Beth and Zara are in partnership. They provide office services to local businesses. Their financial year ends on 31 August. They share profits and losses in the ratio of 3:2 respectively.

The partially completed profit and loss appropriation account for the year ended 31 August 20–2 showed the following:

On 31 August 20–2 the following balances remained in the books of the partnership:
                                                                                              $
Office furniture and equipment .......................       36,850
Motor vehicles .....................................................      18,250
Trade payables  .........................................                  4,200
Trade receivables  .........................................              6,120
Other payables  .........................................                     150
Other receivables  .........................................                 310
Balance at bank  .........................................                 3,780

a. Prepare the statement of financial position at 31August 20–2. Full details of the current accounts should be shown within the statement.

b. i. Calculate the rate of interest which has been charged on partners’ drawings.
ii. Calculate the rate of interest allowed on partners’ capital.

Beth and Zara are considering converting their partnership into a limited company.

c. i. State one advantage to Beth and Zara of converting the partnership to a limited company.
ii. State one disadvantage to Beth and Zara of converting the partnership to a limited company.

As an alternative to converting to a limited company, Beth is considering making a loan to the partnership.

d. Suggest two advantages to Beth of making a 5% five year loan to the partnership rather than investing additional capital.

Transcribed Image Text:

The balances on the partners' accounts on 1 September 20-1 were: Beth Zara Capital account 36000 24 000 Current account 4000 credit 1500 debit During the year ended 31 August 20-2 the partners made the following drawings: Beth Zara 3000 4000