Question

In: Accounting

Arthur Seth has a rice farmer for several years making up his accounts to December 31st...

Arthur Seth has a rice farmer for several years making up his accounts to December 31st each year. On 1st July, Bernice Aku joined the business Details of the partnership were as follows: Seth Bernice Capital introduced GHC 5,000 GHC 2,500 Profit sharing ratio 2 : 1 Cost of living allowance GHC200 per month GHC200 per month Risk allowance GHC300 per month GHC300 per month Interest on Capital GHC500 per month GHC250 per month Management Allowance GHC300 per month GHC100 per month These allowances were charged in the accounts in arriving at the following profits: Year to December 31, 2016 GHC30,000 Year to December 31, 2017 GHC 45,000 Residual values of assets in use in the business as at 1st January, 2016 were as follows: Tractors GHC 5,600 Farm House GHC 12,000 A combined harvester was purchased in March, 2016 at a cost of GHC 80,000. Required: Determine the chargeable incomes of the partners for the relevant years.

Solutions

Expert Solution

Situation

Bernice Arthur
Capital                  5,000              2,500
Monthly Monthly                     2,016                     2,017
Cost of living Allowance GHC     200.00 GHC 200.00 GHC    2,400.00 GHC    4,800.00
Risk Allowance GHC     300.00 GHC 300.00 GHC    3,600.00 GHC    7,200.00
Interest On Capital GHC     500.00 GHC 250.00 GHC    4,500.00 GHC    9,000.00
Management Allowance GHC     300.00 GHC 100.00 GHC    2,400.00 GHC    4,800.00
Total GHC 1,300.00 GHC 850.00 GHC 12,900.00 GHC 25,800.00

Solution

Year to Profits GHC 30,000.00 GHC 45,000.00
Share of Profit Allowances Chargeable Income
Bernice 2 GHC 20,000.00 GHC 30,000.00 GHC    7,800.00 GHC 15,600.00 GHC             73,400.00
Arthur 1 GHC 10,000.00 GHC 15,000.00 GHC    5,100.00 GHC 10,200.00 GHC             40,300.00
Total Share 3 GHC 30,000.00 GHC 45,000.00 GHC 12,900.00 GHC 25,800.00 GHC         1,13,700.00

Since Bernice Joined on July 1st, the Chargeable income for the year ending 2016 has been adjusted proportionately .


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