anie, Justin and Adam are in partnership sharing profits and losses equally after allowing for interest on capital at the rates of 5% per annum to the partners and a salary to Justin of $ 60 per month. The trial balance of the partnership as at 30 September 2020 was as follows.
Partnership Accounting
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings, admission of a new partner, etc.
Partner Admission and Withdrawal
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings of a partner, etc.
anie, Justin and Adam are in partnership sharing profits and losses equally after allowing for interest on capital at the rates of 5% per annum to the partners and a salary to Justin of $ 60 per month.
The
| $ | $ | |
|---|---|---|
| Sales | 60,000 | |
| Inventory (1 October 2019) | 9,000 | |
| Purchases | 30,000 | |
| Operating expenses | 19,200 | |
| Loan from: Justin | 3,000 | |
| Adam | 6,000 | |
| Land | 3,000 | |
| Building | 15,000 | |
| Plant and machinery (cost) | 21,000 | |
| 12,000 | ||
| 12,000 | 9,900 | |
| Bank overdraft | 3,300 | |
| Capital accounts: Lanie | 7,500 | |
| Justin | 6,000 | |
| Adam | 3,000 | |
| Current accounts: Lanie | 600 | |
| Justin | 900 | |
| Adam | 600 | |
| Drawings: Lanie | 900 | |
| Justin | 1,200 | |
| Adam | 600 | |
| 112,800 | 112,800 |
Additional information:
1. On 1 April 2020, the terms of the partnership agreement were changed. The new terms provided as follows:
- A profit-sharing ratio of 5:3:2 for Lanie, Justin and Adam respectively.
- Salaries of $ 30 per month to Justin and Adam.
- Interest on capital at the rate of 5% per annum.
- For the purpose of the changes ,
goodwill was valued at $3,600 and was to be written off immediately while the land and buildings were valued at $6, 000 and $19,200 respectively.
2. Sales include a credit sale of $1,800 in respect of goods sold on the basis of confirmation by the customer. The goods had cost $600. As at 30 September 2020; the customer had not confirmed whether he would buy the goods.
3. Interest on the loans from Justin and Adam is to be charged at the rate of 10% per annum. This interest had not been paid as at 30 September 2020.
4. Closing inventory as at 30 September 2020 was valued at $ 7,200.
5. Unless where otherwise provided, the incomes and expenses accrued evenly throughout the year.
Required:
- The statement of
profit and loss for the year ended 30 September 2020. - Partners’ current accounts as at 30 September 2020.
- Statement of financial position as at 30 September 2020.
Step by step
Solved in 5 steps with 3 images
