Question

Richard, Barry and Andrew decided to enter into a partnership agreement as from 1^st July 2018, some of the provisions of which were as follows.

1.       Richard to contribute $24000 cash, inventory the fair value of which was $51000, plant and machinery $94320, accounts receivable totalling $15240

2.       Barry to contribute $45000 cash and act as manager for the business at an annual salary of $38400 to be allocated to him at the end of each year.

3.       Andrew to contribute $19800 cash, land $144000, premises $288000, furniture and fittings $48600, and motor vehicles $37800. A mortgage of $216000 secured over the premises was outstanding and the partnership agreed to assume the mortgage.

4.       Profits or losses of the firm to be divided between or borne by Richard, barry and Andrew in the proportion of 2:1:3 respectively.

5.       Interest to be allowed at 8% p.a. on the capital contribution by the partners. Interest at 10% p.a. to be charged on partners’ drawings.

6.       During the year ended 30 June 2019, the income of the partnership totaled $144960, and the expenses (excluding interest on capital and drawings and Barry’s salary) amounted to $51600.

7.       Richard withdrew $14400 on 1 October 2018 and $9600 on 1 January 2019; Barrie withdrew $4800 only on 1 April 2019; Andrew withdrew $12000 on 30 June 2019.

Required

A) Prepare general journal entries necessary to open the records of the partnership.

B) Prepare the balance sheet of the partnership immediately after formation.

C) Prepare a Profit Distribution account for the year ended 30 June 2019.

Answer 1

Answer:

A) Journal entries to open the record of the partnership

Journal	Amount (Debit)	Amount (Credit)
Cash A/c Dr. Inventory A/c Dr. Plant & Machinery A/c Dr. Accounts receivable A/c Dr. To Richard's Capital (Being Richard's capital introduced)	24000 51000 94320 15240	184560
Cash A/c Dr. To Barry's Capital A/c (Being Barry's capital introduced)	45000	45000
Cash A/c Dr. Land A/c Dr. Premises A/c Dr. Furniture & Fittings A/c Dr. Motor Vehicles A/c Dr. To Andrew's Capital A/c (Being Richard's capital introduced)	19800 144000 288000 48600 37800	538200

B) Balance sheet of the partnership immediately after formation

Balance sheet of the firm as at 1st June 2018

Particulars	Amount ($)	Particulars	Amount ($)
Richard's Capital	184560	Cash (24000+45000+19800)	88800
Barry's Capital	45000	Inventory	51000
Andrew's Capital	538200	Plant & Machinery	94320
		Accounts receivable	15240
		Land	144000
		Premises	288000
		Furniture & Fittings	48600
		Motor Vehicles	37800
Total	767760	Total	767760

C) Profit Distribution account for the year ended 30 June 2019.

Profit Distribution account for the year ended 30 June 2019

Particulars	Amount ($)	Particulars	Amount ($)
Expenses	51600	Income for the year	144960
Barry's salary	38400
Interest on capital Richard (184560*8%)= 14765 Barry (45000*8%)= 3600 Andrew (538200*8%)= 43056	61421	Interest on drawings Richard (Note 1) Barry (4800*3/12*10%) Andrew	1560 120 -
		Net Loss for the year	4781

Distribution of Loss among the partners in profit sharing ratio:

Richard: 4781*2/6 = 1593.67

Barry: 4781*1/6 = 796.83

Andrew: 4781*3/6 = 2390.5

Note 1:

$ 14,400*10%*9/12 = 1080

$ 9600*10%*6/12 = 480

Total (1080+480) = 1560