Penny and Sally have been sharing profits and losses in the ratio 3:2 respectively, after allowing Penny a salary of £2,000 per month and interest on partners’ fixed capitals at 6% per annum. They admitted Molly to a sixth share of profits from 1 October 2012 on the following terms:

(i) Salary to Penny and interest on capital are to continue.

(ii) Molly’s share of income from the partnership is guaranteed by Penny at £120,000 p.a.

Further information:

(i) Inventory on 31.12.2012 was £586,000.

(ii) Sales in each month after Molly’s admission were 50% better than they had been in each month prior to her admission.

(iii) Motor vehicles and furniture need to be depreciated at 20% and 10% respectively, using the reducing balance method.

Required: 

Prepare the Statement of income for the year ended 31 December 2012 and the Statement of financial position as at that date.

Clue: If profit for each month before 1 October was £100, the sales in each month after that date would have been £150. Hence the sales in each period would be (£100 × 9) : (£150 × 3) = i.e. 2:1 ratio.

Transcribed Image Text:

Trial Balance as at 31 December 2012 Motor vehicles Accumulated depreciation Furniture Accumulated depreciation Inventory - 31.12.2011 Salaries Rent Advertising Sales Drawings: Penny Sally Receivables and payables Other admin. expenses Capital: £ 320 - 280 - 524 288 48 72 - 50 28 752 96 £ 170 - 120 - - 3,159 - - 514 -