James and John are in partnership sharing profits and losses in the ratio of 6:4 respectively. The following information has been taken from the partnership records for the financial year ended May 31, 2010. Partners’ capital accounts balances: James $300,000John $240,000 Partners’ current accounts balance at June 1 2009:James $30,000 CrJohn $26,000 Cr During the year James and John withdrew $40,000 and $28,000 respectively from the partnership bank account: Interest is to be charged on drawings at a rate of 10% per annum while interest is allowed on capital accounts at the rate of 5% per annum. John is allowed a salary of $20,000 per annum.The net profit for the year ended May 31, 2010 is $152,940. However, interest on loan in the amount of $2,950 due to James was not paid. Required: Prepare the partnership appropriation account for the year ended May 31, 2010.Prepare the partners’ current accounts for the year ended May 31, 2010.Prepare the partners’ capital accounts for the year ended May 31, 2010.

Partnership is a arrangement where two or more parties formally manage a business and share its…

Answered: James and John are in partnership…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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James and John are in partnership sharing profits and losses in the ratio of 6:4 respectively. The following information has been taken from the partnership records for the financial year ended May 31, 2010.

Partners’ capital accounts balances:

James $300,000

John $240,000

Partners’ current accounts balance at June 1 2009:

James $30,000 Cr

John $26,000 Cr

During the year James and John withdrew $40,000 and $28,000 respectively from the partnership bank account:
Interest is to be charged on drawings at a rate of 10% per annum while interest is allowed on capital accounts at the rate of 5% per annum.

John is allowed a salary of $20,000 per annum.
The net profit for the year ended May 31, 2010 is $152,940. However, interest on loan in the amount of $2,950 due to James was not paid.

Required:

Prepare the partnership appropriation account for the year ended May 31, 2010.
Prepare the partners’ current accounts for the year ended May 31, 2010.
Prepare the partners’ capital accounts for the year ended May 31, 2010.

Definition Definition Arrangement between two or more people whereby they agree to manage business operations and share its profits and losses in an agreed ratio. The agreement 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, and drawings of a partner.

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