the year.
- Interest charged on Ade's drawings was $\text{₦}10,000$ .
- The net profit available for distribution (divisible profit) was $\text{₦}750,000$ .

What is the balance on Ade's current account as at 31st December 2025?

₦670,000 credit

₦1,870,000 credit

₦1,050,000 credit

₦520,000 credit

Show answer & explanation

Answer: ₦670,000 credit

Answer

₦670,000 credit

Under the fixed capital account system, fixed capital accounts remain unaltered while routine transactions (interest on capital, salaries, share of profit, drawings, and interest on drawings) pass through the current account. Crediting the opening balance (₦150,000), interest on capital (₦60,000), salary (₦200,000), and profit share (₦450,000) gives total credits of ₦860,000. Subtracting the debits for drawings (₦180,000) and interest on drawings (₦10,000) leaves a closing credit balance of ₦670,000.

Step-by-Step Solution

1

Calculate Ade's entitlements credited to his Current Account

Interest on Capital:

5\% \times \text{₦}1,200,000 = \text{₦}60,000

; Salary:

\text{₦}200,000

; Profit Share:

\frac{3}{5} \times \text{₦}750,000 = \text{₦}450,000

.

Under the fixed capital account system, partner appropriations such as salary, interest on capital, and share of profit are credited to the partner's current account.

2

Sum total credit items in Ade's Current Account

Opening Balance (Credit) + Interest on Capital + Salary + Share of Profit =

\text{₦}150,000 + \text{₦}60,000 + \text{₦}200,000 + \text{₦}450,000 = \text{₦}860,000

.

All additions to a partner's current account increase the credit side of the account.

3

Calculate total debit items in Ade's Current Account

Drawings + Interest on Drawings =

\text{₦}180,000 + \text{₦}10,000 = \text{₦}190,000

.

Drawings and interest on drawings reduce the partner's equity in the business and are debited to the current account.

4

Determine the net ending balance of the Current Account

Total Credits - Total Debits =

\text{₦}860,000 - \text{₦}190,000 = \text{₦}670,000\text{ credit}

.

Subtracting total debits from total credits yields the net credit balance at year-end.

Key Concept

Fixed Capital Account System in Partnership Accounting

Estimated Time:2m 0s

Question 34Question →

Match each partnership revaluation event on the left with its correct posting entry in the Revaluation Account on the right.

Click a left item, then click its matching right item

Show answer & explanation

Answer

Increases in asset values and decreases in liability values are credited to the Revaluation Account as gains, whereas decreases in asset values and increases in liability values are debited to the Revaluation Account as losses.

The Revaluation Account functions as a nominal account. Any transaction that increases the net assets of the partnership (such as an appreciation in asset value or a reduction in liability value) represents a revaluation gain and is posted to the credit side. Any transaction that reduces net assets (such as asset write-downs or additional liabilities) represents a revaluation loss and is posted to the debit side.

Step-by-Step Solution

1

Classify each revaluation transaction as a gain or a loss to the partnership.

Plant increase and creditors reduction are gains; premises decrease and expense provision are losses.

Revaluation gains increase the overall net asset value of the firm, while revaluation losses reduce it.

2

Apply nominal account double-entry rules to the Revaluation Account.

Gains are posted on the credit side, and losses are posted on the debit side.

The Revaluation Account is a nominal account prepared to record profit or loss on the revaluation of assets and liabilities.

Key Concept

Double Entry Rules for Partnership Revaluation Account

Question 35Question →

Where partners fail to execute a formal Partnership Deed, which of the following correctly describes the accounting treatment and statutory rate of interest for a loan advanced by a partner under the provisions of the Partnership Act 1890?

It is entitled to interest at 5% per annum, which is charged as an expense in the Profit and Loss Account.

It is entitled to interest at 5% per annum, which is debited as an allocation in the Profit and Loss Appropriation Account.

It is entitled to interest at 6% per annum, which is treated as an appropriation of profit.

It attracts no interest because partner advances are treated as personal capital transactions outside the business entity.

Show answer & explanation

Answer: It is entitled to interest at 5% per annum, which is charged as an expense in the Profit and Loss Account.

Answer

It is entitled to interest at 5% per annum, which is charged as an expense in the Profit and Loss Account.

According to the Partnership Act 1890, when there is no Partnership Deed, any loan advanced by a partner in excess of agreed capital entitles the partner to interest at 5% per annum. Because this interest is a business obligation (charge against profit), it must be debited to the Profit and Loss Account rather than the Profit and Loss Appropriation Account.

Step-by-Step Solution

1

Identify the statutory default rule for partner loans under the Partnership Act 1890.

In the absence of an express agreement, a partner advancing money beyond capital is entitled to interest at 5% per annum.

The Partnership Act 1890 establishes statutory default terms when no written Partnership Deed exists.

2

Determine the proper accounting classification for interest on a partner's loan.

Interest on a partner's loan is classified as a charge against profit, not an appropriation of profit.

Loans are external financial obligations to the business entity, so the interest expense must be debited to the Profit and Loss Account to arrive at net profit.

Key Concept

Statutory treatment of partner loan interest under the Partnership Act 1890

Question 36Question →

Under the statutory provisions of the Partnership Act 1890, where a partner advances a financial loan to the business in excess of their agreed capital and the firm incurs an operating loss for the year, the partner remains legally entitled to 5% per annum interest on the loan, which is debited to the Profit and Loss Account as a charge against profit and thereby increases the net loss apportioned equally among the partners.

True

False

Show answer & explanation

Answer: True

Answer

True. Under the Partnership Act 1890, interest on a partner's loan is a charge against profit (an operating expense in the Profit and Loss Account), not an appropriation of profit. Therefore, it is payable at the statutory rate of 5% per annum regardless of whether the business makes a profit or a loss, thereby increasing the overall net loss to be shared equally among the partners.

The statement is true because the Partnership Act 1890 treats a partner's loan advance as a creditor liability of the firm. Interest on such loans at the statutory default rate of 5% per annum is a charge against profit that must be debited to the main Profit and Loss Account. Because it is an expense, it is payable even when the firm suffers an operating loss, which consequently increases the net loss to be distributed equally among partners.

Step-by-Step Solution

1

Identify the accounting classification of interest on a partner's loan under the Partnership Act 1890.

Interest on a partner's loan is classified as a charge against profit (an operating expense) rather than an appropriation of profit.

When a partner advances a loan beyond capital, they act in the capacity of a creditor to the firm.

2

Determine the accounting treatment of a charge against profit during a financial loss period.

Charges against profit must be debited to the Profit and Loss Account prior to determining final net profit or loss, irrespective of business profitability.

Unlike profit appropriations (such as interest on capital or partner salaries), business expenses are mandatory obligations.

3

Apply statutory default rules for loan interest rate and loss sharing.

The statutory interest of 5% per annum is debited to expand the net loss, and the enlarged net loss is allocated equally to the partners' current accounts.

The Partnership Act 1890 mandates equal sharing of profits and losses and 5% p.a. interest on loans when no formal deed states otherwise.

Key Concept

Statutory treatment of partner loan interest as a charge against profit under the Partnership Act 1890

Question 37Question →

Femi, Gbenga, and Hassan formed a commercial partnership without executing a formal Partnership Deed. Femi contributed $₦1,000,000$ as capital, Gbenga contributed $��600,000$ , and Hassan contributed no capital but managed daily operations full-time, demanding an annual salary of $₦300,000$ . On 1st July 2025, Gbenga advanced a loan of $₦200,000$ to the business. The net profit before adjusting for salaries or loan interest for the year ended 31st December 2025 was $₦410,000$ . In accordance with the Partnership Act 1890, what is Gbenga's share of the divisible profit for the year?

₦135,000

₦35,000

₦151,875

₦133,333

Show answer & explanation

Answer: ₦135,000

Answer

Gbenga's share of the divisible profit is ₦135,000.

Under the Partnership Act 1890, in the absence of a Partnership Deed: (1) profits and losses are shared equally among all partners, (2) no partner is entitled to a salary, and (3) interest on partner loan is allowed at 5% per annum as a charge against profit. Gbenga's loan interest for 6 months (July 1 to Dec 31) equals

₦200,000 \times 5\% \times \frac{6}{12} = ₦5,000

. Subtracting this charge from net profit yields

₦410,000 - ₦5,000 = ₦405,000

divisible profit. Splitting ₦405,000 equally among the three partners yields ₦135,000 for each partner.

Step-by-Step Solution

1

Calculate the statutory interest on partner loan under the Partnership Act 1890

Interest on Gbenga's loan =

₦200,000 \times 5\% \times \frac{6}{12} = ₦5,000

The Partnership Act 1890 grants 5% per annum interest on loans advanced by partners beyond their capital. Since the loan was advanced on 1st July 2025, interest applies for 6 months.

2

Determine net profit available for distribution (Divisible Profit)

Divisible Profit =

₦410,000 - ₦5,000 = ₦405,000

Interest on partner loan is a charge against profit (debited in the Profit and Loss Account), not an appropriation of profit. Partner salaries are disallowed in the absence of a deed.

3

Apportion the divisible profit among partners according to statutory default rules

Share per partner =

\frac{₦405,000}{3} = ₦135,000

Under the Partnership Act 1890, all partners share profits and losses equally regardless of their capital contributions.

Key Concept

Statutory default provisions under the Partnership Act 1890 in the absence of a formal Partnership Deed.

Question 38Question →

Kalu and Morenike established a commercial enterprise without executing a written partnership deed. Kalu contributed ₦4,000,000 as capital, while Morenike contributed ₦2,000,000. On 1st January 2025, Morenike provided an additional advance of ₦600,000 as a loan to the firm. During the year, Morenike managed daily operations and claimed a salary of ₦400,000. For the year ended 31st December 2025, the business reported a net profit of ₦1,830,000 before taking any interest or partner allowances into account. Under the statutory provisions of the Partnership Act 1890, what is Kalu's final share of profit?

₦900,000

₦915,000

₦1,200,000

₦700,000

Show answer & explanation

Answer: ₦900,000

Answer

₦900,000

Under the Partnership Act 1890, in the absence of a written partnership agreement: (1) interest on loan is allowed at 5% per annum as a charge against profit in the Profit and Loss Account, reducing profit to ₦1,800,000; (2) no salary is allowed to any partner; and (3) profits must be shared equally. Therefore, Kalu receives half of ₦1,800,000, which equals ₦900,000.

Step-by-Step Solution

1

Calculate interest on partner's loan under the Partnership Act 1890

Interest on Morenike's loan =

5\% \times ₦600,000 = ₦30,000

When no partnership deed exists, partners are entitled to 5% per annum interest on loans advanced to the firm.

2

Determine the adjusted net profit for appropriation

Adjusted Net Profit =

₦1,830,000 - ₦30,000 = ₦1,800,000

Interest on a partner's loan is a financial charge against profit (debited to the Profit and Loss Account), not an appropriation of profit.

3

Apply statutory rules regarding partner salary and profit sharing ratio

Partner salary = ₦0; Profit sharing ratio = Equal (1:1)

Under the Partnership Act 1890, partners are not entitled to remuneration/salary, and profits/losses must be shared equally regardless of capital contributions.

4

Compute Kalu's share of divisible profit

Kalu's share =

\frac{₦1,800,000}{2} = ₦900,000

Divisible profit of ₦1,800,000 is shared equally between Kalu and Morenike.

Key Concept

Statutory default rules under the Partnership Act 1890 when no partnership deed exists

Question 39Question →

Dayo and Nkechi are partners in a firm. For the year ended 31 December 2025, the business recorded a net profit of ₦500,000 before considering the following financial items:

- Interest on Nkechi's loan to the firm: ₦20,000
- Interest on partners' drawings: ₦15,000
- Partners' salaries: ₦40,000
- Interest on capital: ₦30,000

What is the net divisible profit to be shared between the partners?

₦425,000

₦445,000

₦395,000

₦465,000

Show answer & explanation

Answer: ₦425,000

Answer

The net divisible profit to be shared between the partners is ₦425,000.

The correct figure of ₦425,000 is derived by first deducting interest on Nkechi's loan (₦20,000) from the reported net profit (₦500,000) to get an adjusted net profit of ₦480,000. Next, adding interest on drawings (₦15,000) yields ₦495,000 available profit. Finally, deducting the total appropriations of ₦70,000 (salaries of ₦40,000 plus interest on capital of ₦30,000) results in ₦425,000.

Step-by-Step Solution

1

Calculate the adjusted Net Profit after deducting loan interest

₦500,000 - ₦20,000 = ₦480,000

Interest on a partner's loan is an expense charged to the Profit and Loss Account, not an appropriation of profit.

2

Add interest on drawings to the adjusted net profit

₦480,000 + ₦15,000 = ₦495,000

Interest charged on partner drawings increases total profits available for distribution.

3

Deduct appropriations (partner salaries and interest on capital)

₦495,000 - (₦40,000 + ₦30,000) = ₦425,000

Salaries and interest on capital are appropriations paid out to partners from available profits.

Key Concept

Profit and Loss Appropriation Account

Estimated Time:1m 30s

Question 40Question →

Efe and Danjuma are partners in a business operating a fixed capital account system. On 1st January 2025, Efe's current account had a credit balance of $\text{₦}150,000$ . During the year ended 31st December 2025, Efe was entitled to a partner salary of $\text{₦}200,000$ , interest on capital of $\text{₦}60,000$ , and a share of profit of $\text{₦}340,000$ . Efe's drawings for the year amounted to $\text{₦}180,000$ , and interest charged on drawings was $\text{₦}10,000$ . What is the closing balance of Efe's current account as at 31st December 2025 in Naira?

Show answer & explanation

Answer: 560000

Answer

The closing balance of Efe's current account as at 31st December 2025 is ₦560,000.

Under the fixed capital account system, partner capital remains fixed while operational adjustments are made through the current account. Adding opening balance (₦150,000), salary (₦200,000), interest on capital (₦60,000), and profit share (₦340,000) gives total credits of ₦750,000. Deducting drawings (₦180,000) and interest on drawings (₦10,000) gives a net closing credit balance of ₦560,000.

Step-by-Step Solution

1

Calculate the total credit entries to Efe's current account by adding the opening credit balance, salary, interest on capital, and share of profit.

Total Credits = ₦150,000 + ₦200,000 + ₦60,000 + ₦340,000 = ₦750,000

Under the fixed capital account method, all partner entitlements and profit allocations are credited to their current account.

2

Calculate the total debit entries to Efe's current account by adding drawings and interest on drawings.

Total Debits = ₦180,000 + ₦10,000 = ₦190,000

Drawings and interest charged on drawings reduce the partner's claim against the partnership and are debited to the current account.

3

Deduct total debits from total credits to determine the net closing current account balance.

Closing Balance = ₦750,000 - ₦190,000 = ₦560,000

Subtracting debit items from total credit allocations leaves a net credit balance of ₦560,000.

Key Concept

Computation of partner current account balance under the fixed capital account system.

Partnership Accounts

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