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 HassannahInt. on drawings 1,000 750Drawings 20,000 15,000Balance c/d 85,650 179,350 106,650 195,100
Ubochi Hassanah Salary 120,000Int. on capital 24,000 20,000profit appropriation 82,605 55,000 106,650 195,100Balance 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
