James and Bond are partners sharing profits and losses equally after allowing James a salary of $ 20 000 per annum. On 1 January 2013 their capital and current account balances were as follows

James Bond
                                    $          $

Capital accounts 25,000 20,000

Current accounts 7,500 5,000

On 1 July 2013, the partners agree to the following revised terms of partnership.

1. James to transfer $ 6000 from his capital account to a Loan account on which he would be entitled to interest at 10% per annum.

2. Bond to bring his private equipment to the business whereby firm’s valuation of the equipment has been estimated to be at $ 15 000.

3. Bond to receive a salary of $ 7000 per annum.

4. Profits and losses are to be shared as follows: James and Bond - 3:2.

Further information for the year ended 31st December 2013 is as follows:

$

Sales (Evenly spread) 450 000

Cost of sales 112 500

Rent 32 000

Wages 30 000

General Expenses 22 500

A contractual Officer was paid $ 6000 in the three months to 31 March 2013.

Bond’s equipment is to be depreciated at 10% per annum on a reducing balance method.

All sales produce a uniform rate of gross profit.

Required:
(a) Prepare the Trading, Profit and Loss and Appropriation and partners’ Current Accounts for the year ended 31 December 2013. (15 marks)

(b) Describe the rules that apply in the absence of a partnership agreement. (5 marks)

Answer rating: 100% (QA)

Trading Account for the year ended 31st December 2013 Particulars Particulars Cost of Sales 11... View the full answer