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.
Explanation
(a) Ubochi and Hassanah profit and loss appropriation account for the year ended 31 December 2015
| N | N | N | ||
| profit for the year | 300,000 | |||
| Add: interest on drawings | Ubochi | 1,000 | ||
| Hassannah | 750 | 1,750 | ||
| 301,750 | ||||
| Less: | ||||
| partner's salaries | Hassannah | 120,000 | ||
| Interest on capital | Ubochi | 24,000 | ||
| Hassannah | 20,000 | 44,000 | 164,000 | |
| 137,750 | ||||
| Appropriation of profit | Ubochi | 82,650 | ||
| Hassanah | 55,100 | 137,750 |
(b) partners current account as at 31 December 2015
| Ubochi Hassannah Int. on drawings 1,000 750 Drawings 20,000 15,000 Balance c/d 85,650 179,350 106,650 195,100 |
Ubochi Hassanah Salary 120,000 Int. on capital 24,000 20,000 profit appropriation 82,605 55,000 106,650 195,100 Balance b/d 85,650 179,350 |
Workings:
Note 1: Hassanah's salary = 10,000 x 12 = 120,000
Note2: int. on drawings: Ubochi: 5% x 20,000 = 1,000
Hassanah: 5% x 15,000 = 750
1,750
Note3: Int. on capital: Ubochi = 8% x 300,000 = 24,000
Hassanah = 8% x 25,0000 = 20,000
44,000
Note4: Appropriation of profit: Ubochi = \(\frac{3}{5}\) x 137,750 = 82,650
Hassanah = \(\frac{2}{5}\) x 137,750 = 55,100
137,750