Question

Asha and Rasha started partnership busines in 2010 sharing profit and losses in the ratio of 60% and 40% respectively. The following is the trial balance of the partnership firm, which has been extracted as on 31 December 2019:

	Dr ($)	Cr ($)
Land	50,000
Building	40,000
Plant and Machinery	30,000
Sales		200,000
Sales Return	1,000
Purchase	75,000
Purchase Return		500
Inventory (on 1 January 2019)	11,500
Salaries	24,000
Discount Received		2,500
Rent Received		10,000
Discount Allowed	3,000
Bank Loan		25,000
Loan from a Partner - Rasha		6,000
Interest on Bank Loan	2,500
Bad Debts	250
Allowance for Bad Debts		800
Accounts Receivable	25,000
Accounts Payable		11,500
Cash at bank	22,000
Cash in Hand	2,000
Insurance	4,000
General Expenses	5,000
Capital Account:
- Asha		50,000
- Rasha		20,000
Drawings during the year:
- Asha	12,000
- Rasha	20,000
Current Account:
- Asha		2,500
- Rasha	1,550
	328,800	328,800

The following information is relevant:

Closing inventory as on 31/12/2019 is valued at $8,000

provision for bad debts is to be created 8% of Trade Receivables

Insurance amount included prepayment for 2020 $500

Salary outstanding (accrual) as on 31/12/2019 is $2,000

Interest on loan given by Rasha (partner) is not provided in the partnership agreement.

The following is provided in the partnership agreement:

• Interest on drawings at 10% per annum
• Interest on Capital at 8% per annum
• Salary to Asha $5000 and to Rasha $8,000 per annum

You are required to prepare:

1. Income Statement
2. Profit and Loss Appropriation Account (Statement of division of Income)
3. Partners' Capital Account in columnar form
4. Partners’ Current Accounts in columnar form, and
5. A Statement of Financial Position (Balance Sheet) as at 31/12/2019  

Note: you are required to Perform all relevant accounting entries relating to Interest on Capital Account, Interest on Drawings, Salary to partners with regards to preparation of partnership business.  

Answer 1

Income statement for the year ended December 31, 2019
	Amount $	Amount $
Gross Sales		200,000
Less: Sales Return		1,000
		199,000
Closing Inventory		8,000
		207,000
Less: Inventory Opening		11,500
Purchase	75,000
	500	74,500
Gross Profit		121,000
Less: Expenses
Salaries                                                            24,000
(+) Outstanding                                              2,000	26,000
Discount Allowed	3,000
Interest on Bank Loan	2,500
Dad Debt                                                           250
(+) Further Bad Debt                                   2,000
(-) Allowances for Bad debt                      800	1,450
Insurance                                                       4,000
(-) Prepaid Insurance                                  500	3,500
General Expense	5,000
Total Expenses	41,450	41,450
		79,550
Add: Other Income
Discount Received	2,500
Rent Received	10,000
Total Other income	12,500	12,500
Income transfer to Profit and loass apropriation A/c
Asha	55,230
Rasha	36,820	92,050
Profit and Loss appropriation Account
	Asha	Rasha
Income	55,230	36,820
Add: Interest on Drawing	1,200	2,000
	56,430	38,820
Less:
Interest on Capital	4,000	1,600
Salary	5,000	8,000
Net Income transfer to Partners Current Account	47,430	29,220

	Partners Current Account
Particulars	Asha	Rasha	Particulars	Asha	Rasha
Balance	0	1,550	Balance	2,500	0
Drawing	12,000	20,000	Net Income	47,430	29,220
Interest on Drawing	1,200	2,000	Interest on Capital	4,000	1,600
			Salary	5,000	8,000
Balance	45,730	15,270
	58,930	38,820		58,930	38,820
	Partners Capital Account
Particulars	Asha	Rasha	Particulars	Asha	Rasha
			Balance	50,000	20,000
Balance	50,000	20,000
	50,000	20,000		50,000	20,000

Balance sheet as on December 31, 2019
ASSETS	$	$
Current Assets
Account Receivable                                   25,000
Less: Further Bad Debt                              2,000	23,000
Cash at Bank	22,000
Csh in hand	2,000
Inventory	8,000
Prepaid insurance	500
Total Current assets	55,500	55,500
Non Current Assets
Land	50,000
Building	40,000
Plant and Machinery	30,000
	120,000	120,000
Total Assets		175,500
Liabilities & Owners Equity
Current Liabilities
Accounts Payable	11,500
Outstandig Salary	2,000
Total Current LIabilities	13,500	13,500
Long Term Liabilities
Bank Loan	25.,000
Partners Loan (Rasha)	6,000
	31,000	31,000
Owners Equity
Partners Capital Account
Asha	50,000
Rasha	20,000
Partners Current Account
Asha	45,730
Rasha	15,270
Total owners equity	131,000	131,000
Total liabilities and owners equity		$175,500

1) Interest on Capital Acccount Dr 5,600

Asha Current Account 4,000

Rasha Current Account 1,600

2) Profi & Loss Appropriation Account Dr 5,600

Interest on Capital Account 5,600

3) Salary Account Dr 13,000

Asha Current Account 5,000

Rasha Current Account 8,000

4) Profit & Loss Appropriation Account Dr 13,000

Salary Account 13,000

5) Asha Current Account Dr 1,200

Rasha Current Account Dr 2,000

Interest on Drawing Account 3,200

6) Interest on Drawing Account Dr 3,200

Profit & Loss Appropriation Account 3,200