Question

Question 4

The information given below as 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

4.1 Prepare the following accounts in the general ledger of Salmon traders:

4.1 Current a/c: Monty (Balance the account)

4.2 Appropriation account Close off the account)

Balances in the ledger on 28 February 2017
	R
Capital: Sally	400 000
Capital: Monty	200 000
Current a/c :Sally (01 March 2016)	20 000   (DR)
Current a/c Monty(01 March 2016)	33 000   (CR)
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 capital changes have been recorded.

·         The partners are entitled to the following salaries     Sally R12 000/ Monty R13 000.Note: The partner’s 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 off the financial year.

Answer 1

Current A/C: Monty
Particulars	Debit ($)	Particulars	Credit ($)
Drawings	180,000.00	By, Balance b/d	33,000.00
		Interest on capital	37,500.00
		Share of profit	205,000.00
Balance c/d	95,500.00
	275,500.00		275,500.00

Appropriation Account
Particulars	Debit ($)	Particulars	Credit ($)
To, Interest on capital Account:		By, Profit and loss account	500,000.00
Sally: (300000 X 15% x 6/12) + (400000 x 15% x 6/12)	52,500.00
Monty (300000 x 15% x 6/12) + (200000 x 15% x 6/12)	37,500.00
Share of profit:
Sally: (410000 x 1/2)	205,000.00
Monty: (410000 x 1/2)	205,000.00
	500,000.00		500,000.00

Workings:

	Amount ($)	Amount ($)
Net profit before interest on capital		500000
Less: Interest on capital
Sally: (300000 X 15% x 6/12) + (400000 x 15% x 6/12)	52500
Monty (300000 x 15% x 6/12) + (200000 x 15% x 6/12)	37500
		90000
Profit to be shared by two partners		410000

Capital in the beginning
Sally	300000
Monty	300000
Profit sharing ratio:
Sally (300000/600000) = ½
Monty (300000/600000) = ½