Smith and Tolhurst are in partnership, sharing profits and losses in the ratio 5:3.

The following information has been taken from the partnership records for the year ended 31 October 2019:

(i) According to its Income Statement, the net profit of the partnership for the year ended 31 October 2019 was £79,600.

(ii) Interest to be charged on drawings taken by the partners has been correctly calculated as:

(iii) Tolhurst is to be allowed a salary of £20,000 per year.
(iv) Interest is to be paid on capital account balances at the rate of 4% per year.
(v) The partners’ capital account balances throughout the year were:

(vi) The balances as at 1 November 2018 on the partners’ current accounts were:

(vii) During the year ended 31 October 2019 Smith’s and Tolhurst drawings were £37,300 and £49,800 respectively.
Required

(a) Prepare the appropriation account for the year ended 31 October 2019.

(b) Calculate the balance on each partner’s current account as at 31 October 2019.

(c) At 1 November 2018 there was a debit balance on Tolhurst’s current account. What does this signify?

(d) Why do many partnerships take account of ‘interest on capital’ and ‘interest on drawings’?

Transcribed Image Text:

Smith Tolhurst 1,360 1,520