Penrose and Wilcox are in partnership, sharing profits and losses in the ratio 3:2. The following information was taken from their books for the year ending 31 December 2016, before the completion of their profit and loss appropriation account.

(a) Prepare, for the year ending 31 December 2016:
(1) the profit and loss appropriation account of Penrose and Wilcox;
(2) the current accounts in the ledger for Penrose and Wilcox.

(b) Why in many partnerships are current accounts prepared as well as capital accounts?

(c) At 1 January 2016 Penrose had a debit balance in his current account. What does this mean?

(d) In partnership accounts what is the purpose of preparing:
(1) a statement of profit or loss?
(2) a profit and loss appropriation account?

(e) In partnership accounts why is:
(1) interest allowed on capital?
(2) interest charged on drawings?

Transcribed Image Text:

Current accounts (1 January 2016) Penrose Wilcox 330 640 (Dr) (Cr) 39 Drawings Penrose 3,000 Wilcox 2,000 Net trading profit 6,810 Interest on capital Penrose 540 Wilcox 720 Salary Penrose 2,000 Interest on drawings Penrose 270 Wilcox 180