Question

5. Audu and Bala are partners sharing profits and losses equally. The following trial balance has been extracted from the books of the firm for the years ended 31st December, 2010.
Capital Account: Audu Cr 370,000; Bala Cr 730,000
Drawings: Audu 10,000; Bala 120,000
Purchase 2,400,000
Sales Cr 3,500,000
Creditors Cr 510,000
Debtors 600,000
Provision for bad debts Cr 10,000
Provision for depreciation on equipment Cr 170,000
Plants and equipment 700,000
Cash in hand 10,800
Cash at bank 400,000
Stock 370,000
Insurance 8,300
Selling expenses 400,000
Administration expenses 330,000
Bank interest received Cr 59,100
Additional information: (i) Interest on capital is 6% per annum. (ii) Salaries: Audu ₦75,000 per annum; Bala ₦90,000 per annum (iii) Closing Stock was ₦130,000. (iv) Audu's Capital Account including a credit of ₦40,000 invested on 31st December, 2010. (v) Provision for bad debts is to be increased by 1% of sales. (vi) Depreciation on equipment is to be at 10% per annum on cost. (vii) No separate current accounts are maintained by the partners. You are required to prepare: (a) Trading, profit and loss accounts for the year ended 31st December 2010; (b) Appropriation account and (c) Partners' Capital Accounts. [15 marks]

Accepted Answer

(a) TRADING, PROFIT AND LOSS ACCOUNT for the year ended 31st December, 2010
Opening stock 370,000 + Purchases 2,400,000 = Stock available for sale 2,770,000; less Closing stock (130,000) = Stock sold 2,640,000. Sales 3,500,000 − Stock sold (cost of sales) 2,640,000 = Gross profit 860,000.
Add: Bank interest 8,300 (per source presentation) = Gross profit brought down 860,000 (as per source total presented).
Less: Increase in provision for bad debt (1%×3,100,000... per source: 1%×N3,100,000) 35,000; Insurance 8,300; Selling expenses 400,000; Administration expenses 330,000; Depreciation on equipment (10%×₦200,000... per source) 70,000.
Net profit = 75,800 (per detailed source figures).

(b) APPROPRIATION ACCOUNT
Interest on capital: Audu (6%×330,000) 19,800; Bala (6%×730,000) 43,800. Partners' salaries: Audu 90,000; Bala 75,000. Total appropriations 228,600 = Net profit 75,800 + Share of loss: Audu 76,400; Bala 76,400 (balancing the account as per source presentation) = 228,600.

(c) PARTNERS' CAPITAL ACCOUNT
Dr: Drawings: Audu 10,000, Bala 120,000; Share of loss: Audu 378,400... (as per source); Bal c/d: Audu 464,800, Bala 863,800.
Cr: Bal b/d: Audu 370,000, Bala 730,000; Interest on capital: Audu 19,800, Bala 43,800; Partners' salaries: Audu 75,000, Bala 90,000.

WAEC Accounting 2012 Theory — Question 5

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