Bridget, Carlene and Desmond, attorneys-at-law, decided to form a partnership. They
reached agreement on all major operational matters including their respective roles,
positions and financial contributions as set out below.
Bridget would contribute $1,700,000 as capital and extend to the partnership a loan of
$700,000 to be repaid over 24 months. She had extensive business experience and
would take on the role of managing partner.

Carlene would contribute $1,400,000 as capital and would also extend to the partnership
a loan of $500,000 to be repaid over a 12-month period.
Carlene would assume the senior attorney role and would be responsible for the legal
team.
Desmond, recently called to the Bar, would contribute $500,000, as capital, at the start of
the partnership, and a further $300,000, on July 1, 20X2, on receipt of maturity proceeds
from an existing investment.
They agreed on the following financial arrangements:
1. Interest on capital was to be paid at 5% per annum.
2. No interest was to be charged on current account balances.
3. Interest on drawings was to be paid at 8% per annum.
4. Partnership salaries were agreed at:
Bridget $400,000 per annum
Carlene $260,000 per annum
Desmond $180,000 per annum
5. Interest on loans, extended to the partnership, was to be paid at market interest
rates of 7% per annum on loans with a duration of 24 months, and 6% per annum
on loans with a duration of 12 months or less.
6. They were to contribute such amounts to be credited to their respective current
accounts as opening balances.
7. Profit and losses were to be shared in the ratio:
Bridget 50%
Carlene 40%
Desmond 10%

8. The financial year of the partnership would run from January 1 to December 31.
The partnership was formed and operations commenced.
1. The following persons were employed as detailed below:

Annual
Position Salary ($) Date employed
Accountant 400,000 January 1, 20X2
Senior Accounting Clerk 260,000 March 1, 20X2
Junior Accounting Clerk 130,000 July 1, 20X2
Paralegal 190,000 July 1, 20X2
Ancillary staff member 80,000 January 1, 20X2
Office Clerk 120,000 January 1, 20X2
Driver/Bearer 90,000 May 1, 20X2

2. All capital contributions due on January 1, 20X2 were made by all partners.
However, Desmond made his second capital contribution on September 1, 20X2
and not on July 1, 20X2 as was previously agreed.
3. Current account contributions were made as follows:
Bridget $100,000 January 1, 20X2
Carlene $100,000 January 1, 20X2
Desmond $ 60,000 January 1 20X2
4. Drawings taken by the partners amounted to a total of $440,000 detailed as
follows:
Bridget $200,000
Carlene $160,000
Desmond $ 80,000
Interest on drawings is to be charged for the 12-month period ending December
31, 20X2.
5. The accountant prepared the account balances for the partnership for the period
January 1, 20X2 to December 31, 20X2. (See Trial Balance below).

Details of the Trial Balance for the year ended 31 December 20X2

Particulars Debit Credit
$ $
Income Received

5,000,000
Consultancy Fee 280,000
Commission income 220,000
Interest income 40,000
Expenses Incurred
Utilities 180,000
Rent expense 270,000
Stationery 30,000
Office supplies 230,000
Postage 20,000
Motor vehicle expenses 156,230
Repairs and maintenance 224,000
Insurance 210,000
Professional fees 86,000
Wages and salaries 1,105,000
Staff training 105,000
Assets
Motor vehicle 3,800,000
Office furniture 890,000
Computers 1,600,000
Short term investment 360,000
Debtors/Receivables 74,000
Bank balances 1,138,770
Cash balances 151,000
Other receivables 64,000
Capital balances
Bridget

1,700,000
Carlene 1,400,000
Desmond 800,000
Drawings taken by partners
Bridget 200,000
Carlene 160,000
Desmond 80,000
Current balances
Bridget 100,000
Carlene 100,000
Desmond 60,000
Partner's Loan
Bridget Loan - 24 months duration 700,000
Carlene Loan - 12 months duration 500,000

Creditors/Payables 234,000
11,134,000 11,134,000

Adjustments to the trial balance
Depreciation is to be charged on the assets as follows:
Motor vehicles - 20%
Office furniture - 10%
Computers - 25%

The managing partner, having checked the salary paid, has indicated that the
amount shown in the trial balance as paid is not correct.
Kindly check and make any adjustment as required in keeping with the accrual
principle.
The trial balance does not include the loan interest due and payable to the
respective partners. Kindly calculate and include in the financial statements.

Required:

2. Prepare the following:
(a) the statement of profit or loss and appropriation account for the year ending
December 31, 20X2;
(b) the partners’ current and capital accounts as of December 31, 20X2;
(c) the statement of financial position as at December 31, 20X2; and
(d) a single memorandum addressed to all in the partnership detailing the
balances on their respective current accounts and advising them of their
options.

Answer rating: 100% (QA)

To prepare the required financial statements and memorandum we need to perform a series of calculations and adjustments based on the information provided Lets go step by step a Statement of Profit or ... View the full answer