Theory question 101
Partnership AccountsSection A (compulsory)
Amusa and Salawa are partners sharing profits and losses in the ratio 2: 1. The following balances were extracted from the books of the firm for the year ended 31st December, 1991.
Capital Accounts: Amusa Cr ₦50,000; Salawa Cr ₦40,000
Drawings: Amusa Dr ₦4,000; Salawa Dr ₦3,000
Purchases Dr ₦400,000
Sales Cr ₦500,000
Salaries Dr ₦50,000
General expenses Dr ₦20,000
Rates Dr ₦1,000
Discount Received Cr ₦4,000
Bank Balance Dr ₦10,000
Freehold Properties at cost Dr ₦50,000
Trade Creditors Cr ₦26,000
Discount Allowed Dr ₦5,000
Furniture and Equipment: Cost (₦30,000) Dr ₦24,000
Trade Debtors Dr ₦30,000
Stock-in-trade 1st January Dr ₦23,000
Totals ₦620,000, ₦620,000
You are given the following additional information: (i) Stock-in-trade 31st December, 1991 was ₦25,000; Rates paid in advance at 31st December, 1991 were ₦200; Bad debts to be written off ₦600 Depreciation on furniture and office equipment is to be provided at the rate of 5% per annum on cost; Interest on Capital is 10% per annum Interest on drawings: Amusa ₦250; Salawa ₦300
You are required to prepare: (a) Trading and Profit and Loss Account for the year ended 31st December, 1991 (b) Profit and Loss Appropriation Accounts (c) Partner's Current Accounts and (d) Balance Sheet as at 31st December, 1991.
Show the model answer
(a) Trading and Profit and Loss Account for the year ended 31 December 1991: sales 500,000; cost of sales 23,000 + 400,000 − 25,000 = 398,000; gross profit ₦102,000; add discount received 4,000 = 106,000
Expenses: salaries 50,000; general expenses 20,000; rates (1,000 − 200) 800; discount allowed 5,000; bad debts 600; depreciation 5% × 30,000 = 1,500; total 77,900; net profit ₦28,100
(b) Appropriation Account: net profit 28,100 + interest on drawings (250 + 300) 550 = 28,650; less interest on capital Amusa 5,000, Salawa 4,000; residue 19,650 shared 2:1: Amusa 13,100, Salawa 6,550
(c) Current Accounts (Amusa | Salawa): Cr interest on capital 5,000 | 4,000; share of profit 13,100 | 6,550; Dr drawings 4,000 | 3,000; interest on drawings 250 | 300; balance c/d ₦13,850 | ₦7,250
(d) Balance Sheet as at 31 December 1991: freehold 50,000; furniture and equipment 30,000 − 7,500 = 22,500; fixed assets 72,500
Current assets: stock 25,000; debtors 30,000 − 600 = 29,400; rates prepaid 200; bank 10,000; total 64,600; less creditors 26,000; working capital 38,600; net assets ₦111,100
Capital accounts 90,000 + current accounts 21,100 = ₦111,100
Interest on drawings is added to the profit available, because it is charged to the partners.