Question 5

Little and Large are in partnership sharing profits in the ratio 2:3.

The partnerships profit for the year was 81,400.

The partnership agreement provides for:

• Interest to be paid on the partners opening capital balances at a rate of 10% per annum.

• Interest on drawings at a rate of 15% per annum on all drawings during the year.

• Partners salaries of Little 15,000; Large 4,000.

At the beginning of the year, the partners capital and current account balances were:

Capital Current

Little 140,000 7,500 Credit

Large 60,000 4,317 Debit

During the year, Littles drawings were 28,000 and Larges drawings were 34,000.

Required:

Based on the above information:

1. Prepare the Partnership Appropriation Account.

(9 marks)

2. Calculate each partners share of the residual profit and total profit share.

(8 marks)

3. Prepare the partners current accounts.

(8 marks)

(Total 25 Marks)