Use the following information to answer the question
\(\begin{array}{c|c} & Ade & Bola\\ & N & N \\ \hline \text{Capital Accounts} & 60,000 & 40,000\\ \text{Current Accounts} & 10,000 Cr & 6,000 Cr \\ \text{Drawings} & 8,000 & 2,000 \end{array}\)
Interest on drawings is 5%, interest on capital is 10%. Profit and losses are shared equally. Net profit for the year is N30,000. The amount of distributable profit is
To determine the amount of distributable profit, we first need to calculate the interest on the partners' drawings and capital accounts.
Ade's drawings are N8,000, so the interest on his drawings at 5% would be:
N8,000 x 5/100 = N400
Bola's drawings are N2,000, so the interest on his drawings at 5% would be:
N2,000 x 5/100 = N100
Ade's capital account balance is N60,000, so the interest on his capital account at 10% would be:
N60,000 x 10/100 = N6,000
Bola's capital account balance is N40,000, so the interest on his capital account at 10% would be:
N40,000 x 10/100 = N4,000
The total interest on the partners' drawings and capital accounts would be:
N400 + N100 + N6,000 + N4,000 = N10,500
Next, we need to calculate the total profit available for distribution, which is the net profit for the year minus the interest on the partners' drawings and capital accounts:
N30,000 - N10,500 = N19,500
Since the profit and losses are shared equally, each partner's share of the profit would be:
N19,500 / 2 = N9,750
Therefore, the amount of distributable profit is N9,750. However, we need to add back the interest on the partners' capital accounts to arrive at the total amount available for distribution:
N9,750 + N10,500 = N20,250
So the answer is option: N20,500.