Theory question 106
Partnership Accounts6. Alpha, Blank and Cyron are partners. They agreed to share profits in the ratio 3:2:1 respectively. The balances in their books as at 31st December 2001 were as follows:
Trading income N88,000
Bank interest received N2,600
Salaries N25,000
Rent N7,000
Stationery and printing N2,500
Accountancy and audit fees N1,630
Subscriptions to trade association N5,060
Travelling expenses N700
Sundry office expenses N800
Debtors N130,000
Investment interest N6,000
Capital Account: Alpha N2,400 Cr.; Blank N1,600 Cr.; Cyron N800 Cr.
Current Account: Alpha N1,200 Dr.; Blank N800 Dr.; Cyron N400 Dr.
Additional information: (a) Outstanding creditors: stationery N70, Sundry office expenses N240. (b) Cyron is to be credited with a partnership salary of N6,000. (c) 5% interest on capital is allowed for the full year and no interest allowed on current account. (d) Provide 2% of debtors as bad debt.
You are required to prepare: (i) Profit and Loss Account; (ii) Profit and Loss Appropriation Account for the year ended 31st December, 2001.
Show the model answer
(i) Profit and loss account: income – trading income 88,000; bank interest 2,600; investment interest 6,000; total 96,600. Expenses – salaries 25,000; rent 7,000; stationery 2,500 + 70 = 2,570; accountancy 1,630; subscriptions 5,060; travelling 700; sundry office 800 + 240 = 1,040; provision for bad debts 2% × 130,000 = 2,600; total 45,600. Net profit 51,000.
(ii) Appropriation: net profit 51,000; salary Cyron 6,000; interest on capital 5%: Alpha 120, Blank 80, Cyron 40 (240); balance 44,760 shared 3:2:1: Alpha 22,380, Blank 14,920, Cyron 7,460.
Expenses and provisions first; salary and interest on capital are appropriations.