Question 4 The information given below as extracted from the accounting records
ID: 2437616 • Letter: Q
Question
Question 4
The information given below as 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
4.1 Prepare the following accounts in the general ledger of Salmon traders:
4.1 Current a/c: Monty (Balance the account)
4.2 Appropriation account Close off the account)
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 salaries Sally R12 000/ Monty R13 000.Note: The partner’s 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 off the financial year.
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
Explanation / Answer
Current A/C: Monty
Particulars
Debit ($)
Particulars
Credit ($)
Drawings
180,000.00
By, Balance b/d
33,000.00
Interest on capital
37,500.00
Share of profit
205,000.00
Balance c/d
95,500.00
275,500.00
275,500.00
Appropriation Account
Particulars
Debit ($)
Particulars
Credit ($)
To, Interest on capital Account:
By, Profit and loss account
500,000.00
Sally: (300000 X 15% x 6/12) + (400000 x 15% x 6/12)
52,500.00
Monty (300000 x 15% x 6/12) + (200000 x 15% x 6/12)
37,500.00
Share of profit:
Sally: (410000 x 1/2)
205,000.00
Monty: (410000 x 1/2)
205,000.00
500,000.00
500,000.00
Workings:
Amount ($)
Amount ($)
Net profit before interest on capital
500000
Less: Interest on capital
Sally: (300000 X 15% x 6/12) + (400000 x 15% x 6/12)
52500
Monty (300000 x 15% x 6/12) + (200000 x 15% x 6/12)
37500
90000
Profit to be shared by two partners
410000
Capital in the beginning
Sally
300000
Monty
300000
Profit sharing ratio:
Sally (300000/600000) = ½
Monty (300000/600000) = ½
Current A/C: Monty
Particulars
Debit ($)
Particulars
Credit ($)
Drawings
180,000.00
By, Balance b/d
33,000.00
Interest on capital
37,500.00
Share of profit
205,000.00
Balance c/d
95,500.00
275,500.00
275,500.00
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