QUESTION THREE $[25]$

The following information was extracted from the accounting records of Shock Electricians for the year ended $20$ February $2021.$ Nzuza and Scott are owners in this partnership sharing profits and losses equally.

Balances extracted from the general ledger at $28$ February $2021$

R

Profit and loss account $$ profit for the year..............................

$440000$

Capital $$ Nzuza..................................................................

$350000$

Capital $$ Scott....................................................................

$250000$

Current account$$Nzuza $($Credit balance at $1$ March $2020)........$

$30000$

Current account $$ Scott $($Debit balance at $1$ March $2020)..............$

$20000$

Drawings $$ Nzuza................................................................

$31300$

Drawings $$ Scott $..................................................................$

$37500$

Additional information:

$1.$ During the year partners were paid salaries of R$30000$ each. This was posted to Salaries and Wages expense account and deducted to calculate profit for the year. This error needs to be corrected.

$2.$ The following Provide for interest on capital at $10\%$ per year. NOTE that Nzuza brought in additional capital of R$50000$ on $30$ November $2020.$ Investment of additional capital has been correctly recorded and included in the above figures. It was also decided to increase rate of interest on capital to $12\%$ from $1$ December $2020.$

$3.$ Interest must be provided at $12\%$ per year on opening balances of current accounts.

$4.$ Each partner is entitled to a salary of R$3000$ per month.

$5.$ Interest on drawings was calculated on daily balances and amounts to the following for the year:

$-$ Nzuza R$3120$

$-$ Scott R$3880$

$6.$ The remaining profits must be shared equally between Nzuza and Scott.

Page $7$ of $8$

Required:

$3\mathrm{.}1$ Prepare the following general ledger accounts for the year ended $28$ February

$2021$ to reflect all the above; $($Show all workings$)$:

$3\mathrm{.}1\mathrm{.}1$ Appropriation Account $(13)$

$3\mathrm{.}1\mathrm{.}2$ Current Account: Scott $(9)$

$3\mathrm{.}2$ Nzuza and Scott do not have a partnership agreement in writing. Scott has been in many discussions with Nzuza in this regard. Scott is insisting that the partnership is not legal if there is no written partnership agreement. Provide a brief explanation of the need for a written partnership agreement. $(3)$