Theory question 101
Partnership AccountsSection A (compulsory)
1. Bola and Tanko are in trading business sharing profits and losses in the ratio 2: 1. The following balances were extracted from their books for the year ended 31st December, 1995.
Capital Accounts: Bola N62,000 (Cr); Tanko N31,000 (Cr)
Drawings: Bola N10,200 (Dr); Tanko N6,600 (Dr)
Motor van at cost: N42,040 (Dr)
Stock 1/1/95: N31,500 (Dr)
Sundry debtors/creditors: N24,492 (Dr); N19,125 (Cr)
Sales: N319,000 (Cr)
Purchases: N228,000 (Dr)
Freehold property: N27,750 (Dr)
Salaries: N38,181 (Dr)
Rates: N450 (Dr)
Electricity: N14,100 (Dr)
Cash at bank: N3,612 (Dr)
Discounts allowed/received: N6,231 (Dr); N2,445 (Cr)
Bank charges: N648 (Dr)
Rent received: N234 (Cr)
Totals: N433,804 / N433,804
Additional Information:
(a) Stock at 31st December, 1995 was N35,250 (b) Depreciation on motor van is to be provided at 10% per annum. (c) Accrued salaries was N600 (d) Rate prepaid was N75 (e) Interest on capital is to be credited at 5% per annum (f) Interest on drawings is to be charged as follows. Bola N225, Tanko N165 (g) Provision for doubtful debt is N240.
You are required to prepare (i) Trading and Profit and Loss Account for the year ended 31st December 1995; (ii) Profit and Loss Appropriation Account, (iii) The Partners' Current Accounts, and (iv) Balance Sheet as at 31st December, 1995.
Show the model answer
(i) Trading: sales 319,000; opening stock 31,500 + purchases 228,000 − closing stock 35,250 = cost of sales 224,250; gross profit 94,750.
Profit and loss: add discount received 2,445 and rent received 234 = 97,429. Expenses: salaries 38,181 + 600 = 38,781; rates 450 − 75 = 375; electricity 14,100; bank charges 648; discount allowed 6,231; provision for doubtful debts 240; depreciation of motor van 10% × 42,040 = 4,204; total 64,579. Net profit 32,850.
(ii) Appropriation: net profit 32,850 + interest on drawings 225 + 165 = 33,240; less interest on capital Bola 3,100 (5% × 62,000), Tanko 1,550 (5% × 31,000); balance 28,590 shared 2:1: Bola 19,060, Tanko 9,530.
(iii) Current accounts: Bola Cr 3,100 + 19,060 = 22,160, Dr drawings 10,200 + interest on drawings 225; balance 11,735 Cr. Tanko Cr 1,550 + 9,530 = 11,080, Dr 6,600 + 165; balance 4,315 Cr.
(iv) Balance sheet: freehold property 27,750; motor van 42,040 − 4,204 = 37,836; fixed assets 65,586. Current assets: stock 35,250; debtors 24,492 − 240 = 24,252; rates prepaid 75; bank 3,612 = 63,189. Current liabilities: creditors 19,125; accrued salaries 600 = 19,725. Working capital 43,464; net assets 109,050.
Capital Bola 62,000 + Tanko 31,000 + current accounts 11,735 + 4,315 = 109,050.
Interest on drawings is income in the appropriation account and a debit in each partner's current account.