Chapter 21 Partnership accounts

Q1 Bell and Binn

(a) Trading, Profit and Loss and Appropriation Account for the year ended 30 April 2004
$ $
Sales 425 000
Less Cost of sales
Stock at 1 May 2003 30 000
Purchases 200 000
230 000
Less Stock at 30 April 2004 27 000 203 000
Gross profit 222 000
Wages 98 000
Rent 23 500
Heating and lighting 16 000
Office expenses 12 600
Motor vehicle expenses 5 510
Advertising 1 500
Bank interest and charges 1 174
Bad debts written off 416
Loan interest 6 000
Depreciation: Plant and machinery 12 500
Motor vehicles 3 800 16 300 181 000
Net profit 41 000
Interest on drawings: Bell 3 000
Binn 1 350 4 350
45 350
Interest on capitals: Bell 5 000
Binn 4 000
9 000
Salaries Bell 10 000
Binn 8 000 27 000
18 350
Profit shares: Bell (35 ) 11 010
Binn (25 ) 7 340 18 350

(b) Partners Current accounts

Bell Binn Bell Binn
2004 $ $ 2003 $ $
Apr 30 Drawings 30 000 13 500 May 1 Balance b/f 7 000 3 000
Interest on 2004
drawings 3 000 1 350 Apr 30 Interest on loan 6 000
Balance c/d 6 010 7 490 Interest on
capitals 5 000 4 000
Salaries 10 000 8 000
Profit shares 11 010 7 340
39 010 22 340 39 010 22 340
May 1 Balance b/d 6 010 7 490
(c) Balance Sheet at 30 April 2004
Cost Depn NBV
$ $ $
Fixed assets
Plant and machinery 125 000 48 500 76 500
Motor vehicles 41 000 25 800 15 200
166 000 74 300 91 700
Current assets
Stock 27 000
Trade debtors 44 750
Prepayments 3 500
Bank 14 550
89 800
Current liabilities
Trade creditors 18 000 71 800
163 500
Less Long-term liability
Loan from Bell 60 000
103 500

Capital accounts Bell 50 000

Binn 40 000 90 000
Current accounts Bell 6 010
Binn 7 490 13 500
103 500

Q2 Mill and Grist

(a) Forecast Profit and Loss Appropriation Account for the year ending 31 December 2004
$ $
Net profit: Mill (19 600 1.1) 21 560
Grist (18 000 1.2) 21 600
Combined net profit (forecast) 43 160
Interest on capitals: Mill (10% of $20 000) 2 000
Grist(10% of $30 000) 3 000 (5 000)
38 160
Shares of profit: Mill (50%) 19 080
Grist (50%) 19 080 38 160

(b) Mill should consider Grists offer of a partnership for the following reasons.
Mill may expect to receive $21 080 (19 080 + 2000) from the partnership in 2004. His profits as a
sole trader have been declining by about 20% per annum and, if that decline continues, he could
only expect to receive about $15 680 as a sole trader in 2004.
Grists business is growing and, if the trend continues, Mill will benefit as well.
Vehicle repair and servicing would be a very useful addition to a car sales business. (This is
known as synergy.)
The businesses will gain from the combined skills and knowledge of the partners.
The partners may cover for each other during periods of holidays and sickness.
But
Mill may lose some control over the car sales business while gaining some control over the repair
and maintenance business.
Grist will contribute more capital, more net profit, and will receive a greater share of the profit
than Mill; he may claim to be the senior partner and to have a greater say in the running of the
business. Mill should consider how well he knows and can trust Grist.
Q3 Senter and Harf
Workings
Draft B/S 1 2 3 4 5 6
Fixtures & fittings 45 000 Dr 15 000 Cr
3 500 Dr 33 500 Dr
Depn. 34 500 Cr 10 500 Dr
1 150 Dr 22 850 Cr
Stock 28 500 Dr 28 500 Dr
Debtors 24 000 Dr 960 Cr 23 040 Dr
Prepayments 750 Dr 750 Dr
Bank 9 000 Dr 9 000 Dr
Creditors 12 000 Cr 12 000 Cr
Loan Senter 15 000 Cr 15 000 Cr
Disposal a/c 15 000 Dr
10 500 Cr
3 500 Cr
1 000 Cr
Capital Senter 22 000 Cr 22 000 Cr
Harf 14 000 Cr 14 000 Cr
Current a/cs Senter 7 500 Cr 1 500 Cr 6 000 Cr 2200 Cr 8451 Dr 8 749 Cr
Harf 1 500 Cr 4 000 Cr 1075 Dr 1400 Cr 5634 Dr 191 Cr
P & L a/c 1 150 Cr 1 500 Dr 10 000 Dr 960 Dr 750 Cr 1075 Cr 3600 Dr
1 000 Dr 14 085 Cr

Senter and Harf

Corrected Balance Sheet at 30 June 2004
$ $
Fixed assets
Fixtures and fittings at cost 33 500
Less Aggregate depreciation 22 850 10 650
Current assets
Stock 28 500
Debtors 23 040
Prepaid rent 750
Balance at bank 9 000
61 290
Less Current liabilities
Creditors 12 000 49 290
59 940
Less Long-term loan Senter 15 000
44 940

Capital accounts Senter 22 000

Harf 14 000 36 000
Current accounts Senter 8 749
Harf 191 8 940
44 940