Question

8. Govu, Tuga and Kano are partners engaged in retail business, sharing profits and losses in the ratio 2:1:2 respectively. The following are the details of the extracts from their books as at 31st January, 2013: Capital: Govu GH¢50,000, Tuga GH¢45,000, Kano GH¢60,000. Current account: Govu GH¢20,800, Tuga GH¢(5,000), Kano GH¢8,500. Additional Information: (i) The firm's sundry assets were valued at GH¢231,000. (ii) The firm was cash strapped and on 01/07/2013, Tuga advanced a loan of GH¢100,000 to the partnership at the rate of 5% per annum. Interest was payable six monthly and was to be credited to his account. (iii) Govu and Kano were to receive salaries of GH¢25,000 per annum each. (iv) The profit for the partnership before charging loan interest was GH¢158,000 for the year ended 31st December, 2013. The loan was not repayable until after the year 2016. You are required to prepare: (a) Profit and loss and Appropriation Account for the year ended 31st December, 2013; (b) Partners' Current Accounts in a columnar form.

Accepted Answer

(a) Profit and Loss Appropriation Account: Profit b/d GH¢158,000; Less: Loan interest (5% x GH¢100,000 x 6/12) GH¢2,500; Profit available for appropriation GH¢155,500. Salary: Govu GH¢25,000; Kano GH¢25,000 = GH¢50,000. Balance GH¢105,500 shared in ratio 2:1:2: Govu(2/5x105,500)=42,200; Tuga(1/5x105,500)=21,100; Kano(2/5x105,500)=42,200.

(b) Partners' Current Accounts (columnar): 
Govu: Bal b/d 20,800(Cr); Salary 25,000; Share of profit 42,200; Bal c/d 88,000.
Tuga: Bal b/d 5,000(Dr); Loan interest 2,500; Share of profit 21,100; Bal c/d 23,600.
Kano: Bal b/d 8,500(Cr); Salary 25,000; Share of profit 42,200; Bal c/d 75,700.

WAEC Accounting 2017 Theory — Question 14

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