QUESTION 2 (60 marks) Arnold Spider and Taylor Man were in partnership as jewelers in Bloemfontein. They design, make and sell jewelry for men and women. The partnership had been operational for several years and has built up a good reputation. To expand business they decided to convert to a company during the 2022 financial year [FY2022]. The financial year end is 31 December for both the partnership and the company. This question essentially addresses 2 key aspects: PART A Determining the gross profit from manufacturing operations from a trial balance that still requires final adjustments for the year ended 31 December 2021. PART B Drafting sections of the partnership accounts: - relating to the financial position thereof at 31 December 2021; - the accounting recording required to close off the partnership accounts upon conversion to a private company on 30 June 2022; and - the statements of the private company immediately after conversion PART A The following is a preliminary trial balance for the Spider and Man partnership at 31 December 2021: R R Inventory at 1 January 2021 Raw materials 217 500 Work in progress 87 000 Finished goods 580 000 Purchases of raw material 899 000 Salaries and wages 1 206 135 Rent and rates 116 000 Heating and lighting 26 970 Insurance 14 500 Carriage inwards 17 735 Carriage outwards 23 009 Motor vehicle expenses 29 000 General administration expenses 24 252 Sales 3 584 400 Buildings at cost 2 320 000 Accumulated depreciation - Buildings 928 000 Machinery and Equipment at cost 261 000 Accumulated depreciation - Machinery and Equipment 50 750 Motor Vehicles at cost 203 000 Accumulated depreciation - Motor Vehicles 144 600 Debtors 120 350 Creditors 75 397 Balance at bank 64 258 Capital Account: Spider 1 000 000 Capital Account: Man 660 000 Current Account: Spider 126 500 Current Account: Man 119 250 Drawings: Spider 288 875 Drawings: Man 190 313 6 688 897 6 688 897 Additional information to be considered for finalisation of the trial balance provided above: 1 Annual depreciation (for the partnership and the company) on fixed assets is provided as follows: Buildings 5% on cost Machinery and Equipment 20% on cost Motor Vehicles 25% on the reducing balance 2 Expenditure has always been apportioned as follows: Factory Shop and offices Wages 70% 30% Rent and rates, heating and lighting, insurance, motor vehicle expenses and depreciation on both motor vehicles and buildings 60% 40% The partnership agreement makes provision for the following: Spider Man Profit share 4/7 3/7 Interest on capital accounts 9% 9% Annual salary - R58 000 3 Expenditure and other items at 31 December 2021 Inventory at 31 December 2021 Raw materials 181 250 Work in progress 101 500 Finished goods 522 000 Rent owing 14 500 Electricity owing 3 118 Salaries and wages owing 20 865 Rates paid in advance 21 750 Insurance paid in advance 4 350 REQUIRED MARKS (a) Compile the Manufacturing and Trading Account (reflecting the gross profit) for Spider and Man at 31 December 2021 from the trial balance provided and after incorporating the additional information provided above; 23 (b) You may assume that the Profit and Loss for the year ended 31 December 2021 for the partnership of Spider and Man amounted to R745 465 after accounting for Mans salary of R58 000. Compile the current account for each partner for the year ended 31 December 2021, inclusive of the summarized transactions for each, to reflect the overall movement in their current accounts for the year. Set out the accounts in tabular form. 6