Theory question 106
Partnership AccountsUbochi and Hassanah started a partnership business on 1st January, 2015. They contributed D 300,000 and D 250,000 respectively as capital. Their partnership deed stated that: (i) interest of 8% should be paid on capital per annum; (ii) Hassanah would be paid D 10,000 monthly as salary; (iii) interest on drawings is 5%; (iv) the profits are to be shared in the ratio 3:2 respectively. At the end of the year, the profit made was D 300,000. During the period, Ubochi and Hassanah made drawings of D 20,000 and D 15,000 respectively.
You are required to prepare: (a) Profit and Loss Appropriation Account for the year ended 31st December, 2015; (b) Partners' Current Accounts.
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(a) Appropriation Account (D): net profit 300,000; add interest on drawings – Ubochi 1,000, Hassanah 750 = 301,750; less interest on capital – Ubochi 24,000, Hassanah 20,000; Hassanah's salary (10,000 × 12) 120,000; residual profit 137,750 shared Ubochi 3/5 82,650, Hassanah 2/5 55,100.
(b) Current Accounts (D) – Ubochi | Hassanah: Cr interest on capital 24,000 | 20,000; salary – | 120,000; share of profit 82,650 | 55,100 = 106,650 | 195,100. Dr drawings 20,000 | 15,000; interest on drawings 1,000 | 750; balance c/d 85,650 | 179,350.
Salary is monthly, so multiply by 12; interest on drawings is added back before sharing.