Theory question 103
Partnership AccountsAbass and Okafor are in partnership sharing profits and losses in the ratio 2 : 3 respectively. The following balances were extracted from the partnership books on 31st December, 1991.
Capital Accounts: Abass ₦15,500; Okafor ₦18,070
Current Accounts: Abass ₦29,800; Okafor ₦9,500
Drawings: Abass ₦1,100; Okafor ₦1,760
Motor Vehicles ₦54,000
Office Furniture ₦23,800
Advertisement ₦5,900
Sales ₦149,500
Returns Inwards ₦3,000
Purchases ₦70,600
Returns Outwards ₦5,500
Opening Stock ₦24,600
Carriage Inwards ₦3,300
Discount Allowed ₦3,400
Discount Received ₦2,300
Rent and Rates ₦3,950
Salaries and Wages ₦16,000
Carriage Outwards ₦5,600
Electricity ₦2,300
Provision for depreciation: Motor Vehicles ₦13,500; Office Furniture ₦7,140
Bills Payable ₦7,500
Creditors ₦28,000
Bills Receivable ₦6,600
Debtors ₦48,000
Cash ₦12,400
Additional Information: (a) Closing stock ₦18,000 (b) Salaries and Wages accrued ₦60 (c) Interest on Capital is ₦2,425 for Abass and ₦1,475 for Okafor. (d) The partners maintain fixed capital accounts (e) Salaries payable to partner: Abass ₦1,400; Okafor ₦1,600 (f) Provision for depreciation: Motor Vehicles 25% on cost; Office Furniture 15% on cost.
Prepare: (i) The Trading, Profit and Loss Appropriation Account for the year ended 31st December 1991, and (ii) A Balance Sheet as at that date.
Show the model answer
(i) Trading, Profit and Loss and Appropriation Account for the year ended 31 December 1991
Sales 149,500 − returns 3,000 = 146,500
Opening stock 24,600 + purchases 70,600 + carriage inwards 3,300 − returns outwards 5,500 − closing stock 18,000 = cost of sales 75,000
Gross profit ₦71,500; add discount received 2,300 = 73,800
Expenses: advertisement 5,900; discount allowed 3,400; rent and rates 3,950; salaries and wages (16,000 + 60) 16,060; carriage outwards 5,600; electricity 2,300; depreciation motor vehicles 13,500, office furniture 3,570; total 54,280
Net profit ₦19,520
Appropriation: interest on capital Abass 2,425, Okafor 1,475; salaries Abass 1,400, Okafor 1,600; residue 12,620 shared 2:3: Abass 5,048, Okafor 7,572
Current accounts: Abass 29,800 + 2,425 + 1,400 + 5,048 − 1,100 = 37,573; Okafor 9,500 + 1,475 + 1,600 + 7,572 − 1,760 = 18,387
(ii) Balance Sheet as at 31 December 1991
Fixed assets: motor vehicles 54,000 − 27,000 = 27,000; office furniture 23,800 − 10,710 = 13,090; total 40,090
Current assets: stock 18,000; debtors 48,000; bills receivable 6,600; cash 12,400; total 85,000
Current liabilities: creditors 28,000; bills payable 7,500; accrued wages 60; total 35,560; working capital 49,440
Net assets ₦89,530 = capitals (15,500 + 18,070) 33,570 + current accounts (37,573 + 18,387) 55,960
With fixed capitals, interest, salaries, profit shares and drawings all go through the partners' current accounts.