Question

James and Bond are partners sharing profits and losses equally after allowing James a
salary of $ 20 000 per annum. On 1 January 2013 their capital and current account balances
were as follows

James    Bond
$ $
Capital accounts 25 000    20 000

Current accounts 7500 5000

On 1 July 2013, the partners agree to the following revised terms of partnership.

1. James to transfer $ 6000 from his capital account to a Loan account on which he would be
entitled to interest at 10% per annum.
2. Bond to bring his private equipment to the business whereby firm’s valuation of the
equipment has been estimated to be at $ 15 000.
3. Bond to receive a salary of $ 7000 per annum.
4. Profits and losses are to be shared as follows: James and Bond - 3:2.
Further information for the year ended 31st December 2013 is as follows:

$

Sales (Evenly spread) 450 000
Cost of sales 112 500
Rent 32 000
Wages 30 000
General Expenses 22 500

A contractual Officer was paid $ 6000 in the three months to 31 March 2013.
Bond’s equipment is to be depreciated at 10% per annum on a reducing balance method.
All sales produce a uniform rate of gross profit.

Required:
(a) Prepare the Trading, Profit and Loss and Appropriation and partners’ Current Accounts for the year ended 31 December 2013.

(b) Describe the rules that apply in the absence of a partnership agreement.

Answer 1