Question 5: (20 marks)

A. Sara, Fatima and Elnaz operate a business organized as a partnership to which each has contributed $ 800,000 in capital. During their accounting years they made a profit of $600,000. Drawings amounted to $60,000 for Sara, $40,000 for Fatima and $50,000 for Elnaz.

Their partnership agreement stipulates the following:

A profit-sharing ratio of 1:2:3

Eight percent interest on capital

Fifteen percent interest charged on drawings

Sara and Fatima receives a salary of $15,000 per annum

Required: Prepare an appropriation statement for the partnership.(10 Marks)

B. Morning star plc. is a manufacturer of computer accessories. The following are selected items appearing in the income statement and balance sheet for the year ended December 31st, 2015.

Income Statement

Net Sales

500,000

Less: Cost of Goods Sold

250,000

Gross Profit

250,000

Selling and general expenses

120,000

Net Operating profit

130,000

Interest expenses

20,000

Net Profit before ta

110,000

Income tax

30,000

Net profit for the year

80,000

Balance Sheet

Cash and short-term investments

10,000

Receivables

46,000

Inventories

60,000

Property, plant & Equipment

300,000

Total Assets

416,000

Total current liabilities

25,000

Total Non-current liabilities

11,000

Shareholders Equity $10 par

220,000

Retained Earnings

160,000

Total Liabilities and Equity

416,000

Required:

Using the information above, compute the Companys ratio below and comment on each:

a. Current ratio

b. Asset Turnover

c. EPS

d. Interest cover

e. Gearing ratio