Theory question 108
Partnership Accounts8. Dayo and Kola are in partnership sharing profits and losses in the ratio of 3:2. The following balances were extracted from the books of the firm for the year ended 31st March, 2006 (Dr; Cr):
Capital: Dayo – ; N120,000. Kola – ; N100,000
Current Account: Dayo N10,000; –. Kola –; N45,000
Drawings: Dayo N20,000; Kola N30,000
Stock – 1st April, 2005 N12,000
Plant and machinery N150,000
Fixtures and fittings N40,000
Equipment N60,000
Provision for doubtful debts N1,000 (Cr)
Debtors N35,000
Creditors N25,000 (Cr)
Discount allowed N850
Discount received N1,200 (Cr)
Bad Debts N650
Sales N180,000 (Cr)
Purchases N114,000
Returns inwards N500
Returns outwards N800 (Cr)
Totals N473,000 / N473,000
Additional information: (a) Stock – 31st March, 2006 N18,000 (b) Interest on capital at 5% per annum (c) Interest on drawings at 10% per annum (d) Depreciate plant and machinery by 5% (e) Provision for doubtful debts should be at 5% on debtors (f) Dayo to receive a partnership salary of N5,000.
You are required to prepare: (i) Trading, Profit and Loss Account (ii) Appropriation Account for the year ended 31st March, 2006; and (iii) Partners' Current Accounts.
Show the model answer
(i) Trading: sales 180,000 − returns 500 = 179,500; opening stock 12,000 + purchases 114,000 − returns 800 − closing 18,000 = 107,200; gross profit 72,300.
Profit and loss: add discount received 1,200 = 73,500. Expenses: discount allowed 850; bad debts 650; increase in provision 750 (5% × 35,000 = 1,750 − 1,000); depreciation of plant 7,500; total 9,750. Net profit 63,750.
(ii) Appropriation: 63,750 + interest on drawings (Dayo 2,000, Kola 3,000) = 68,750; less salary Dayo 5,000; interest on capital Dayo 6,000, Kola 5,000; balance 52,750 shared 3:2: Dayo 31,650, Kola 21,100.
(iii) Current accounts: Dayo – Dr balance 10,000, drawings 20,000, interest on drawings 2,000; Cr salary 5,000, interest 6,000, share 31,650; balance 10,650 Cr. Kola – Dr drawings 30,000, interest on drawings 3,000; Cr balance 45,000, interest 5,000, share 21,100; balance 38,100 Cr.
Interest on drawings is added to profit in the appropriation account and charged to each partner.