Partnership Changes This assessment represents 10% of your final grade. It is based on Unit 1 of your course outline. All accounts and statements should be prepared using Excel and all written sections should be presented in Word, in compliance with the APA 7th ed style.

Accra, Lagos, and Dakar were in partnership, haring profits and losses in the ratio 4:3:3 respectively. Their agreement includes the following terms:

i. Interest on drawings to be charged 5% on total drawings for the year. ii. Interest at 14% per annum to be provided on fixed capitals. iii. Lagos to receive a salary of $18,000 per annum.

The following information was available for the year ended 31 December 2021.

Accra Lagos ($) Dakar ($)

Balances at 1 January 2020 Capital accounts Current accounts

$160,000 $ 6,800

$120,000 $ 5,800 (Dr.)

$100,000 $ 3,400 (Dr.)

For the year ended 31 December 2020 Drawings $44,800 $34,400 $40,400

The net profit for the year ended 31 December 2020, before appropriation was $63,200.

On 1 January 2022, Lagos retired from the partnership. It was agreed that on this date: Lagos would keep some equipment for personal use. The equipment had a net book value of $31,000 and was to be transferred to Lagos at a value of $26,000. Land was revalued upwards by $40,000; Fixtures were shown to be undervalued by $16,500 and $3,500 of receivables was found to be uncollectible

2 Goodwill was valued at $100,000. However, a goodwill account was not to be maintained in the partnerships books Accra and Dakar continued in partnership sharing profits equally. They discussed how best to finance the amount due to Lagos on his retirement. They are considering two options. Option 1: take out a bank loan to cover the amount due Option 2; admit a new partner whose capital contribution would cover the amount due.

Required: a) Give possible reasons why the partnership why this partnership agreement might include provision to charge interest on drawings, interest on capital and a salary. [5 marks] b) Prepare the appropriation account for the year ended 31 December 2020 [12 marks] c) Prepare the partnerships current accounts for the year ended 31 December 2021, then bring down the balances for the new partnership. [10 marks] d) Explain why a revaluation of assets is usually made when a partner retires [2 marks] e) Prepare the revaluation account. [5 marks] f) Prepare the partnerships capital accounts [14 marks] g) Advise Franz and Dakar which financial option they should choose. Justify your answer by discussing both options.