Question

QUESTION FOUR                                                                                                                [20]

Mat and Will are partners in a business that offers their services as Top Debt Collectors. Their business is very successful and the following information was extracted from their accounting records for the year ended 28 February 2020. The statement of profit and loss and other comprehensive income has been completed and the following needs to be considered to prepare the statement of changes in equity.

Balances as at 28 February 2020	R
Capital: Mat Capital: Will Current account: Mat (credit balance: 1 March 2019) Current account: Will (debit balance:1 March 2019) Drawings-general: Mat Drawings-general: Will Drawings-salary: Mat Drawings-salary: Will Profit for the year	400 000        400 000          30 000          10 000          52 400          71 600          60 000          35 000        780 000

Additional Information:

4.1       During the current financial period Mat and Will’s capital contributions changed as follows:

On 31 August 2019, Mat contributed an additional R100 000 as capital and Will withdrew R50 000 from his capital. These have been correctly recorded to arrive at the above capital balances.

4.2       Mat and Will have a partnership agreement which includes the following relevant items;

4.2.1    Provision must be made for interest on capital at 10% per year.

4.2.2    Interest on current account debit balances and credit balances at beginning of the year must also be recorded at 10% per year.

4.2.3    Interest on drawings-general has been calculated on daily balance as follows:

• Mat                  R4 600
• Will                  R5 400

4.2.4    Partners are entitled to the following salaries:

• Mat is entitled to a salary of R6 000 per month for the full year;
• Will is entitled to a salary of R7 000 per month from 1 September 2019.

4.2.5    The remaining profits must be shared equally.

Required:

Prepare the statement of changes in equity for Top Debt Collectors for the year ended 28 February 2020. The statement must be presented in the following format.

                                                                                                                                               

Recommended format:

Top Debt Collectors        

Statement of changes in equity for the year ended 28 February 2020.

Capital accounts	Mat - R	Will - R	Total - R
Balance at 1 March 2019 Additions / withdrawals of capital
Balance at 28 February 2020

Current accounts	Mat R	Will R	Appropriation R
Balance at 1 March 2019 Profit for the year
Appropriations: Interest on capital Interest on current account Interest on drawings Salaries due Share of profits
Drawings – general Drawings – salaries
Balance at 28 February 2020

Answer 1