Partnership Accounts Practice Questions — JAMB UTME — Page 3

Question 41Question →

On 1st April 2025, Taraba, Keffi, and Zaria formed a partnership business without executing a formal partnership deed, contributing capital of $₦5,000,000$ , $₦3,000,000$ , and $₦2,000,000$ respectively. On 1st July 2025, Taraba advanced a loan of $₦1,200,000$ to the firm. For the 9-month financial period ended 31st December 2025, Zaria managed daily operations claiming a total salary of $₦900,000$ , while Keffi withdrew $₦400,000$ for personal use. The draft net profit before accounting for any partner claims or loan interest was $₦4,830,000$ . Under the provisions of the Partnership Act 1890, what is the amount in Naira ( $₦$ ) creditable to Taraba as his share of profit for the period?

Show answer & explanation

Answer: 1600000

Answer

The amount creditable to Taraba as his share of profit for the period is ₦1,600,000.

Under the statutory default rules of the Partnership Act 1890, when no partnership deed exists: (1) No salary is payable to any partner, so Zaria's ₦900,000 claim is ignored. (2) Interest on a partner's loan is allowed at 5% per annum and treated as a charge against profit. For 6 months (1st July to 31st December 2025), loan interest is ₦1,200,000 × 5% × (6/12) = ₦30,000. (3) The net profit available for distribution becomes ₦4,830,000 - ₦30,000 = ₦4,800,000. (4) Profits are shared equally among the three partners, giving Taraba a share of ₦4,800,000 ÷ 3 = ₦1,600,000.

Step-by-Step Solution

1

Identify applicable statutory provisions under the Partnership Act 1890

Disallow Zaria's salary claim of ₦900,000, disallow interest on capital and drawings, allow 5% p.a. interest on Taraba's loan advance, and share remaining profit equally among all three partners.

In the absence of a written partnership agreement, statutory provisions of the Partnership Act 1890 govern partner entitlements.

2

Calculate time-apportioned interest on Taraba's loan advance

₦1,200,000 × 0.05 × (6 / 12) = ₦30,000

Taraba provided the loan on 1st July 2025, so interest runs for 6 months until 31st December 2025. Loan interest is a charge against profit.

3

Calculate net distributable profit

₦4,830,000 - ₦30,000 = ₦4,800,000

Interest on a partner loan must be debited to the Profit and Loss Account before arriving at the net profit available for appropriation.

4

Compute Taraba's share of net profit

₦4,800,000 / 3 = ₦1,600,000

Under statutory provisions, profits and losses are shared equally regardless of initial capital contributions.

Key Concept

Statutory default provisions of the Partnership Act 1890 regarding loan interest and equal profit allocation

Estimated Time:2m 30s

Question 42Question →

Kofi and Segun are partners in a firm operating a fixed capital account system. On 1st January 2025, Segun's current account had a credit balance of $\text{₦}120,000$ . During the year ended 31st December 2025, the following transactions occurred in respect of Segun:
- Partnership salary: $\text{₦}180,000$
- Interest on capital: $\text{₦}40,000$
- Personal drawings made: $\text{₦}150,000$
- Interest charged on drawings: $\text{₦}10,000$
- Share of profit: $\text{₦}210,000$
- Interest on loan advanced by Segun to the firm: $\text{₦}30,000$ (paid directly into his personal bank account)

What is the balance on Segun's Current Account as at 31st December 2025?

₦390,000 Credit

₦420,000 Credit

₦400,000 Credit

₦410,000 Credit

Show answer & explanation

Answer: ₦390,000 Credit

Answer

The balance on Segun's Current Account as at 31st December 2025 is ₦390,000 Credit.

Under a fixed capital account system, partner capital remains fixed while daily transactions, appropriations, and drawings pass through the current account. Segun's current account is credited with his opening balance (₦120,000), salary allowance (₦180,000), interest on capital (₦40,000), and share of profit (₦210,000), totaling ₦550,000. It is debited with drawings (₦150,000) and interest on drawings (₦10,000), totaling ₦160,000. The net closing balance is ₦550,000 - ₦160,000 = ₦390,000 Credit. Interest on loan paid into his bank account is a financial charge in the Profit and Loss Account and does not affect the current account.

Step-by-Step Solution

1

Identify items to credit to Segun's Current Account

Total Credit items = Opening Credit Balance (₦120,000) + Partnership Salary (₦180,000) + Interest on Capital (₦40,000) + Share of Profit (₦210,000) = ₦550,000.

Under a fixed capital system, all appropriations, entitlements, and opening credit balances increase the partner's current account balance on the credit side.

2

Identify items to debit to Segun's Current Account

Total Debit items = Personal Drawings (₦150,000) + Interest on Drawings (₦10,000) = ₦160,000.

Drawings and interest on drawings reduce the partner's balance and must be placed on the debit side of the current account.

3

Examine the non-current account item (Interest on Loan)

Interest on partner's loan (₦30,000) is excluded from the current account calculation.

Interest on partner loan is a charge against profit in the main Profit and Loss Account and paid via bank/cash, not an appropriation credited to the current account.

4

Calculate the net closing Current Account balance

Net balance = ₦550,000 (Credits) - ₦160,000 (Debits) = ₦390,000 Credit.

The excess of credit entries over debit entries yields a closing credit balance.

Key Concept

Fixed Capital System and Partner Current Account Preparation

Question 43Question →

Bisi and Audu are partners in a business entity that operates a fluctuating capital account system. On 1st January 2025, Bisi's capital account had a credit balance of $\text{₦}1,500,000$ . For the year ended 31st December 2025, the following details relate to Bisi:
- Additional capital introduced: $\text{₦}300,000$
- Share of net profit: $\text{₦}450,000$
- Interest on capital: $\text{₦}75,000$
- Annual partner salary: $\text{₦}120,000$
- Total cash drawings: $\text{₦}200,000$
- Interest on drawings: $\text{₦}15,000$

What is the closing balance of Bisi's capital account as at 31st December 2025?

\text{₦}1,800,000

\text{₦}2,660,000

\text{₦}2,230,000

\text{₦}2,245,000

Show answer & explanation

Answer: $\text{₦}2,230,000$

Answer

\text{₦}2,230,000

Under the fluctuating capital account system, only one account (the Capital Account) is maintained for each partner. All capital injections, profit shares, salaries, and interest on capital increase the capital balance (credited), while all drawings and interest on drawings decrease the capital balance (debited). Adding all additions (

\text{₦}1,500,000 + \text{₦}300,000 + \text{₦}450,000 + \text{₦}75,000 + \text{₦}120,000 = \text{₦}2,445,000

) and subtracting all deductions (

\text{₦}200,000 + \text{₦}15,000 = \text{₦}215,000

) results in a closing credit balance of

\text{₦}2,230,000

.

Step-by-Step Solution

1

Calculate total credits to Bisi's capital account

\text{₦}1,500,000 + \text{₦}300,000 + \text{₦}450,000 + \text{₦}75,000 + \text{₦}120,000 = \text{₦}2,445,000

Under the fluctuating capital account system, opening capital, additional capital, profit share, interest on capital, and salaries are credited to the capital account.

2

Calculate total debits to Bisi's capital account

\text{₦}200,000 + \text{₦}15,000 = \text{₦}215,000

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

3

Compute the closing capital balance

\text{₦}2,445,000 - \text{₦}215,000 = \text{₦}2,230,000

Deducting total debits from total credits yields the net closing capital credit balance.

Key Concept

Fluctuating Capital Account System

Question 44Question →

Under a fluctuating capital account system, Bisi's capital account had an opening credit balance of $\text{₦}500,000$ on 1st January 2025. During the year, she introduced additional capital of $\text{₦}100,000$ , was credited with a share of profit of $\text{₦}80,000$ , and made cash drawings of $\text{₦}50,000$ . What is the closing balance of Bisi's capital account in Naira ( $\text{₦}$ ) at 31st December 2025?

Show answer & explanation

Answer: 630000

Answer

The closing balance of Bisi's capital account is ₦630,000.

Under a fluctuating capital account system, only one account (the Capital Account) is maintained for each partner. All transactions—including opening balance, additional capital, profit share, and drawings—are combined into this single account. The closing credit balance is calculated as

\text{₦}500,000 + \text{₦}100,000 + \text{₦}80,000 - \text{₦}50,000 = \text{₦}630,000

.

Step-by-Step Solution

1

Calculate total credits to the fluctuating capital account

₦500,000 + ₦100,000 + ₦80,000 = ₦680,000

Under the fluctuating capital account system, all capital contributions and profit appropriations are credited directly to the capital account.

2

Deduct total debits (drawings) from the capital account

₦680,000 - ₦50,000 = ₦630,000

Drawings reduce partner's equity and are debited directly to the capital account under the fluctuating method.

Key Concept

Fluctuating Capital Account Method

Question 45Question →

Aminu and Folake are partners in a firm. On 1st January 2025, Aminu's fixed capital account balance was $\text{₦}1,200,000$ and his current account had a credit balance of $\text{₦}150,000$ . On 1st July 2025, Aminu introduced additional capital of $\text{₦}300,000$ . The partnership agreement provides for interest on capital at $10\%$ per annum, an annual salary to Aminu of $\text{₦}200,000$ , interest on drawings of $\text{₦}12,000$ , and a share of residual profit of $\text{₦}350,000$ . Aminu's drawings during the year amounted to $\text{₦}180,000$ . If the firm converts to a fluctuating capital account system at the end of the year, what is the closing balance of Aminu's capital account at 31st December 2025?

Show answer & explanation

Answer: 2143000

Answer

The closing balance of Aminu's fluctuating capital account at 31st December 2025 is ₦2,143,000.

The closing balance under the fluctuating capital account system combines all partner equity transactions into a single account. Opening capital (₦1,200,000), opening credit current account balance (₦150,000), additional capital (₦300,000), interest on capital (₦135,000), partner salary (₦200,000), and share of profit (₦350,000) are credited, giving total credits of ₦2,335,000. Drawings (₦180,000) and interest on drawings (₦12,000) are debited (totaling ₦192,000). The net closing balance is ₦2,335,000 - ₦192,000 = ₦2,143,000.

Step-by-Step Solution

1

Calculate interest on capital for Aminu

₦135,000

Interest on opening capital of ₦1,200,000 at 10% per annum for 1 full year is ₦120,000. Interest on additional capital of ₦300,000 for 6 months (1st July to 31st December) at 10% per annum is ₦15,000 (₦300,000 × 10% × 6/12). Total interest on capital = ₦120,000 + ₦15,000 = ₦135,000.

2

Sum all credit entries in the fluctuating capital account

₦2,335,000

Under a fluctuating capital system, opening capital, current account balances, additions, and partner appropriations are combined. Total Credits = Opening Capital (₦1,200,000) + Opening Current Account (₦150,000) + Additional Capital (₦300,000) + Interest on Capital (₦135,000) + Partner Salary (₦200,000) + Share of Profit (₦350,000) = ₦2,335,000.

3

Sum all debit entries in the fluctuating capital account

₦192,000

Debit items that reduce partner equity include Drawings (₦180,000) + Interest on Drawings (₦12,000) = ₦192,000.

4

Calculate closing capital account balance

₦2,143,000

Subtract total debits from total credits: ₦2,335,000 - ₦192,000 = ₦2,143,000.

Key Concept

Under a fluctuating capital account system, all capital additions, initial current account balances, share of profits, salaries, interest on capital, drawings, and interest on drawings are recorded directly in a single capital account.

Question 46Question →

Chidi and Obinna are partners in a firm sharing profits and losses in the ratio of $3:2$ . They admit Farooq into the partnership, and the new profit-sharing ratio among Chidi, Obinna, and Farooq is agreed as $2:2:1$ . The goodwill of the firm is valued at $\mathbb{N}50,000$ , and the partners decide to write off the goodwill account immediately. Which accounting entry correctly records the write-off of goodwill?

Debit Chidi's Capital Account

\mathbb{N}20,000

, Debit Obinna's Capital Account

\mathbb{N}20,000

, Debit Farooq's Capital Account

\mathbb{N}10,000

; Credit Goodwill Account

\mathbb{N}50,000

Debit Chidi's Capital Account

\mathbb{N}30,000

, Debit Obinna's Capital Account

\mathbb{N}20,000

; Credit Goodwill Account

\mathbb{N}50,000

Credit Chidi's Capital Account

\mathbb{N}20,000

, Credit Obinna's Capital Account

\mathbb{N}20,000

, Credit Farooq's Capital Account

\mathbb{N}10,000

; Debit Goodwill Account

\mathbb{N}50,000

Debit Goodwill Account

\mathbb{N}50,000

; Credit Cash Account

\mathbb{N}50,000

Show answer & explanation

Answer: Debit Chidi's Capital Account $\mathbb{N}20,000$ , Debit Obinna's Capital Account $\mathbb{N}20,000$ , Debit Farooq's Capital Account $\mathbb{N}10,000$ ; Credit Goodwill Account $\mathbb{N}50,000$

Answer

Debit Chidi's Capital Account

\mathbb{N}20,000

, Debit Obinna's Capital Account

\mathbb{N}20,000

, Debit Farooq's Capital Account

\mathbb{N}10,000

; Credit Goodwill Account

\mathbb{N}50,000

When a firm decides not to maintain a goodwill account in its books, goodwill must be written off against all partners' capital accounts in their new profit-sharing ratio. With total goodwill at

\mathbb{N}50,000

and a new ratio of

2:2:1

, Chidi and Obinna are debited with

\mathbb{N}20,000

each, Farooq is debited with

\mathbb{N}10,000

, and the Goodwill account is credited with

\mathbb{N}50,000

.

Step-by-Step Solution

1

Identify the total value of goodwill and the write-off rule

Total goodwill =

\mathbb{N}50,000

. Goodwill written off must be shared among all partners in their new profit-sharing ratio.

When goodwill is not to be retained in the books, it is eliminated by charging it to all partners in the new profit-sharing ratio.

2

Calculate each partner's share using the new profit-sharing ratio (2:2:1)

Chidi:

\frac{2}{5} \times \mathbb{N}50,000 = \mathbb{N}20,000

; Obinna:

\frac{2}{5} \times \mathbb{N}50,000 = \mathbb{N}20,000

; Farooq:

\frac{1}{5} \times \mathbb{N}50,000 = \mathbb{N}10,000

The sum of the ratio parts is

2 + 2 + 1 = 5

parts.

3

Determine the debit and credit journal entries

Debit each partner's capital account for their calculated share and credit Goodwill Account for

\mathbb{N}50,000

Debiting capital accounts reduces partners' equity to write off the asset, while crediting goodwill closes the asset account.

Key Concept

Writing Off Goodwill in Partnership Accounts

Question 47Question →

Folake and Biodun are partners sharing profits and losses in the ratio $3:1$ . For the year ended 31 December 2025, the firm recorded a net profit of ₦680,000 before adjusting for interest of ₦20,000 on Folake's loan to the firm. Additional financial information for the year shows:

- Total interest on capital: ₦60,000 (Folake: ₦40,000; Biodun: ₦20,000)
- Annual salary allocated to Biodun: ₦100,000
- Total interest on drawings charged to partners: ₦20,000 (Folake: ₦10,000; Biodun: ₦10,000)

What is Biodun's share of the net divisible profit in Naira (₦)?

Show answer & explanation

Answer: 130000

Answer

Biodun's share of the net divisible profit is ₦130,000.

Interest on a partner's loan is a charge against profit, reducing net profit from ₦680,000 to ₦660,000. In the Profit and Loss Appropriation Account, interest on drawings of ₦20,000 is added, bringing the total to ₦680,000. Deducting interest on capital (₦60,000) and partner salary (₦100,000) leaves a net divisible profit of ₦520,000. Biodun's share (1/4) equals ₦130,000.

Step-by-Step Solution

1

Calculate adjusted net profit before appropriation

₦660,000

Interest on a partner's loan is a financial charge to the Profit and Loss Account, not an item of appropriation.

2

Add interest on drawings to adjusted net profit

₦680,000

Interest on drawings is income to the firm and increases the pool of profit available for distribution.

3

Deduct appropriations (interest on capital and salary)

₦520,000

Interest on capital (₦60,000) and Biodun's salary (₦100,000) are appropriations out of profit.

4

Apportion remaining profit to Biodun based on the ratio 3:1

₦130,000

Biodun receives 1 out of 4 total profit sharing ratio parts: ₦520,000 × (1 / 4) = ₦130,000.

Key Concept

Profit and Loss Appropriation Account calculations in partnership accounts

Question 48Question →

Halima and Emeka are partners in a firm that operates a fixed capital account system. On 1st January 2025, Emeka's Current Account had a debit balance of $\text{₦}45,000$ . For the year ended 31st December 2025, Emeka was entitled to a partner's salary of $\text{₦}180,000$ , interest on capital of $\text{₦}35,000$ , and a share of profit of $\text{₦}110,000$ . During the year, Emeka's total drawings amounted to $\text{₦}95,000$ and interest on drawings charged was $\text{₦}5,000$ . What is the closing balance of Emeka's Current Account as at 31st December 2025?

\text{₦}270,000\text{ credit}

\text{₦}180,000\text{ credit}

\text{₦}370,000\text{ credit}

\text{₦}190,000\text{ credit}

Show answer & explanation

Answer: $\text{₦}180,000\text{ credit}$

Answer

The closing balance of Emeka's Current Account as at 31st December 2025 is ₦180,000 credit.

The correct answer of ₦180,000 credit is derived by crediting all entitlements (Salary ₦180,000 + Interest on Capital ₦35,000 + Profit Share ₦110,000 = ₦325,000) and deducting all debit items (Opening Debit ₦45,000 + Drawings ₦95,000 + Interest on Drawings ₦5,000 = ₦145,000). ₦325,000 minus ₦145,000 yields ₦180,000 credit.

Step-by-Step Solution

1

Calculate total credit appropriations and earnings for Emeka

Partner Salary (₦180,000) + Interest on Capital (₦35,000) + Share of Profit (₦110,000) = ₦325,000

Under a fixed capital system, partner entitlements are credited to the partner's Current Account.

2

Calculate total debit items for Emeka

Opening Debit Balance (₦45,000) + Drawings (₦95,000) + Interest on Drawings (₦5,000) = ₦145,000

Opening debit balances, withdrawals, and interest charges reduce the partner's equity in the current account and must be debited.

3

Determine the net closing balance of the Current Account

Total Credits (₦325,000) - Total Debits (₦145,000) = ₦180,000 Credit

Since total credit additions exceed total debit reductions, the account retains a net credit balance.

Key Concept

Calculation of Partner Current Account Closing Balance under Fixed Capital System

Estimated Time:1m 30s

Question 49Question →

Match each partnership goodwill scenario upon the admission of a new partner with its correct accounting entry treatment in the ledger books.

Click a left item, then click its matching right item

Show answer & explanation

Answer

1. Raising goodwill at full value matches with 'Debit Goodwill Account; Credit Old Partners' Capital Accounts in old profit-sharing ratio.' 2. Writing off goodwill matches with 'Debit All Partners' Capital Accounts in new profit-sharing ratio; Credit Goodwill Account.' 3. Premium paid privately matches with 'No journal entry is recorded in the firm's books of account.' 4. Adjusting goodwill through capital accounts matches with 'Debit New Partner's Capital Account with their share; Credit Old Partners' Capital Accounts in sacrificing ratio.'

Each scenario reflects standard partnership accounting rules under JAMB UTME guidelines: raising goodwill credits old partners in the old ratio, writing off debits all partners in the new ratio, private transactions require no book entries, and direct capital adjustments debit the incoming partner while crediting sacrificing partners.

Step-by-Step Solution

1

Analyze the entry for raising goodwill

Goodwill is an asset created on the debit side, credited to existing partners in their old ratio.

Existing partners generated the goodwill prior to the admission of the new partner.

2

Analyze the entry for writing off goodwill

Goodwill asset is closed by crediting Goodwill Account and debiting all partners in the new ratio.

Writing off ensures no goodwill remains on the Balance Sheet and charges all current partners in their new profit distribution agreement.

3

Evaluate private payment of premium

No entry is recorded in the firm's accounting records.

Under the entity concept, personal transactions between individuals outside the firm are excluded from business financial statements.

4

Evaluate direct capital account adjustments for goodwill

Debit new partner's capital account for their share of goodwill, credit existing partners' capital accounts in sacrificing ratio.

This compensates existing partners for surrendering a portion of their profit share without creating an intangible asset account.

Key Concept

Accounting Treatment of Goodwill on Partner Admission

Question 50Question →

Tariq and Amaka are partners sharing profits and losses in the ratio $3:2$ . For the year ended 31 December 2025, the firm recorded a net profit of $\text{₦}680,000$ before taking the following items into account:
- Interest on capital: Tariq $\text{₦}40,000$ ; Amaka $\text{₦}30,000$
- Annual salary payable to Amaka: $\text{₦}50,000$
- Interest on drawings: Tariq $\text{₦}10,000$ ; Amaka $\text{₦}10,000$
- Tariq provided a loan of $\text{₦}100,000$ to the partnership on 1 January 2025 at an interest rate of $10\%$ per annum, which has not yet been recorded in the Profit and Loss Account.

What is Tariq's share of the net divisible profit for the year?

₦342,000

₦348,000

₦318,000

₦330,000

Show answer & explanation

Answer: ₦342,000

Answer

Tariq's share of the net divisible profit is ₦342,000.

Interest on Tariq's loan of

\text{₦}10,000

(

10\% \times \text{₦}100,000

) must be charged to the Profit and Loss Account, reducing the net profit to

\text{₦}670,000

. Adding total interest on drawings (

\text{₦}20,000

) yields

\text{₦}690,000

. Deducting interest on capital (

\text{₦}70,000

) and Amaka's salary (

\text{₦}50,000

) gives a net divisible profit of

\text{₦}570,000

. Tariq's

3/5

share is

\frac{3}{5} \times \text{₦}570,000 = \text{₦}342,000

.

Step-by-Step Solution

1

Calculate interest on Tariq's loan and determine adjusted net profit

Interest on loan = 10% of ₦100,000 = ₦10,000. Adjusted net profit = ₦680,000 - ₦10,000 = ₦670,000.

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

2

Add total interest on drawings to the adjusted net profit

Total interest on drawings = ₦10,000 + ₦10,000 = ₦20,000. Profit available = ₦670,000 + ₦20,000 = ₦690,000.

Interest on drawings is income credited to the Profit and Loss Appropriation Account.

3

Deduct total appropriations (interest on capital and partner salary)

Total interest on capital = ₦40,000 + ₦30,000 = ₦70,000. Total salary = ₦50,000. Total appropriations = ₦70,000 + ₦50,000 = ₦120,000. Divisible profit = ₦690,000 - ₦120,000 = ₦570,000.

Interest on capital and partner salaries represent appropriations of profit.

4

Calculate Tariq's share of net divisible profit

Tariq's share = 3/5 × ₦570,000 = ₦342,000.

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

Key Concept

Distinguishing charges against profit (such as interest on partner loan) from appropriations of profit (interest on capital, partner salary, interest on drawings).

Estimated Time:2m 0s

Question 51Question →

Match each goodwill valuation method or accounting treatment in partnership accounts on the left with its corresponding description or journal entry rule on the right.

Click a left item, then click its matching right item

Show answer & explanation

Answer

Average Profit Method pairs with calculating goodwill using average profits multiplied by years' purchase; Premium for Goodwill Method pairs with incoming partner paying cash credited to old partners in sacrificing ratio; Raising Goodwill pairs with debiting Goodwill Account and crediting Old Partners in old ratio; Writing Off Goodwill pairs with debiting All Partners in new ratio and crediting Goodwill Account.

Each valuation method and journal entry strictly follows partnership accounting standards: Average Profit Method uses maintainable profits multiplied by years' purchase; Premium for Goodwill compensates old partners in their sacrificing ratio; Raising goodwill credits old partners in their old ratio; Writing off goodwill debits all partners in their new ratio.

Step-by-Step Solution

1

Identify the basic formula for the Average Profit Method of valuation.

Goodwill = Average Maintainable Profits × Number of Years' Purchase.

This method relies on historical average profit multiplied by an agreed duration factor.

2

Determine the treatment when an incoming partner pays a cash premium for goodwill.

Cash/Bank is debited and existing partners' capital accounts are credited in their sacrificing ratio.

The premium compensates existing partners for surrendering a fraction of their future profit share.

3

Determine the journal entry required to raise goodwill in the firm's books.

Debit Goodwill Account, Credit Old Partners' Capital Accounts in their old profit-sharing ratio.

Raising goodwill recognizes an intangible asset built by existing partners prior to any structural change.

4

Determine the journal entry required to write off goodwill from the firm's books.

Debit All Partners' Capital Accounts in their new profit-sharing ratio, Credit Goodwill Account.

Writing off goodwill removes the asset from the balance sheet across all current partners based on their updated profit-sharing proportions.

Key Concept

Treatment and Valuation of Goodwill in Partnership Accounts

Question 52Question →

Bisi and Halima are partners in a firm. For the year ended 31 December 2025, the firm recorded a net profit of ₦300,000. According to their partnership agreement, the following provisions apply:
- Annual salary to Bisi: ₦50,000
- Total interest on partners' capital: ₦30,000
- Total interest on drawings charged to partners: ₦10,000

What is the net divisible profit available for distribution between the partners?

Show answer & explanation

Answer: 230000

Answer

The net divisible profit available for distribution is ₦230,000.

The net divisible profit is obtained by taking the net profit of ₦300,000, adding interest on drawings of ₦10,000 to get total appropriable profit of ₦310,000, and then deducting partner salary (₦50,000) and interest on capital (₦30,000) for a final net divisible profit of ₦230,000.

Step-by-Step Solution

1

Add interest on drawings to net profit

₦300,000 + ₦10,000 = ₦310,000

Interest on drawings is paid by partners to the firm, increasing the total profit available for appropriation.

2

Deduct partner salary and interest on capital

₦310,000 - (₦50,000 + ₦30,000) = ₦230,000

Partner salaries and interest on capital are appropriations of profit and must be subtracted to arrive at the net divisible profit.

Key Concept

Profit and Loss Appropriation Account

Question 53Question →

Ada and Babatunde are existing partners in a firm sharing profits and losses in the ratio of $3:2$ . Upon the admission of a new partner, the firm's goodwill is valued at $\text{₦}50,000$ and is to be raised in the accounts. How much goodwill should be credited to the capital accounts of Ada and Babatunde respectively?

Ada: ₦30,000; Babatunde: ₦20,000

Ada: ₦25,000; Babatunde: ₦25,000

Ada: ₦20,000; Babatunde: ₦30,000

Ada: ₦50,000; Babatunde: ₦50,000

Show answer & explanation

Answer: Ada: ₦30,000; Babatunde: ₦20,000

Answer

Ada's capital account should be credited with ₦30,000 and Babatunde's capital account should be credited with ₦20,000.

When goodwill is raised in partnership accounts, the Goodwill Account is debited with the total value and the existing partners' Capital Accounts are credited in their old profit-sharing ratio (

3:2

). Therefore, Ada receives

\frac{3}{5} \times \text{₦}50,000 = \text{₦}30,000

and Babatunde receives

\frac{2}{5} \times \text{₦}50,000 = \text{₦}20,000

.

Step-by-Step Solution

1

Determine the total ratio shares for the existing partners

The total ratio shares equal

3 + 2 = 5

parts.

Profit sharing ratio is 3:2 between Ada and Babatunde.

2

Calculate Ada's share of the goodwill

\text{Ada's share} = \frac{3}{5} \times \text{₦}50,000 = \text{₦}30,000

Ada receives 3 out of 5 shares of the raised goodwill.

3

Calculate Babatunde's share of the goodwill

\text{Babatunde's share} = \frac{2}{5} \times \text{₦}50,000 = \text{₦}20,000

Babatunde receives 2 out of 5 shares of the raised goodwill.

Key Concept

Accounting Treatment for Raising Goodwill in Partnership Accounts

Estimated Time:45s

Question 54Question →

Ade and Bola are partners in a business sharing profits and losses in the ratio of $3:2$ . They agree to admit Chidi into the firm with a $\frac{1}{5}$ share of future profits. The firm's goodwill is valued at $\text{N}50,000$ . If goodwill is raised in the books of the firm and immediately written off, what is the net financial effect on Bola's capital account?

Net credit of

\text{N}4,000

Net debit of

\text{N}4,000

Net credit of

\text{N}20,000

Net debit of

\text{N}16,000

Show answer & explanation

Answer: Net credit of $\text{N}4,000$

Answer

Bola's capital account receives a net credit of

\text{N}4,000

.

When goodwill is raised and written off, existing partners are credited in the old profit-sharing ratio (

3:2

) and all partners are debited in the new profit-sharing ratio (

12:8:5

). Crediting Bola with

\text{N}20,000

and debiting Bola with

\text{N}16,000

leaves a net credit of

\text{N}4,000

in Bola's capital account.

Step-by-Step Solution

1

Calculate the new profit-sharing ratio among Ade, Bola, and Chidi

Chidi's share =

\frac{1}{5}

. Remaining share =

1 - \frac{1}{5} = \frac{4}{5}

. Ade's new share =

\frac{3}{5} \times \frac{4}{5} = \frac{12}{25}

. Bola's new share =

\frac{2}{5} \times \frac{4}{5} = \frac{8}{25}

. Chidi's new share =

\frac{5}{25}

. New ratio =

12:8:5

.

When a new partner is admitted, the remaining share after deducting the new partner's fraction is distributed among existing partners according to their old ratio.

2

Calculate Bola's share when goodwill is raised in the old ratio (

3:2

)

Credit to Bola's Capital Account =

\frac{2}{5} \times \text{N}50,000 = \text{N}20,000

.

Goodwill is raised by crediting the existing partners' capital accounts in their old profit-sharing ratio.

3

Calculate Bola's share when goodwill is written off in the new ratio (

12:8:5

)

Debit to Bola's Capital Account =

\frac{8}{25} \times \text{N}50,000 = \text{N}16,000

.

Goodwill is written off by debiting all partners' (including the new partner) capital accounts in their new profit-sharing ratio.

4

Determine the net effect on Bola's capital account

Net effect =

\text{N}20,000\text{ (Credit)} - \text{N}16,000\text{ (Debit)} = \text{N}4,000\text{ (Net Credit)}

.

Comparing the total credit and debit entries gives the overall adjustment to Bola's capital account.

Key Concept

Treatment of Goodwill upon Admission of a Partner (Raising and Writing Off)

Question 55Question →

Taribo and Ubong are partners operating under a fixed capital account system. On 1st January 2025, Ubong's current account had a credit balance of $\text{₦}150,000$ . For the year ended 31st December 2025, the accounting records revealed the following:

- Share of profit: $\text{₦}420,000$
- Interest on capital: $\text{₦}60,000$
- Annual partner salary: $\text{₦}180,000$
- Cash drawings: $\text{₦}250,000$
- Interest on drawings: $\text{₦}10,000$

What is the balance of Ubong's current account as at 31st December 2025?

\text{₦}550,000

credit

\text{₦}400,000

credit

\text{₦}1,070,000

credit

\text{₦}250,000

debit

Show answer & explanation

Answer: $\text{₦}550,000$ credit

Answer

\text{₦}550,000

credit

Under a fixed capital system, the capital account balance remains unchanged unless additional capital is introduced or permanent capital is withdrawn. All routine transactions (share of profit, partner salary, interest on capital, drawings, and interest on drawings) pass through the partner's current account. Adding total credit entries (

\text{₦}150,000 + \text{₦}420,000 + \text{₦}60,000 + \text{₦}180,000 = \text{₦}810,000

) and deducting total debit entries (

\text{₦}250,000 + \text{₦}10,000 = \text{₦}260,000

) gives a closing credit balance of

\text{₦}550,000

.

Step-by-Step Solution

1

Sum all credit items for the partner's current account.

Total Credits = Opening Credit Balance (

\text{₦}150,000

) + Share of Profit (

\text{₦}420,000

) + Interest on Capital (

\text{₦}60,000

) + Partner Salary (

\text{₦}180,000

) =

\text{₦}810,000

.

In a fixed capital system, partner entitlements and opening credit balances are recorded on the credit side of the current account.

2

Sum all debit items for the partner's current account.

Total Debits = Cash Drawings (

\text{₦}250,000

) + Interest on Drawings (

\text{₦}10,000

) =

\text{₦}260,000

.

Drawings and charges imposed on the partner reduce their claim against the firm and are posted to the debit side.

3

Calculate the closing balance by subtracting total debits from total credits.

Closing Balance =

\text{₦}810,000 - \text{₦}260,000 = \text{₦}550,000

credit.

Since total credits exceed total debits, the net balance remains a credit balance.

Key Concept

Fixed Capital Account System - Current Account Calculations

Question 56Question →

Tunde and Zainab established a commercial partnership on 1st January 2025 without executing a formal partnership deed. Tunde contributed $₦8,000,000$ and Zainab contributed $₦4,000,000$ as capital. On 1st July 2025, Zainab advanced an additional loan of $₦2,000,000$ to the firm. For the financial year ended 31st December 2025, the profit before accounting for loan interest was $₦3,850,000$ . Under the provisions of the Partnership Act 1890, what is Zainab's share of the residual profit in Naira ( $₦$ )?

Show answer & explanation

Answer: 1900000

Answer

Zainab's share of the residual profit is

₦1,900,000

.

Under the statutory default rules of the Partnership Act 1890, a partner who advances a loan to the firm is entitled to 5% interest per annum. For 6 months (1st July to 31st December), interest equals ₦2,000,000 × 5% × 6/12 = ₦50,000. Since loan interest is a charge against profit, the net distributable profit becomes ₦3,850,000 − ₦50,000 = ₦3,800,000. In the absence of a written deed, profits are shared equally regardless of capital contributions. Thus, Zainab's share is ₦3,800,000 ÷ 2 = ₦1,900,000.

Step-by-Step Solution

1

Calculate statutory interest on partner loan

Interest on loan =

₦50,000

Under the Partnership Act 1890, in the absence of an agreement, a partner advancing a loan beyond their capital is entitled to 5% interest per annum. For 6 months:

₦2,000,000 \times 0.05 \times \frac{6}{12} = ₦50,000

.

2

Deduct loan interest to find net distributable profit

Distributable profit =

₦3,800,000

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

₦50,000

from

₦3,850,000

leaves

₦3,800,000

.

3

Distribute residual profit equally between partners

Zainab's share of profit =

₦1,900,000

In the absence of a partnership deed, profits must be shared equally among partners regardless of differences in capital contribution ratios. Dividing

₦3,800,000

by 2 equals

₦1,900,000

.

Key Concept

Statutory default provisions under the Partnership Act 1890 regarding 5% per annum interest on partner loan as a charge against profit and equal profit sharing.

Estimated Time:1m 30s

Question 57Question →

Kemi and Emeka are partners in a firm sharing profits and losses in the ratio of $3:2$ . The profits of the firm for the past four years were $\text{N}180,000$ , $\text{N}220,000$ , $\text{N}240,000$ , and $\text{N}200,000$ respectively. The capital employed in the firm is $\text{N}1,200,000$ , and the normal rate of return expected on capital employed in this industry is $12\%$ . Goodwill is valued at $3$ years' purchase of the super profit. Fola is admitted as a new partner for a $\frac{1}{6}$ share in profits, with the new profit-sharing ratio agreed as $3:2:1$ . If goodwill is adjusted through the capital accounts without opening a goodwill account, what is the net credit amount (in Naira) to Emeka's capital account for goodwill?

Show answer & explanation

Answer: 13200

Answer

The net credit amount to Emeka's capital account for goodwill is 13,200 Naira.

To find the net credit to Emeka's capital account, first compute average profit (N210,000) and normal profit (12% of N1,200,000 = N144,000). The super profit is N66,000, giving a total goodwill of N198,000 (3 × N66,000). Crediting Emeka in the old ratio (2/5) gives N79,200, and debiting Emeka in the new ratio (2/6) gives N66,000. The net adjustment is a credit of N13,200.

Step-by-Step Solution

1

Calculate the average profit of the firm

N210,000

Average profit is computed by dividing the sum of profits over 4 years (N840,000) by 4.

2

Calculate the normal profit

N144,000

Normal profit is calculated as the normal rate of return (12%) multiplied by capital employed (N1,200,000).

3

Calculate super profit

N66,000

Super profit is the excess of average profit over normal profit (N210,000 - N144,000).

4

Calculate total valuation of goodwill

N198,000

Goodwill is 3 years' purchase of super profit (3 × N66,000).

5

Determine Emeka's credit share in old profit-sharing ratio

N79,200

Goodwill is credited to old partners in old ratio 3:2 (2/5 of N198,000).

6

Determine Emeka's debit share in new profit-sharing ratio

N66,000

Goodwill written off is debited to all partners in new ratio 3:2:1 (2/6 of N198,000).

7

Calculate net credit adjustment to Emeka's capital account

N13,200

Subtract debit entry from credit entry (N79,200 - N66,000 = N13,200).

Key Concept

Valuation of goodwill using super profit method and net adjustment of goodwill through capital accounts upon admission of a partner.

Estimated Time:2m 30s

Question 58Question →

Match each goodwill scenario or valuation method in partnership accounting on the left with its corresponding accounting treatment or formula on the right.

Click a left item, then click its matching right item

Show answer & explanation

Answer

1. Raising goodwill at full value matches with debited to Goodwill Account and credited to Old Partners' Capital Accounts in their old profit-sharing ratio. 2. Writing off goodwill matches with debited to All Partners' Capital Accounts in their new ratio and credited to Goodwill Account. 3. Capitalization of Super Profit method matches with Super Profit divided by Normal Rate of Return multiplied by 100. 4. Private payment of goodwill premium matches with no entry in the partnership books.

Each partnership scenario directly corresponds to its established double-entry bookkeeping rule or mathematical formula: raising goodwill credits old partners in their old ratio, writing off debits all partners in their new ratio, super profit capitalization divides super profit by the normal rate of return, and private transactions require no entries in the firm's accounts.

Step-by-Step Solution

1

Analyze the journal entry for raising goodwill.

Raising goodwill creates an asset (Debit Goodwill) and recognizes the past efforts of old partners (Credit Old Partners' Capital in Old Ratio).

Goodwill created before admission belongs exclusively to existing partners.

2

Analyze the journal entry for writing off goodwill.

Writing off goodwill eliminates the intangible asset (Credit Goodwill) and charges all partners according to the new profit distribution (Debit All Partners' Capital in New Ratio).

If goodwill is not retained in the books, all partners bear the write-off in their agreed future sharing proportions.

3

Identify the formula for Capitalization of Super Profit.

Goodwill =

\frac{\text{Super Profit}}{\text{Normal Rate of Return}} \times 100

.

This determines the capital amount required to generate the excess profit at the standard return rate.

4

Evaluate private settlement of goodwill.

Private settlements bypass the firm's accounting record.

Only business entity transactions are recorded in financial accounting.

Key Concept

Treatment and Valuation of Goodwill in Partnership Accounts

Question 59Question →

Efe and Kemi are partners sharing profits and losses in the ratio of $3:1$ . They admit Segun into the firm, giving him a $\frac{1}{5}$ share of future profits. The firm's goodwill is valued at $\text{₦}60,000$ , and the partners agree that goodwill will be raised and immediately written off. What is the net entry required in Efe's capital account?

Net credit of

\text{₦}9,000

Net debit of

\text{₦}9,000

Net credit of

\text{₦}45,000

Net debit of

\text{₦}36,000

Show answer & explanation

Answer: Net credit of $\text{₦}9,000$

Answer

The correct adjustment is a net credit of

\text{₦}9,000

to Efe's capital account.

When goodwill is created and immediately written off upon admitting a new partner, the firm credits existing partners in the old ratio (

3:1

) and debits all partners in the new ratio (

3:1:1

). Efe receives a credit of

\text{₦}45,000

(

\frac{3}{4} \times \text{₦}60,000

) and a debit of

\text{₦}36,000

(

\frac{3}{5} \times \text{₦}60,000

). The difference results in a net credit of

\text{₦}9,000

.

Step-by-Step Solution

1

Determine the new profit-sharing ratio

Segun's share =

\frac{1}{5}

. Remaining share =

1 - \frac{1}{5} = \frac{4}{5}

. Efe's new share =

\frac{3}{4} \times \frac{4}{5} = \frac{3}{5}

. Kemi's new share =

\frac{1}{4} \times \frac{4}{5} = \frac{1}{5}

. The new ratio among Efe, Kemi, and Segun is

3:1:1

.

Goodwill write-off must be shared among all partners in their new profit-sharing ratio.

2

Calculate goodwill credited to Efe when raised

Credit to Efe =

\frac{3}{4} \times \text{₦}60,000 = \text{₦}45,000

.

Goodwill is initially raised by crediting existing partners in their old profit-sharing ratio (

3:1

).

3

Calculate goodwill debited to Efe when written off

Debit to Efe =

\frac{3}{5} \times \text{₦}60,000 = \text{₦}36,000

.

Goodwill is written off by debiting all partners in their new profit-sharing ratio (

3:1:1

).

4

Determine the net adjustment for Efe

Net entry = Credit of

\text{₦}45,000

- Debit of

\text{₦}36,000

= Net credit of

\text{₦}9,000

.

Subtracting the debit from the credit gives the net capital account entry.

Key Concept

Accounting treatment of goodwill upon admission of a partner when goodwill is raised and written off.

Question 60Question →

Match each goodwill accounting method or transaction scenario on the left with its correct valuation basis or ledger treatment on the right.

Click a left item, then click its matching right item

Show answer & explanation

Answer

Average Profit Method matches with valuation based on mean past profits multiplied by an agreed number of years' purchase; Super Profit Method matches with valuation based on earnings achieved over and above normal expected profit; Private Payment of Goodwill matches with no journal entry is recorded in the partnership books; Goodwill Written Off matches with debited to partners' capital accounts in their new profit-sharing ratio.

Each valuation method and accounting scenario is paired directly with its defining rule: Average Profit relies on mean past earnings, Super Profit calculates earnings exceeding normal returns, Private Payment bypasses firm accounts completely, and Goodwill Written Off is debited to partners' capital accounts using the new profit-sharing ratio.

Step-by-Step Solution

1

Identify the basic valuation formulas for goodwill.

Average profit uses mean earnings of previous years, while super profit measures profit above the normal expected rate of return.

These are the fundamental conceptual definitions tested in partnership accounting.

2

Determine the book entry required when goodwill premium is paid privately.

No journal entry is made in the firm's books.

Private transactions between individuals do not affect the financial position or accounts of the partnership firm.

3

Determine the accounting treatment for writing off goodwill.

Debit partners' capital accounts using the new profit-sharing ratio.

Goodwill is raised using the old profit-sharing ratio and eliminated/written off using the new profit-sharing ratio.

Key Concept

Valuation methods and accounting treatments of goodwill in partnership accounts

Estimated Time:1m 0s

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Answer

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