QUESTION

A, B, and C are in partnership and have set the following conditions for themselves.

A B C

Share of balance of profits: 2 3 5

Interest on current accounts: 5% 5% 5%

Salaries: $400 Nil $300

Interest on Capital accounts: 5% 5% 5%

Interest on drawings: 10% 10% 10%

Other information was as follows:

Their capital accounts were: $20 000, $18 000 and $25 000 respectively. Their drawings were also made as follows: B: $500, C$200 and A: $600 during the financial year. All the partners had favourable current account balances at the beginning of the financial year (19 January 2018) as follows: C: $700, A: $1 000 and B: $850. The financial year's operations yielded total sales of $41 567. The Net profit: Sales ratio was equivalent to 21.27%. Before preparing the profit and loss appropriation account the partners agreed to set aside $993 for some asset replacement.

Required:

(a) Prepare the profit and loss appropriation account for the partnership. (17 marks)

(b) Suppose that partners have agreed that A should get a minimum of $880 as his share of the balance of the profits; and that B and C should contribute towards any shortfall in the sharing ratio existing between them. You are required to work out A's shortfall; B's and C's contributions, and to list out share for each partner. (8 marks)