Theory question 106
Partnership Accounts6. Jomo, Ackun and Noye are in partnership under these terms: profit and losses are to be shared among Jomo, Ackun and Noye in the ratio 4:3:2 respectively; interest on capital is allowed at the rate of 5% per annum; Ackun is entitled to an annual salary of Le 1,600,000.
Balances (Capital 01/01/05; Current 01/01/05; Drawings 31/12/05; Interest on drawings 31/12/05):
Jomo: Le12,000,000; Le240,000 (cr); Le500,000; Le25,000
Ackun: Le8,000,000; Le160,000 (cr); Le600,000; Le30,000
Noye: Le6,000,000; Le140,000 (cr); Le700,000; Le35,000
Additional information: (a) By mutual agreement, Noye on 1st July, 2005 increased his capital by Le 2,000,000 while Jomo reduced his capital by Le 2,000,000. (b) The profit for the year ended 31st December, 2005 was Le 6,269,960.
You are required to prepare the: (i) profit and loss appropriation account; (ii) partners' capital accounts in columnar form; (iii) partners' current accounts in columnar form.
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Interest on capital (5%, time-apportioned): Jomo 300,000 + 250,000 = 550,000; Ackun 400,000; Noye 150,000 + 200,000 = 350,000; total 1,300,000.
(i) Appropriation: net profit 6,269,960 + interest on drawings 90,000 = 6,359,960; less salary Ackun 1,600,000 and interest on capital 1,300,000; balance 3,459,960 shared 4:3:2: Jomo 1,537,760; Ackun 1,153,320; Noye 768,880.
(ii) Capital accounts: Jomo 12,000,000 − 2,000,000 withdrawn = 10,000,000; Ackun 8,000,000; Noye 6,000,000 + 2,000,000 = 8,000,000.
(iii) Current accounts: Jomo 240,000 + 550,000 + 1,537,760 − 500,000 − 25,000 = 1,802,760 Cr; Ackun 160,000 + 400,000 + 1,600,000 + 1,153,320 − 600,000 − 30,000 = 2,683,320 Cr; Noye 140,000 + 350,000 + 768,880 − 700,000 − 35,000 = 523,880 Cr.
Interest on capital is worked for each half-year because the capitals changed on 1st July.