Self-test Sarah and Mary commenced business on 1 January 2008. They are equal partners and each contributed £50,000 capital. Interest of 7 per cent was to be paid on this capital and, in addition, each partner would receive a salary of £28,000 and an equal share of profits.

The following are extracts of the balances shown in the partnership at 31 December 2008:

Plant and machinery 82,000 Stock 3,859 Office equipment 7,448 Cash on hand 106 Cash at bank 1,942 Creditors 2,314 Debtors 8,177 Net profit for the year 64,718 Capital – Sarah 50,000 Capital – Mary 50,000 Drawings – Sarah 28,900 Drawings – Mary 34,600 During the year each partner withdrew her salary from the business.

You are required to prepare:

(a) The profit and loss appropriation account for the year ended 31 December 2008 reflecting all adjustments for interest, drawings and salary.

(b) A statement showing the balance of each partner’s current account at 31 December 2008.