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)

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 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

Answer 1

• All working forms part of the answer
• Workings:

Interest on Capital
	Sally	Monty
Capital Balances - Beginning	$                      400,000.00	$                                     200,000.00
Ratio	2	1
Increased by	$                      100,000.00
(Decreased by)		$                                  (100,000.00)
Ending Balance	$                      500,000.00	$                                     100,000.00
Interest on capital %	15%	15%
Interest on Capital	$                         75,000.00	$                                       15,000.00

Salary Allowance
	Sally	Monty
From Mar 2016 to Nov 2016	$                      108,000.00 [12000 x 9 months]	$                                     117,000.00 [13000 x 9 months]
From Dec 16 to Feb 2017	$                         39,600.00 [13200 x 3 months]	$                                       42,900.00 [14300 x 3 months]
Total Salary Allowance	$                      147,600.00	$                                     159,900.00

	Distributed to Sally	Distributed to Monty	Undistributed Profits
Net profits			$           500,000.00
Interest on capital	$             75,000.00	$          15,000.00	$           (90,000.00)
Remaining profits after Interest			$           410,000.00
Salary Allowance	$           147,600.00	$        159,900.00	$         (307,500.00)
Remaining Profits after salaries			$           102,500.00
Profits shared in the ration of beginning capital of 2:1	$             68,333.33	$          34,166.67	$         (102,500.00)
Balances	$           290,933.33	$        209,066.67	$                             -

• Capital accounts (for both the partners for understanding purpose)

Capital Accounts
Particulars	Sally	Monty	Particulars	Sally	Monty
Capital decreased		$        100,000.00	Beginning balance	$              400,000.00	$ 200,000.00
Ending Balances	$           500,000.00	$        100,000.00	Additional capital	$              100,000.00
Total	$           500,000.00	$        200,000.00	Total	$              500,000.00	$ 200,000.00

• Current Accounts of both the partners (for understanding purpose both the current accounts are presented)

Current Accounts
Particulars	Sally	Monty	Particulars	Sally	Monty
Beginning balance	$             20,000.00		Beginning balance		$    33,000.00
Drawings	$           200,000.00	$        180,000.00	Interest on capital	$                75,000.00	$    15,000.00
Ending Balances	$             70,933.33	$          62,066.67	Salary Allowance	$              147,600.00	$ 159,900.00
			Profits	$                68,333.33	$    34,166.67
Total	$           290,933.33	$        242,066.67	Total	$              290,933.33	$ 242,066.67

• Appropriation account and closing off:

Profit & Loss Appropriation account
Interest on Capital:			Net Profits	$           500,000.00
Sally	$           75,000.00
Monty	$           15,000.00	$             90,000.00
Salary Allowance:
Sally	$        147,600.00
Monty	$        159,900.00	$           307,500.00
Remaining profits:
Sally	$           68,333.33
Monty	$           34,166.67	$           102,500.00
Net profit balance		$                             -
Total		$           500,000.00	Total	$           500,000.00