Preparing a balance sheet and calculating profit
Sergio and Samdecided to form a partnership on 1 January 2013. They secured the services of a solicitor to draw up their partnership agreement as follows:
i. Sergiois to contribute the following:
• His vehicle, the fair value of which was $36000
• Plant and equipment valued at 84000
• Accounts receivable totalling $14400.
ii. Samis to contribute the following:
• Cash totalling $24000
• A building valued at $168000
• A mortgage of $96000. This was secured over the building and the partnership agreed to assume this liability.
It was also agreed that Sergio would act as manager with an annual salary of $60 000, to be allocated at the end of each year. Profits and losses would be divided between Sergioand Samin the proportion 3/5 and 2/5 respectively.
Gross profit for the year ended 31 December 2013 was $260 000, with operating expenses of $120 000. Sergiowithdrew $12 000 and Samwithdrew $16 000 during the year.
Required
a. Prepare the balance sheet of the partnership on its formation (1 January 2013).
b. Calculate each partner's share of profit for the year ended 31 December 2013.