Q 1.
Mr. Ahmed has been working in a small company for many years and earns a living. Due to the
increase in the size of his family (dependent members), the income earned now proves to be
insufficient. Mr. Ahmed approaches his friend Mr. Azad, who has plans of starting a new venture.
Mr. Azad is skilled, passionate and has new ideas that would enable him to start a new
manufacturing venture, but lacks capital. Mr. Ahmed, who knows little about doing business, has
saved money over the years and plans to invest the same in a partnership concern with Mr. Azad.
Mr. Ahmed wishes to continue his job as well as participate in the partnership concern
only by investing his saved money.
Using the above case
A) You are required to advise and explain in detail, the nature of partnership that the above
people must enter into (2.5 Marks)
B) List down the various clauses that need to be incorporated in the partnership deed.
(2.5 Marks)
Q 2.
Razan and Rawan were partners sharing the profits and losses of their partnership firm “ Maa and
Me ” in the ratio of 5:3. As the duo were struggling with managing the ever increasing financial
needs of their business and hence they decided to admit Rehab in their partnership firm. Rihab, a
rich lady was drawn in to induce funds in the cash strapped business. She agreed to participate in
the struggling venture demanding a 5/9 share in profits, which was agreed by Razan and Rawan.
You are requested to explain in detail as to how the reconstitution of the firm would take
place considering each and every necessary adjustment including calculation wherever
applicable. (5 Marks)
Page 5 of 11
Q 3.
Partners A, B and C started their partnership firm M/s. ABC LLC in Muscat with capitals of OMR
80,000; OMR 48,000 and OMR 40,000 respectively on 1.1.2019. They prepared Partnership Deed
for the partnership and it contains the various clauses related to – the firm has to pay the partners
@ 5.5 % p.a., for their capital contributed to the business and the partners have to pay @ 2.5% for
their drawings taken from the business during the financial year. Further the firm has to pay salary
to A @ OMR 600 per month, @ 10% commission to B and C and bonus to A and C @ OMR 500 each.
Finally the firm’s Profit and Losses for the partners to be shared at the end the financial year Up to
OMR 9,000 in the ratio of 4:3:2 and Above OMR 9,000 equally. The net profit earned by the firm
during the year ended 31st December 2019 amounted to OMR 55,500. The partners were drawn
the money from the firm during the financial year is – A OMR 4,800: B OMR 3,200 and C OMR 2,000.
Prepare both Profit and Loss Appropriation Account and Fixed & Fluctuating Capital Accounts of the
Partners in M/s. ABC LLC. On what basis the items which are debited and credited in that account –
Comment. The balance of two different methods of capital accounts is differs from one another.
Why? Explain it with the accurate values. (2+2+1 = 5 Marks)
Page 6 of 11
Q4. A
M/s. Al Hilal LLC started with Capital OMR 800,000, Total Tangible Assets OMR 1,000,000 and
Current Liabilities OMR 100,000 and decided to admit a new partner in the business and also to
receive the amount of goodwill from the incoming partner. The concern wishes to calculate the
value of goodwill on the basis of four years purchase of the firm by different methods, such as
Average Profit and Super Profit. The books of accounts revealed some information related to past
years’ profits of 2011 – OMR 15,000, 2012 – OMR 20,000, 2013 – OMR 25,000, 2014 – OMR 30,000,
2015 – OMR 35,000, 2017 – OMR 40,000, 2018 – OMR 45,000, 2019 – OMR 50,000. The concern
expects the Rate of Return @ 12.5 % normally.
Compute the value of goodwill on the basis of 4 years purchase under Capitalization of Average
Profit Method and Super Profit Method. Which method of goodwill calculation is beneficial for
the firm? Why these two methods showing two different values? Give your comments with the
calculated values. (1+1+0.5=2.5 Marks)
Q4. B
The firm also has two alternatives to find out the new ratio and sacrificing ratio of the partners are
If A and B are the partners sharing profits and losses in the ratio of 5:3, admitting C for 1/5th share
of future profits in which he acquires 3/16th from A and 1/16th from B and,
If A and B are the partners and sharing profits and losses in the ratio of 4:1, admitting C as a new
partner in which he acquires 2/5th of A ’s share and 1/5 of B’s share.
Calculate new ratio and sacrificing ratio of the partners and suggest which alternative is good for
the new partner? Comment it. (1+1+0.5 = 2.5 Marks)
Page 7 of 11
Following information use in Question NO.5& 6
Partners A, B and C running a partnership firm in the name of M/s. ABC LLC with their capitals of
OMR 60,000, OMR 40,000 and OMR 30,000 and an agreed sharing the profits and losses in the ratio
of 3:2:1.respectively on 31.3.2020.
The firm’s various assets and liabilities in the books of accounts are –
Particular OMR Particular OMR
Plant 60,000 Bank Overdraft 25,000
Buildings 100,000 Sundry Creditors 100,000
Furniture 25,000 Premises 40,000
Land 70,000 Machinery 40,000
6% Bonds 50,000 Stock 25,000
Bank Loan 40,000 Sundry Debtors 70,000
Profit & Loss A/c 25,000 Bills Receivable 25,000
General Reserve 50,000 Bills Payable 80,000
On 1.4.2020 they decided to admit D into the partnership for 1/5th of the future profits with the
terms that D shall bring in a capital of OMR 50,000.
The Goodwill of the firm being valued at OMR 40,000, Machinery, Land, Buildings and Plant are to
be appreciated by 10%. Provision for Doubtful Debts @ 5% is to be created against Debtors. Stock,
Furniture, Premises are to be depreciated by 5%.
Discount on Creditors is to be made against Creditors @ 2.5%. Provision for outstanding liability is
to be created at OMR 4,000 and Bank Loan is to be maintained in the books.
Q5.
Journalize the above transactions with narrations and prepare the Revaluation Account. Give
your comment with reasons about the values which are debited and credited in the Revaluation
Account. (2+2+1 = 5 Marks)
Q6.
Prepare Partners’ Capital Accounts and Balance Sheet of the reconstituted partnership firm.
Give your views about the changes in the balance sheet after reconstitution. (2+2+1 = 5 Marks)
Page 8 of 11
Q7.
Ali, Khalid and Salim are partners of a firm (AKS LLC) that deals in used computer, printer, Xerox
machines, servers, repair, and maintenance service in corporates and on call services. Everything
was going well, but all in sudden Salim has been died in road accident. Salim’s wife appointed as
the legal representatives to receive his share. Sharing profit and losses in the ratio of 5:3:2. Salim
maintain all accounts like dealing and making final accounts and bank dealing. Due to Salim’s death
it was difficult to collect all assets, liabilities and capital amount information because Khalid and Ali,
they don’t have experiences to maintain the accounts. But at last they collect the below information
but some information’s missing.
Name of Accounts OMR Name of Accounts OMR
Cash at Bank ? Ali’s Capital 39,500
Sundry Debtors 17,000 Khalid’s Capital 62,500
Stock 25,000 Salim’s Capital 78,000
Patents 18,000 General Reserve A/c 28,000
Equipment 75,000 Premises 50,000
Sundry Creditors 15,000
Being a friend of Ali, you will help to find out the missing information and Salim’s settlement in
following condition.
Mr. Salim died on 31st March 2020. The legal representative of the deceased partner entitled to
receive his share after the following adjustments.
a) Goodwill be valued at 2.5 year’s purchase of the average profit of the last four years,
Which were 2016 OMR 32,500; 2017 OMR 30,000; 2018 OMR 40,000; 2019 OMR 37,500.
b) Premises to be appreciated by OMR 62,500.
c) Provision for doubtful debts to be made at 6% on debtor
d) The assets are to be valued as, Equipment be valued at OMR 70,000 and Patents at OMR
20,000.
e) For the purpose of calculating Salim’s share in the profit of 2020, the profit in 2020 should
be taken to have been earned on the same as in 2019.
f) A sum of OMR15,000 is to be paid immediately to the executors of Salim and the balance
transferred to his loan account.
You are required to pass necessary Journal entries with narrations to record the above
transactions, prepare the Revaluation Account and Salim executors account.
(2+1+2 = 5 Marks)
Page 9 of 11
Q8.
The post-closing trial balance of M/S. Sun Traders at 31 March 2020 is set out below
Sun Tarders
Post Closing Trial Balance
As on 31St March 2020
Particular Debit Credit
OMR OMR
Cash at Bank 1,000
Sundry Debtors 11,000
Stock 15,000
Motor Vehicle 10,000
Profit and loss accounts 3,000
Plant & Equipment 26,500
Land & Building 20,000
Goodwill 10,000
Sundry Creditors 15,000
Bills Payable 6,000
General Reserve A/c 10,500
Akbar, Capital 30,000
Babar ,Capital 20,000
Khan , Capital 15,000
96,500 96,500
On the above date, Akbar retired, and the following arrangements were agreed upon:
a. Goodwill of the firm is to be valued at OMR 24,000.
b. The assets and liabilities are to be valued as: Stock OMR 12,000, Sundry Debtors
OMR.10,500, Land and Building OMR 22,600, Plant and Machinery OMR25,000 and
Sundry Creditors OMR 14,000.
c. To bring into books unrecorded investments OMR 1,000
d. Babar and Khan were to introduce OMR20,000 and OMR5,000 respectively into the business
and OMR16,200 was to be paid immediately and balance transfer to loan accounts.
e. Bills payable were unrecorded to the extent of OMR1,000
f. Babar and Khan agreed not to retain goodwill in books.
g. Akbar, Babar and Khan profit and loss sharing ratio are 4:2:1 respectively.
You are required to pass necessary Journal entries with proper narrations to record the above
transactions. Prepare revaluation account, capital accounts, bank account and financial position
of the new firm as at 1st April 2020, after all above arrangement have been completed. Write
down the impact of retirement with explanations cum values in the new balance sheet.
(1+1+1+1+1 = 5 Marks)
Page 10 of 11
Q9.
ASR Motor LLC is running a partnership business last 20 years. ASR good reputation in sultanate of
Oman. ASR dealing auto parts, mobile oil and auto repair and maintenance. Last few years overall
economic growth and oil prices continue decreasing and due to that reason firm continue running
losses. A long discussion the partners decided to dissolve the firm. The partners are Akbar, Iqbal,
Samar, and Rahil sharing profit and losses in the ratio of 3:2:2:3.
The closing balances of assets, liabilities and capitals as on 31st December,2019 was given below.
Name of Accounts OMR Name of Accounts OMR
Cash at Bank 197,325 Profit & Loss A/c 312,000
Accounts Receivable 702,280 Abdullah, Capital 2,815,000
Inventory 373,520 Ahmed, Capital 1,205,000
Furniture 1,053,590 Samar, Capital 1,920,000
Plant and Machinery 1,769,060 Rahil , Capital 2,500,000
Notes Payable 321,600 General Reserve A/c 758,000
Sundry Creditors 183,125 Building 1,077,000
Land 4,000,000 Workshop Equipment 1,050,200
Outstanding Salary 208,250
They decided to dissolve the firms. The following term amounts were realized:
Plant and Machinery are realized 15% less of total cost, Accounts Receivable realized
OMR650,000,Inventory were sold OMR325,000.Sundry Creditors paid at 5% discounts, Land
to be appreciated by 15%,Furniture are realized OMR900,000,Rahil are agreeing to take Building
and Workshop equipment OMR1,000,000 and OMR 850,000, respectively and Note
payable are paid 5% less of the value and Outstanding salary were paid full amount.
You are required
a. To pass necessary Journal entries. (2 Marks)
b. To prepare Realization Account, Bank Accounts and Partner’s Capital Account.
(3 Marks)
Page 11 of 11
Q.10
Women have been encouraged throughout the world to be entrepreneurs. Many reasons,
some of them being to support themselves and their families; to attain the fulfillment of having
started something on their own and to satisfy their desire for financial independence. Women
not only create jobs for themselves and others, but also work toward growing their businesses,
and constantly innovating new products and services. One such example was the partnership
venture of Ms. Rihab, Ms. Shaima, Ms. Yumna and Ms Zahra. This partnership firm was called
as “Family Events”. Based in Bawsher since inception in 2009, this SME concentrated on
management and arrangement of family functions namely marriage parties, birthday parties
etc. Further, they expanded their business and entered into managing events such as pre
marriage shoots, new born photography and outdoor catering service. In 2020, this firm has
failed to live up to the expectations of their customers in terms of quality, innovation and cost.
This has caused huge loss in sales revenue, brand value and profits of the company. Out of the
four partners, two opine closure and settlement, while the other two are devising ways to keep
the firm afloat.
You are an Independent advisor based in Muscat and are required to explain and critically
compare the different situations that crop up on following both opinions individually.
(5 Marks)
Sample Solution
