QUESTION 4 PARTNERSHIPS (20) The information given below was extracted from the
ID: 2329050 • Letter: Q
Question
QUESTION 4 PARTNERSHIPS (20)
The information given below was extracted from the accounting records of Salmon Traders, a partnership business with Sally and Monty as partners. The financial year ends on the last day of February each year.
REQUIRED
Prepare the following accounts in the General ledger of Salmon Traders:
4.1 Current a/c: Monty (Balance the account.) (7)
4.2 Appropriation account (Close off the account.) (13)
INFORMATION
Balances in the ledger on 28 February 2017
R
Capital: Sally
400 000
Capital: Monty
200 000
Current a/c: Sally (01 March 2016) (DR)
20 000
Current a/c: Monty (01 March 2016) (CR)
33 000
Drawings: Sally
200 000
Drawings: Monty
180 000
The following must be taken into account:
(a) The net profit according to the Profit and Loss account amounted to R500 000 on 28 February 2017.
(b) The partnership agreement makes provision for the following:
Interest on capital must be provided at 15% per annum on the balances in the capital accounts. Note: Sally increased his capital by R100 000 on 01 September 2016. Monty decreased his capital by R100 000 on the same date.
The partners are entitled to the following monthly salaries:
Sally R12 000
Monty R13 000
Note: The partners’ salaries were increased by 10% with effect from 01 December 2016.
Sally and Monty share the remaining profits or losses in the ratio of their capital balances as at the beginning of the financial year.
Balances in the ledger on 28 February 2017
R
Capital: Sally
400 000
Capital: Monty
200 000
Current a/c: Sally (01 March 2016) (DR)
20 000
Current a/c: Monty (01 March 2016) (CR)
33 000
Drawings: Sally
200 000
Drawings: Monty
180 000
Explanation / Answer
Given Information Balances in the ledger Sally Monty Capital Accounts 400000 200000 Current a/c 20000 Dr 33000 Cr Drawings 180000 200000 Sally Monty Capital Accounts 400000 200000 Sally Capital Increase on 1st Sep 100000 Monty Decrease capital on 1 Sep -100000 Interest on Capital Sally Capital Sally Monty Sally Monty from 1st March to 31 August 300000 300000 22500 22500 1 Sep to 28 Feb 400000 200000 30000 15000 Total Interest 52500 37500 Capital Accounts as on 1 March 300000 300000 Profit sharing Ratio 1 1 (1:1) Interest on Capital 15% P&L Appropriation Account Dr Cr Particular Amount Particular Amount To Interest On Capital By Net Profit 500000 Sally 52500 Monty 37500 90000 To Salary Sally (12000+12000*10%) 13200 Sally (13000+13000*10%) 14300 27500 To Profit transferred to capital accounts 382500 Sally 191250 Monty 191250 500000 500000 It is assumed that salary given are at the beginning of year, hence increase is applied on those salaries Sally Capital Account Dr Cr Particular Amount Particular Amount To Balance C/d 400000 By Balance b/d 300000 By Cash A/c 100000 (capital increased) 400000 400000 Monty Capital Account Dr Cr Particular Amount Particular Amount To Cash A/c 100000 By Balance C/d 300000 (Capital Withdrawn) To Balance b/d 200000 300000 300000 Sally Current Account Dr Cr Particular Amount Particular Amount To Balance b/d 20000 By Profit Trf from P&L App A/c 191250 to Drawings 200000 By Salary 13200 By Balance C/d 15550 220000 220000 MontyCurrent Account Dr Cr Particular Amount Particular Amount to Drawings 180000 By Balance b/d 33000 To Balance c/d 58550 By Profit Trf from P&L App A/c 191250 By Salary 14300 238550 238550