Packer and Stringer were in partnership as retail traders sharing profits and losses: Packer 3/a, Stringer 1/4. The partners were credited annually with interest at the rate of 6% per annum on their fixed capitals; no interest was charged on their drawings.

Stringer was responsible for the buying department of the business. Packer managed the head office and Paper was employed as the branch manager. Packer and Paper were each entitled to a commission of 10% of the net profits (after charging such commission) of the shop managed by him.

All goods were purchased by head office and goods sent to the branch were invoiced at cost.

The following was the trial balance as on 31 December 2004.

You are given the following additional information:

(a) Inventory on 31 December 2004 amounted to: head office £14,440, branch £6,570.

(b) Administrative expenses are to be apportioned between head office and the branch in proportion to sales.

(c) Depreciation is to be provided on furniture and fittings at 10% of cost.

(d) The allowance for doubtful debts is to be increased by £50 in respect of head office accounts receivable and decreased by £20 in the case of those of the branch.

(e) On 31 December 2004 cash amounting to £2,400, in transit from the branch to head office, had been recorded in the branch books but not in those of head office; and on that date goods invoiced at £800, in transit from head office to the branch, had been recorded in the head office books but not in the branch books.
Any adjustments necessary are to be made in the head office books.

You are required to:

(a) prepare income statements and the appropriation account for the year ending 31 December 2004, showing the net profit of the head office and branch respectively;

(b) prepare the balance sheet as on that date; and

(c) show the closing entries in the branch current accounts giving the make-up of the closing balance.
Income tax is to be ignored.

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Head Office Books Branch Books Dr Cr Dr Cr Drawings accounts and fixed capital accounts: Packer 2,500 14,000 Stringer 1,200 4,000 Furniture and fittings, at cost 1,500 1,100 Furniture and fittings, provision for depreciation as at 31 December 2003 500 350 Inventory on 31 December 2003 13,000 4,400 Purchases 37,000 Goods sent to branches 18,000 17,200 Sales 39,000 26,000 Allowance for doubtful debts 600 200 Branch and head office current accounts 6,800 3,600 Salaries and wages 4,500 3,200 Paper, on account of commission 240 Carriage and travelling expenses 2,200 960 Administrative expenses 2,400 Trade and general expenses Sundry accounts receivable Sundry accounts payable Bank balances 3,200 1,800 7,000 3,000 5,800 400 600 1,350 81,900 81,900 31,900 31,900