9.4 Amir and Barry are in partnership with contributed capitals of £70,000 and £50,000, respectively. They have agreed the following appropriation scheme:

(a) Interest is to be allowed on contributed capital at 12 per cent per annum.

(b) Interest is to be charged on drawings.

(c) Amir and Barry are to receive salaries of £10,000 and £13,000 per annum, respectively.

(d) Amir and Barry are to share profits and losses in the ratio 3 : 2 respectively.

During the financial year ended 30 November 1990 Amir and Barry made drawings from the business totalling £37,000 and £40,400, respectively. Amir and Barry are to be charged interest on their drawings amounting to £1,900 and £3,500, respectively.

The balances on the partners’ current accounts were Amir £250 and Barry £1,240 as at 1 December 1989. Both were credit balances.

The draft net profit for the partnership for the year ended 30 November 1990 was

£95,000 but this is before allowing for the following:

1 It has been discovered that the receipt of a cheque for £3,000 has been correctly recorded in the cash book but has been posted in error to the sales account.
2 The provision for bad debts has still to be adjusted so that it is 2 per cent of trade debtors as at 30 November 1990. The balance on the provision for bad debts account is £3,400 which represents the provision made as at 30 November 1989. Trade debtors totalled £153,000 as at 30 November 1990.

(a) Prepare journal entries to record the correction of the posting error and the adjustment to the provision for bad debts. Dates and narratives are not required.
(4 marks)

(b) Calculate net profit for the year after taking the above into account.
(2 marks)

(c) Prepare the partnership appropriation account for the year ended 30 November 1990.
(8 marks)

(d) Calculate the balances on the partners’ current accounts as at 30 November 1990.
(6 marks)
(Total 20 marks)
(AAT Preliminary Examination, December 1990)