Martin and Ross are partners in a house-painting business. They have prepared a trial balance as at 31 March 2019, as follows:

	DR £	CR£
Equipment cost depreciation at 1.4.2018	6,250	2,500
Van cost depreciation at 1.4.2018	10,000	3,500
Trade receivables	11,250
Inventory (1.4.2018)	3,750
Cash at bank	29,845
Trade payables		12,250
Loan from Martin’s uncle		12,500
Capital account (1.4.2018):Martin Capital account (1.4.2018):Ross Drawings account Martin Ross	30,000 35,000	17,500 12,500
Fees billed		195,000
Purchases	70,000
Rent and rates	14,000
Disposal account		220
General expenses	45,875
TOTAL	255,970	255,970

The following information is relevant:

The partnership agreement specifies that each partner is to be credited with interest at 30% per annum on the opening balance on his capital account and any remaining profits are to be divided equally between the partners.

The loan from Martin’s uncle bears interest at 12% per annum. Interest for the year ended 31 March 2019, together with the full amount of the principal, was paid on 1 April 2019.

The equipment is being depreciated to a nil residual amount over ten years, using the

straight-line method. On 1 April 2018, the business sold an equipment for £220. The equipment had cost £250 and its net book value at the date of disposal was £150. The

sale proceeds have been credited to a disposal account, but no other entries have yet been made in the business’s records with regards to this transaction. The business provides full depreciation in the year of acquisition and none in the year of disposal.

The van was bought in April 2016 and the partners expect to sell it in March 2021 for £1,250. Depreciation is being provided using the straight-line method.

Inventory of painting materials at 31 March 2019 cost £7,500. Of this, paint costing £2,500 had solidified and was unusable.

A customer owing £1,250 has gone bankrupt. The partners do not expect to recover any of this debt.

Rent for the six months from 1 January to 30 June 2019 of £2,000 was paid in January 2019.

Required:

a) Prepare an income statement for Martin and Ross for the year ended 31 March 2019 (showing the appropriation of profits between the partners) and a statement of financial position at that date. You should show all workings clearly.

b) Comment on how the residual value of the assets affects the annual depreciation charge and the profits of Martin and Ross.

c) Identify the main accounting conventions underlying the preparation of the financial statements of Martin and Ross for the year ended 31 March 2019.

Answer rating: 100% (QA)

Answer Martin and Ross Partnership Income Statement for the year ended 31 March 2019 Fees billed 19500000 Cost of goods sold Beginning inventory 37500... View the full answer