- 20 Marks
Question
Bala and Ade had been together in partnership for several years in plastic manufacturing, sharing profits and losses in the ratio of 3:2 after charging salaries of N3,000,000 p.a. each.
On September 1, 2020, Ngozi was admitted into the partnership on the following terms:
- That she paid N2,800,000 to the partnership as her capital contributions; and
- She would be entitled to a salary of N2,700,000 per annum and a 20% share of profits after charging all salaries.
Bala and Ade are to continue their old profit sharing ratios and Ngozi’s 20% share of profits is guaranteed at a minimum of N1,500,000 per annum by the old partners.
On December 31, 2020, the following balances were extracted from the partnership books of Bala, Ade, and Ngozi:
| Accounts | N’000 |
|---|---|
| Capital Accounts: | |
| Bala | 28,000 |
| Ade | 18,000 |
| Current Accounts: | |
| Bala | 4,800 |
| Ade | 2,000 |
| Ngozi | 2,800 |
| Revenue | 272,000 |
| Purchases | 190,000 |
| Wages | 20,000 |
| Salaries | 25,000 |
| General Expenses | 10,000 |
| Plant and Machinery | 25,000 |
| Motor Vehicles | 15,000 |
| Receivables | 20,000 |
| Telephone Expenses | 3,750 |
| Payables | 24,350 |
| Inventory January 1, 2020 | 15,000 |
| Allowances for Bad Debts | 1,500 |
| Bank Balance | 17,100 |
| Drawings: | |
| Bala | 6,600 |
| Ade | 5,000 |
| Ngozi | 1,000 |
Additional information:
- Allowances for doubtful debts should be maintained at 5% of receivables.
- Inventory at December 31, 2020, was valued at N12,000,000.
- Depreciation on plant and machinery is 20% per annum and on motor vehicles is 25% per annum.
You are required to: a. Prepare the statement of profit or loss and appropriation account for the year ended December 31, 2020, accounting for Ngozi on a pro-rata time basis. (12 Marks)
b. Prepare the partners’ current account for the same period. (8 Marks)
Answer
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