Theory question 105
Partnership AccountsSection B – Financial Accounting Practice (answer three questions only from this section)
5. Trouser and Shirt 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, 2000.
Capital Accounts: Trouser N12,500 (Cr); Shirt N10,000 (Cr)
Drawings: Trouser N1,000 (Dr); Shirt N750 (Dr)
Purchases and Sales: N100,000 (Dr); N125,000 (Cr)
Salaries: N12,500 (Dr)
General Expenses: N5,000 (Dr)
Discounts: N1,250 (Dr); N1,000 (Cr)
Rates: N250 (Dr)
Freehold property at cost: N12,500 (Dr)
Bank balance: N2,500 (Dr)
Debtors and Creditors: N7,500 (Dr); N6,500 (Cr)
Furniture and equipment at cost (N7,500): N6,000 (Dr)
Stock – 1st January: N5,750 (Dr)
Totals: N155,000 / N155,000
Additional information:
(a) Stock at 31st December, 2000 was N6,250 (b) Rates paid in advance at 31st December, 2000 was N50 (c) Bad debt to be written off N150 (d) Depreciation on furniture and equipment is to be provided at the rate of 5% per annum on cost. (e) Interest on capital is 10% per annum. (f) Interest on drawings: Trouser N50, Shirt N75
You are required to prepare: (i) Trading and Profit and Loss Account for the year ended 31st December, 2000; (ii) Profit and Loss Appropriation Account; (iii) Partners Current Accounts; and (iv) Balance Sheet as at 31st December, 2000.
Show the model answer
(i) Trading: sales 125,000; opening stock 5,750 + purchases 100,000 − closing stock 6,250 = cost of sales 99,500; gross profit 25,500.
Profit and loss: add discount received 1,000 = 26,500. Expenses: salaries 12,500; general expenses 5,000; discount allowed 1,250; rates 250 − 50 = 200; bad debts 150; depreciation 5% × 7,500 = 375; total 19,475. Net profit 7,025.
(ii) Appropriation: net profit 7,025 + interest on drawings 50 + 75 = 7,150; less interest on capital Trouser 1,250, Shirt 1,000; balance 4,900 shared 2:1: Trouser 3,267, Shirt 1,633.
(iii) Current accounts: Trouser Cr 1,250 + 3,267 = 4,517, Dr drawings 1,000 + interest 50; balance 3,467 Cr. Shirt Cr 1,000 + 1,633 = 2,633, Dr drawings 750 + interest 75; balance 1,808 Cr.
(iv) Balance sheet: freehold 12,500; furniture 7,500 − 1,875 (1,500 + 375) = 5,625; fixed assets 18,125. Current assets: stock 6,250; debtors 7,500 − 150 = 7,350; rates prepaid 50; bank 2,500 = 16,150. Creditors 6,500; working capital 9,650. Net assets 27,775 = capital 12,500 + 10,000 + current accounts 3,467 + 1,808 (rounded).
The trial balance shows furniture at net book value (cost 7,500); depreciation is 5% of cost.