ACCA F3 (INT) Financial Accounting - 2010 - Study text - Emile Woolf Publishing
Подождите немного. Документ загружается.
Chapter 13: Partnership accounts
© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 325
Currentaccounts PartnerA PartnerB PartnerC
$ $ $
Beginningoftheyear 6,000 3,000 8,000
Addshareofprofit 30,00034,00039,000
36,00037,00047,000
Deductdrawings (20,000)(25,000)(40,000)
Endoftheyear 16,00012,0007,000
Exercise 3
X, Y and Z are in partnership and the balances on their capital and current accounts
are:
Partner Capitalaccount Currentaccount
$ $
X 100,000 2,000
Y 80,000 5,000
Z 60,000 1,000
The profit for the year was $194,400. Profits are shared as follows:
The partners pay themselves interest on capital at 6% per year
The residual profit is shared between X, Y and Z in the ratio 4 : 3 : 2.
During the year, drawings by each partner were:
X $78,000
Y $58,000
Z $35,000
Required
Show how the profits should be shared between the partners, and show their capital
and current accounts as at the end of the year.
2.7 Changes in the partnership agreement on profit-sharing
The agreement on how the partners should share the profits of the business may be
changed during a financial year. When this happens, the total profits for the year
should be apportioned, on a time basis, between:
profits of the business during the time of the ‘old’ profit-sharing arrangements,
and
profits of the business during the time of the ‘new’ profit-sharing arrangements.
The profits for each time period are then shared between the partners in accordance
with the agreement for that period.
Paper F3: Financial accounting (International)
326 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP
Example
The DEF Partnership has three partners, D, E and F.
In the first half of year 1, to 30 June Year 1, Partner D and Partner F each received an
annual salary of $30,000. Residual profits were shared between D, E and F in the
ratio 3:5:2. (There is no interest on capital.)
In the second half of the year, from 1 July to 31 December, Partner D’s salary was
increased to $40,000, and the partners altered the profit-sharing ratio to 1:3:1 for
D:E:F). The salary of Partner F was unchanged at $30,000 per year.
The profit for the year was $220,000.
Required
Show how the annual profit should be shared between the partners.
Answer
It is assumed that the profit was the same in each half of the year (= $110,000 for
each six months).
Profits are shared as follows:
1
st
half year: 3 + 5 + 2 = 10
2
nd
half year: 1 + 3 + 1 = 5
Total D E F
Firstsixmonths
$ $ $ $
Notionalsalary(6months) 30,00015,000 15,000
Residualprofit(balance) 80,000
Dshare $80,000×3/1024,000
Eshare $80,000×5/1040,000
Fshare $80,000×2/10 16,000
110,00039,00040,00031,000
Secondsixmonths
Notionalsalary(6months) 35,00020,000 15,000
Residualprofit(balance) 75,000
Dshare $75,000×1/515,000
Eshare $75,000×3/545,000
Fshare $75,000×1/5 15,000
110,00035,000 45,00030,000
Totalfortheyear
220,00074,00085,00061,000
Chapter 13: Partnership accounts
© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 327
Admission of a new partner
Goodwill
Accounting for goodwill
Calculating the value of goodwill
Admitting a new partner
3 Admission of a new partner
Sometimes, a new partner is admitted to a partnership. When this happens, the new
partner obtains a share of all the net assets of the partnership business. It will
therefore be agreed that the new partner should introduce capital to represent his
share of these assets. The valuation of the assets of the partnership business usually
includes an amount for goodwill.
3.1 Goodwill
Goodwill is the amount by which the value of a business exceeds the value of all its
net assets (its assets less liabilities). All successful businesses have goodwill, which
means that buyers will be prepared to pay more to acquire the business than the
value of its net assets.
Goodwill is created over time in a variety of ways:
A business might develop strong relationships with its customers and build
up a large number of potential new customers through a good reputation for
quality, reliability or fair pricing.
A business might build up a skilled and experienced work force, with
technical expertise and knowledge.
A business might be located in a favourable location, so that it attracts a
considerable volume of business because large numbers of potential
customers are in the area.
3.2 Accounting for goodwill
Goodwill is an intangible asset of a business, but normally it is not recognised as an
asset in the financial statements. However it is an asset which is taken into
consideration in a partnership when a new partner is admitted.
3.3 Calculating the value of goodwill
The value of goodwill is decided by agreement and negotiation. It is the difference
between:
The total value agreed for the business, and
The other assets of the business less its liabilities
Paper F3: Financial accounting (International)
328 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP
$
Totalvaluationofbusiness 100,000
Valueofnetassets (80,000)
Goodwill 20,000
Alternatively, a partnership may value its goodwill as a multiple of its average
annual profits or a multiple of its average annual ‘excess’ profits.
Example
The XYZ Partnership values its goodwill as two times the average of the annual
profits in excess of $60,000 each year for the last three years.
Profit for the last three years as been as follows:
Year 3 $100,000
Year 2 $90,000
Year 1 $80,000
The profits in excess of $60,000 have been:
$40,000 + $30,000 + $20,000 = $90,000
The average annual excess profit is:
$90,000/3 = $30,000
The valuation of goodwill is:
2 × $30,000 = $60,000
3.4 Admitting a new partner
When a new partner is admitted to a partnership the following steps are required
when accounting for this admission:
Step 1 Account for the capital introduced by the new partner
Debit Bank account
Credit New partner’s capital account
Step 2 Determine the value of the goodwill of the partnership.
The new partner is not only buying a share of the net assets of the
partnership shown in the statement of financial position. He is also buying
a share of the unrecorded asset, goodwill.
Step 3 Temporarily record the goodwill
Debit Goodwill account
Credit Old partners’ capital accounts in their old profit-sharing ratio
Step 4 Remove the goodwill
Debit New partners’ capital accounts in the new profit-sharing ratio
Credit Goodwill account
Chapter 13: Partnership accounts
© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 329
In Step 3 and Step 4 above, the ‘old’ partners are the partners in the business before
the new partner joined. The ‘new partners’ are all the partners in the business after
the new partner has joined.
Example
R and S are in partnership sharing profits equally. R has contributed $80,000 of
capital and S has contributed $60,000 of capital. They are about to admit a new
partner, T, to the partnership and T has agreed to pay the partnership $50,000 of
capital. After the admission of T profits will be shared between R, S and T in the
ratio of 2 : 2 : 1. The goodwill of the partnership at the date of admission is agreed to
be $30,000.
Step 1 Account for capital introduced by T
Capitalaccounts
R S T R S T
$ $ $ $ $ $
Balanceb/d 80,000 60,000
Bank 50,000
Step 2 Determine the value of goodwill: $30,000
Step 3 Temporarily record the goodwill
Debit Goodwill account
Credit Old partners’ capital accounts in old profit sharing ratio
Goodwillaccount
$ $
Capitalaccounts 30,000
Capitalaccounts
R S T R S T
$ $ $ $ $ $
Balanceb/d 80,000 60,000
Bank 50,000
Goodwill 15,000 15,000
Step 4 Remove the goodwill
Debit New partners’ capital accounts in new profit sharing ratio
Credit Goodwill account
Goodwillaccount
$ $
Capitalaccounts 30,000 PartnerRcapitalaccount(2/5) 12,000
PartnerRcapitalaccount(2/5) 12,000
PartnerRcapitalaccount(1/5) 6,000
Paper F3: Financial accounting (International)
330 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP
Capitalaccounts
R S T R S T
$ $ $ $ $ $
Balanceb/d 80,000 60,000
Bank 50,000
Goodwill 15,000 15,000
Goodwill(2/5) 12,000 12,000
Goodwill(1/5) 6,000
Balancec/d 83,000 63,000 44,000
–––––––
–
––––––
–
––––––
–
–––––– –––––––
–
––––––
95,000 75,000 50,000 95,000 75,000 50,000
–––––––
–
––––––
–
––––––
–
–––––– –––––––
–
––––––
Balanceb/d 83,000 63,000 44,000
The capital balances of R and S have both increased by $3,000 whereas the capital
balance of T has been reduced to $44,000. T has effectively purchased $3,000 of
goodwill from each of the existing partner’s as well as his purchase of his share of
the recorded assets and liabilities.
Exercise 4
P and Q are in partnership sharing profits in the ratio of 2:1. P has contributed
$60,000 of capital and Q has contributed $50,000 of capital. They are about to admit a
new partner, M, to the partnership and M has agreed to pay the partnership $40,000
of capital. After the admission of M profits will be shared between P, Q and M in the
ratio of 2:2:1. The goodwill of the partnership at the date of admission is estimated to
be $15,000.
Required:
Write up the capital accounts of the partners to show the admission of M to the
partnership.
Practice multiple choice questions
1 X and Y are in partnership, sharing profits in the ratio 2:3. They prepare their accounts
to 31 December each year. On 1 July Year 8, Z joined the partnership and the profit-
sharing ratio became X 30%, Y 40% and Z 30%.
Profits for the year to 31 December Year were as follows.
6 months ending 30 June Year 8: $600,000
6 months ending 31 December Year 8: $900,000
A bad debt of $100,000 was written off in the six months to 31 December Year 8 in
calculating the profit of $900,000, but it was agreed that this cost should be borne by X
and Y only, in their original profit-sharing ratio.
Chapter 13: Partnership accounts
© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 331
What is the profit share of X for the year to 31 December Year 8?
A $440,000
B $470,000
C $480,000
D $500,000
(2 marks)
2 How should interest on drawings by partners by accounted for in partnership
accounts?
A It should be charged as an expense in the partnership income statement.
B It should be deducted from profit in sharing profit between the partners.
C It should be added to profit in sharing profit between the partners.
D It should be added to income in the partnership income statement.
(2 marks)
3 J and K are in partnership. They share profits after providing for a salary of $120,000
per year for J and interest on capital at 5% per year. They share the residual profits
equally. They prepare their accounts to 31 December each year.
At 1 January Year 5, the balances on their capital accounts were:
J: $600,000
K: $300,000
On 1 July Year 5, the salary of J was discontinued and K introduced a further $300,000
of capital into the business. The partnership profit for the year to 31 December Year 5
was $1,012,500.
What was the total profit share of J for the year to 31 December Year 5?
A $540,000
B $570,000
C $536,250
D $547,500
(2 marks)
Paper F3: Financial accounting (International)
332 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP
© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 333
Paper F3 (INT)
Financial Accounting
CHAPTER
14
Statements of cash flows
Contents
1 Statementsofcashflows:purposeandvalue
2 Statementsofcashflows:indirectanddirect
methods
3 Operationalcashflows:theindirectmethod
4 Indirectmethod:adjustmentsforworkingcapita l
5 Operationalcashflowsandthedirectmethod
6 Cashflowsfrominvestingactivities
7 Cashflowsfromfinancingactivities
Paper F3: Financial accounting (International)
334 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP
Statements of cash flows: purpose and value
Importance of cash flow for business
Profit and cash flow
Purpose of a statement of cash flows
Cash and cash equivalents
1 Statements of cash flows: purpose and value
IAS 1 states that a complete set of financial statements should include a statement of
cash flows. IAS 7: Statements of cash flows sets out the detailed requirements for
the format and content of the statement.
1.1 Importance of cash flow for business
Businesses must have sufficient cash; otherwise they cannot survive.
A business can make a loss but still survive if it has sufficient cash or access to
liquidity (cash, assets that can be quickly turned into cash and new sources of
borrowing).
On the other hand, a business that is profitable cannot survive if it cannot pay its
obligations when they fall due, because it does not have enough cash or access to
other sources of liquidity.
Cash flow is therefore extremely important, and it is appropriate that entities should
present a statement of cash flows as a financial statement.
The purpose of a statement of cash flows is to show what the cash flows of the entity
have been. It can also be used to make assessments of what the cash flows of the
entity might be in the future.
The value of a statement of cash flows is that it presents information that is not
available from reading a statement of comprehensive income, an income statement
or a statement of financial position.
1.2 Profit and cash flow
When a business makes a profit of $1,000, this does not mean that it receives $1,000
more in cash than it has spent. Profit and cash flow are different, for several reasons:
There are items of cost in the income statement that do not represent a cash flow.
Examples are:
depreciation and amortisation charges
the gain or loss on the disposal of non-current assets.