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 ...
Question 1 Report
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.
Answer Details
Workings. Interest on capital 8%: Ubochi \(= 8\% \times 300{,}000 = 24{,}000\); Hassanah \(= 8\% \times 250{,}000 = 20{,}000\). Hassanah's salary \(= 10{,}000 \times 12 = 120{,}000\). Interest on drawings 5%: Ubochi \(= 5\% \times 20{,}000 = 1{,}000\); Hassanah \(= 5\% \times 15{,}000 = 750\).
(a) Profit and Loss Appropriation Account for the year ended 31 December 2015
| Particulars | D | D |
|---|---|---|
| Net profit for the year | 300,000 | |
| Add Interest on drawings: Ubochi | 1,000 | |
| Hassanah | 750 | 1,750 |
| 301,750 | ||
| Less Interest on capital: Ubochi | 24,000 | |
| Hassanah | 20,000 | (44,000) |
| Less Salary: Hassanah | (120,000) | |
| Profit available for sharing | 137,750 | |
| Share of profit: Ubochi (3/5) | 82,650 | |
| Hassanah (2/5) | 55,100 | 137,750 |
(b) Partners' Current Accounts
| Dr | Ubochi (D) | Hassanah (D) | Cr | Ubochi (D) | Hassanah (D) |
|---|---|---|---|---|---|
| Drawings | 20,000 | 15,000 | Interest on capital | 24,000 | 20,000 |
| Interest on drawings | 1,000 | 750 | Salary | - | 120,000 |
| Balance c/d | 85,650 | 179,350 | Share of profit | 82,650 | 55,100 |
| Total | 106,650 | 195,100 | Total | 106,650 | 195,100 |
Closing current account balances (credit): Ubochi D85,650 and Hassanah D179,350.
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