Alpha and Beta were in partnership sharing profits in the ratio 2:1 respectively, after allowing salary at £3,000 per month to Beta and interest on capital at 6% per annum. No interest is charged on drawings. On 1 May 2010 Gamma was admitted to a fourth share of profit and he brought in as his capital £400,000. On 1 September Alpha retired, but agreed to leave his entitlements behind, as a loan, on which interest was agreed at 10% per annum. 

Goodwill, which is not to appear in the books of the partnership, was valued at £240,000 on 1 May 2010 and at £300,000 on 1 September 2010. You may assume that sales and expenses of the partnership accrued consistently throughout the year.

Required:

(a) Show how you appropriated the partnership profits in the year ended 31 December 2010.

(b) Set out the partnership’s Statement of financial position as at 31 December 2010. Round off to nearest £’000.

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Trial Balance as at 31 December 2010 Capital accounts: Alpha Beta Gamma Drawings: Alpha on 1 September 2010 Beta Sales Inventory - 31.12.2010 Cost of sales Operating expenses Land and buildings at wdv Furniture at wdv Depreciation - furniture Depreciation buildings Salaries Advertising Receivables/payables Bank £'000 £'000 I 15 30 214 624 222 860 280 40 14 36 48 484 145 500 300 400 1,500 I 312 - 3,012 3,012