Ubochi and Hassanah started a partnership business on 1st January 2015. They contributed D 300,000 and D 250,000 respectively as capital. Their partnership deed stated that:
i. interest of 8% should be paid on capital per annum
ii. Hassanah would be paid D 10,000 monthly as a salary
iii. interest on drawings is 5%
iv. the profits are to be shared in the ratio 3:2 respectively. At the end of the year, the profit made was D300,000. During the period, Ubochi and Hassanah made drawings of D20,000 and D15,000 respectively.
You are required to prepare:
(a) Profit and Loss Appropriation Account for the year ended 31st December 2015;
(b) Partners' Current Accounts.
a) Profit and Loss Appropriation Account
The Profit and Loss Appropriation Account is a summary of the profits earned by the business and how they are to be divided among the partners. To prepare the Profit and Loss Appropriation Account for the year ended 31st December 2015, we need to consider the following:
- Interest on capital: Interest of 8% should be calculated on the total capital of D 300,000 + D 250,000 = D 550,000. The interest calculation would be D 550,000 x 8/100 = D 44,000.
- Salary: Hassanah would be paid a salary of D 10,000 per month, so for the year, the total salary would be 12 x D 10,000 = D 120,000.
- Interest on drawings: Interest on drawings of D 20,000 and D 15,000 should be calculated at 5%. The interest calculation would be (D 20,000 + D 15,000) x 5/100 = D 1,500.
- Profit: The profit made for the year was D 300,000.
The Profit and Loss Appropriation Account would show the following:
Debit: Interest on Capital D 44,000
Debit: Salary D 120,000
Debit: Interest on Drawings D 1,500
Debit: Total D 165,500
Credit: Profit D 300,000
Credit: Total D 300,000
b) Partners' Current Accounts
The Partners' Current Accounts are individual accounts for each partner that show their capital balance, drawings, interest on capital and drawings, and their share of profit/loss. To prepare the Partners' Current Accounts, we need to consider the following:
- Ubochi's Current Account: Ubochi contributed D 300,000 as capital, made drawings of D 20,000, received interest on capital of D 44,000 x 3/5 = D 26,400 and interest on drawings of D 1,500 x 3/5 = D 900. His share of profit would be D 300,000 x 3/5 = D 180,000.
- Hassanah's Current Account: Hassanah contributed D 250,000 as capital, made drawings of D 15,000, received interest on capital of D 44,000 x 2/5 = D 17,600 and interest on drawings of D 1,500 x 2/5 = D 600. Her share of profit would be D 300,000 x 2/5 = D 120,000.
The Partners' Current Accounts would show the following:
Ubochi's Current Account:
Debit: Capital D 300,000
Debit: Drawings D 20,000
Debit: Interest on Capital D 26,400
Debit: Interest on Drawings D
a) Profit and Loss Appropriation Account
The Profit and Loss Appropriation Account is a summary of the profits earned by the business and how they are to be divided among the partners. To prepare the Profit and Loss Appropriation Account for the year ended 31st December 2015, we need to consider the following:
- Interest on capital: Interest of 8% should be calculated on the total capital of D 300,000 + D 250,000 = D 550,000. The interest calculation would be D 550,000 x 8/100 = D 44,000.
- Salary: Hassanah would be paid a salary of D 10,000 per month, so for the year, the total salary would be 12 x D 10,000 = D 120,000.
- Interest on drawings: Interest on drawings of D 20,000 and D 15,000 should be calculated at 5%. The interest calculation would be (D 20,000 + D 15,000) x 5/100 = D 1,500.
- Profit: The profit made for the year was D 300,000.
The Profit and Loss Appropriation Account would show the following:
Debit: Interest on Capital D 44,000
Debit: Salary D 120,000
Debit: Interest on Drawings D 1,500
Debit: Total D 165,500
Credit: Profit D 300,000
Credit: Total D 300,000
b) Partners' Current Accounts
The Partners' Current Accounts are individual accounts for each partner that show their capital balance, drawings, interest on capital and drawings, and their share of profit/loss. To prepare the Partners' Current Accounts, we need to consider the following:
- Ubochi's Current Account: Ubochi contributed D 300,000 as capital, made drawings of D 20,000, received interest on capital of D 44,000 x 3/5 = D 26,400 and interest on drawings of D 1,500 x 3/5 = D 900. His share of profit would be D 300,000 x 3/5 = D 180,000.
- Hassanah's Current Account: Hassanah contributed D 250,000 as capital, made drawings of D 15,000, received interest on capital of D 44,000 x 2/5 = D 17,600 and interest on drawings of D 1,500 x 2/5 = D 600. Her share of profit would be D 300,000 x 2/5 = D 120,000.
The Partners' Current Accounts would show the following:
Ubochi's Current Account:
Debit: Capital D 300,000
Debit: Drawings D 20,000
Debit: Interest on Capital D 26,400
Debit: Interest on Drawings D