Theory question 105
Partnership AccountsAudu, Bisi and Sam are in partnership sharing profits and losses in the ratio 2:2:1 respectively. The partnership agreement provides: Payment of interest at 15% per annum on the credit balance of each partner's capital and 15% on Current Account (Credit balance) at the beginning of each year. That no interest on drawings be charged. For the payment of a salary of ₦2,500 per annum to Sam together with a 2% commission on the trading profit after charging current account interest, salary and the commission, but before charging interest, on capital.
The partners' balances as at 1st July, 1993 were as follows (Current Account | Capital Account): Audu ₦2,000 Cr | ₦16,000; Bisi ₦200 Dr | ₦12,000; Sam ₦400 Dr | ₦4,000
Drawings for the year were: Audu ₦5,200; Bisi ₦3,700; Sam ₦4,800
The trading profit for the year ended 30th June, 1994 was ₦22,282
You are required to prepare: (i) The Profit and Loss Appropriation Account for the year ended 30th June, 1994 (ii) The Current Account for each partner in columnar form and (iii) The Capital Account for each partner in columnar form
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Workings: interest on current account (Audu only, credit balance) 15% × 2,000 = 300; salary to Sam 2,500; commission = 2% of profit after itself: (22,282 − 300 − 2,500) × 2/102 = ₦382
(i) Appropriation Account for the year ended 30 June 1994: trading profit 22,282; less interest on current account 300; Sam's salary 2,500; Sam's commission 382; interest on capital (15%): Audu 2,400, Bisi 1,800, Sam 600 = 4,800; residue 14,300 shared 2:2:1: Audu 5,720, Bisi 5,720, Sam 2,860
(ii) Current Accounts (Audu | Bisi | Sam): opening 2,000 Cr | 200 Dr | 400 Dr; add interest on current account 300 | – | –; salary – | – | 2,500; commission – | – | 382; interest on capital 2,400 | 1,800 | 600; share of profit 5,720 | 5,720 | 2,860; less drawings 5,200 | 3,700 | 4,800; closing balances ₦5,220 Cr | ₦3,620 Cr | ₦1,142 Cr
(iii) Capital Accounts: no change: Audu ₦16,000; Bisi ₦12,000; Sam ₦4,000
The commission is 2% of the profit after the commission itself, so divide by 102, not 100.