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- Fellow PM.Dip
- Practice Licence
- 150 posts
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I completed the level 3 computerised mock exam (Wilcox and Co) last week, and I have a query about the supplied answer.
Has any one else done this mock? In task 3, part i) you have to do the entries for any accruals. The accruals that are mentioned are "Accounting fees £2,000" and "Electricity £400", I enter these as;
Accounting Fees : Dr £2,000
Electricity : Dr £400
Accruals : Cr £2,400
When I print out the trial balance I have the following balances for the accounts (note: The electricity had an opening balance of £8,000)
Accounting Fees : Dr £2,000
Electricity : Dr £8,400
Accruals : Cr £2,400
But the supplied answers supplies the following;
Accounting Fees : Dr £2,4000
Electricity : Dr £8,000
Accruals : Cr £2,400
This looks like a error of principle to me. It could be me that has made a mistake, but I don't believe I have in this instance. Has anyone else seen this problem or if anyone can see a mistake that I've made can you give me some pointers. I don't like have differences that I can't explain.
Thanks
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- Fellow PM.Dip
- Practice Licence
- 2 posts
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Hi,
My supplied answer differs from your supplied answer and agrees with your balances!
Regards,
Lisa
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Hi All,
in sage level 3 how would you deal with goodwill?
Regards
Paula Welsh
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- Fellow PM.Dip
- Practice Licence
- 150 posts
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The way that I do it is to open a goodwill account and debit it with the amount, I then credit the capital accounts with the existing proportions of thier profit-sharing agreement. You can then close the goodwill account by crediting the goodwill acount and debiting the capital accounts using the new profit-sharing proportions.
For example Partners A and B share on a 1:1 bases, after C is introduced the profit sharing becomes 2:2:1. The goodwill is 50,000
(Posting goodwill)
Goodwill Dr 50,000
Cpital A Cr 25,000
Capital B Cr 25,000
(Writing goodwill out)
Capital A Dr 20,000
Capital B Dr 20,000
Capital C Dr 10,000
Goodwill Cr 50,000
NOTE: In Sage I set up the goodwill account as a fixed asset.
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- Fellow PM.Dip
- Practice Licence
- 150 posts
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LSheriff said:
“Hi,
My supplied answer differs from your supplied answer and agrees with your balances!
Regards,
Lisa ”
Thanks for the information Lisa.
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I may be wrong, but this mock looks like a mess to me. Firstly, the headings in the profit and loss account in the supplied answer are bizarrely inconsistent with the headings in the trial balance. The trial balance shows entries for rent, insurance, postage and carriage, and telephone, all consistently with the question. However in the P&L rent and insurance have been combined as "rent and rates", and postage and carriage has been combined with telephone under the heading "printing and stationery"!
Secondly, the question does not say whether goodwill is to be written out of the accounts (though that is in fact what happens in the supplied answer). There is no indication in the supplied answer of whether an answer that left goodwill in as an asset would be marked as correct.
Thirdly, and most seriously, it seems to me that the appropriation of profit is wrong. The net profit is £120,000. For the first half of the year, there are 2 partners, sharing in the proportions 2:1. One partner then retires, and a new one comes in, and for the second half of the year there are two partners sharing 1:1. There is no indication that profits accrue unevenly over the year, so to my mind the partners in the first half of the year share £60,000 in the proportions 2:1, i.e. £40,000 and £20,000. The supplied answer gives no workings, but it appears that for some reason only £45,000 has been shared in respect of the first half of the year - £45,000 for A Wilcox and £15,000 for J Brazil. Obviously this throws out all subsequent appropriation figures.
Have I got this wrong?
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I have just done the mock and I totally agree that the appropiation seems to be wrong.
I have an idea that there is somewhere a line missing in the questions etc - such as interest on capital etc.
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- Fellow PM.Dip
- Practice Licence
- 150 posts
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When I did the appropreation the first time I didn't agree with the supplied answers (and still don't), but at least I found out how the ICB got their answers. The solution is that you have to applie James Brazil's wage first, and then share out the profit based on the profit sharing ratios.
I do remember that in a normal case I was tawght to do intrest on capital first, followed by wages and then finnaly the sharing based on the ratios. But that was where nothing had changed for the whole year.
In this case James doesn't start drawing a wage until the second half of the year so it seems wrong (and unfair to Alan) that his wage should be taken into account until the appropriation for the first half of the year has been done.
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I don't see how that can be a solution. As you say, JB is only entitled to a salary "as of 1st July", so there is no basis on which his salary can be deducted from the £60,000 he is to share with AW. AW was not a partner at any time when James was entitled to a salary as a preferential distribution of profit.
In any case, James can only be entitled to £30,000 (half a year's salary) or £60,000. If it's £30,000 and it is to be deducted before sharing with AW, there is only £30,000 left to share in respect of the first half year's profit of £60,000, so that AW gets £20,000 and JB gets 10,000. That makes AW's total take £142,342 (capital 116667+current 5675+20000) which does not give the supplied answer. If it's £60,000, there is nothing at all to share with AW in respect of the first half year's profit, so that his total take is £122342 which is even further from the given answer. How do you make the numbers add up?
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- Fellow PM.Dip
- Practice Licence
- 150 posts
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You misunderstood me, (or I didn't put it very clearly). You need to take the wage off the whole profit first.
Profit £120k
less wage £30k
-----------------------
£90k
There is now £45k for the first half of the year, which is hared out as
AW: £30k
JB: £15k
This means that AW leaves with £116,666.67+ current £5,675 + share of profit £30,000 = £152,341.67 which what I have in my answer sheet.
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I see, thanks. That would explain the numbers but of course it's the wrong answer to the question, and contrary to the partnership agreement as communicated to us. I still think the mock is a mess.
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@Tedius,
Thank you for your explanation, l get how they came up with the answer, but then how do l udjust for it in the accounts ?
For example l will credit Wilcox loan with the amount, what are the other debit transactions to balance the journal. Sorry lm just too confused. Hope you can help. Thanks
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- Member
- Practice Licence
- 34 posts
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I'm gutted reading these comments. Especially since I did Wilcox & Co only a few days before the real thing!!!
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tediussaid:
“When I did the appropreation the first time I didn't agree with the supplied answers (and still don't), but at least I found out how the ICB got their answers. The solution is that you have to applie James Brazil's wage first, and then share out the profit based on the profit sharing ratios.
I do remember that in a normal case I was tawght to do intrest on capital first, followed by wages and then finnaly the sharing based on the ratios. But that was where nothing had changed for the whole year.
In this case James doesn't start drawing a wage until the second half of the year so it seems wrong (and unfair to Alan) that his wage should be taken into account until the appropriation for the first half of the year has been done.”
As there is some confusion, I wonder if it is worth someone from the ICB commenting on whether this is a mistake in this mock exam?
I was under the same impresssion as everyone else here seems to be that you would share out the money for the first half of the year first according to the prfoit share agreement, then deduct the wages from the second half of the year before sharing out the rest of the money as laid out in the new profit share. As a result the answer given in the mock, I made sure that I adopted the "correct" way of getting the answer in my final exam (i.e. deducting wages first, then sharing the money ou as written out in the old and new profit share agreement). I will be rather cross if I get marked down for deducting the wages first before sharing the money out and find out that this is in fact wrong.
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- Member
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I'm with you Cheryl!!!
When i did Wilcox and Co I apportioned the profits then deducted the salary. But the answer told me I was wrong, so I followed the answer and not my head.
If I fail the real thing becuase I've adopted the methodology used for the Wilcox & Co answered I'll be totally gutted.
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- Fellow PM.Dip
- Practice Licence
- 150 posts
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James or some one else from the ICB;
As this seems to be affecting several people now could someone from the ICB come and give a definitive answer, and if the mock answers are right could they explain why.
Thanks
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- Member
- Practice Licence
- 34 posts
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Is there anybody from the ICB there...?
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