Hawthorn and Privet have carried on business in partnership for a number of years, sharing profits in the ratio of 4 : 3 after charging interest on capital at 4 per cent per annum. Holly was admitted into the partnership on 1 October 20X2, and the terms of the partnership from then were agreed as follows:

1. Partners' annual salaries to be: Hawthorn £1,800, Privet £1,200, Holly £1,100.

2. Interest on capital to be charged at 4 per cent per annum.

3. Profits to be shared: Hawthorn four-ninths, Privet three-ninths, Holly two ninths. On 1 October 20X2 Holly paid £7,000 into the partnership bank and of this amount £2,100 was in respect of the share of goodwill acquired by her. Since the partnership has never created, and does not intend to create, a goodwill account, the full amount of £7,000 was credited for the time being to Holly's capital account at 1 October 20X2.

The trial balance of the partnership at 30 June 20X3 was as follows:

After taking into account the following information and the adjustment required for goodwill, prepare a statement of profit and loss for the year ended 30 June 20X3 and a statement of financial position as on that date. On 30 June 20X3:
1. Inventory was £15,000.
2. Rates (£110) and wages and salaries (£300) were outstanding.
3. Telephone rental paid in advance was £9.
4. Provision for bad debts is to be adjusted to 2.5 per cent of trade receivables.
5. Depreciation is to be provided on furniture, fixtures and fittings at 10 per cent.
Apportionments required are to be made on a time basis.

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Debit Credit 3,500 11,320 102,630 Cash at bank Inventories at1 July 20X2 Sales revenue Woges and salaries Rates, telephone, lighting and heating Printing, stationery and postage General expenses Bad debts writien off Capital accounts:-Hawthorn 123,300 6,200 2,100 530 1,600 294 - Privet - Holly 22,000 11,000 ,000 Current accounts: Hawthorn 2,200 1,100 740 27.480 2,000 5,800 Privet 13,744 Trade receivables and trade payables Freehold premises Furniture, fixtures and fittings at 1 July 20x2 Bad debts reserve 450 177,494 177,494