QUESTION SIX

Kerubo and Mogaka are partners sharing profits and losses in the ratio 3:2 respectively. The partnership agreement provides for Mogaka to receive a salary of Sh.4,000,000 per annum, and interest on capitals for both partners at 5% per annum. The partnership balance sheet as at 31 December 1998 was as follows:

	Sh. 000	Sh. 000		Sh. 000	Sh. 000
Capital accounts			Premises
Kerubo	16,000		Less depreciation		20,800
Mogaka	10,000	26,000	Equipment at cost	8,000
			Depreciation	(4,800)	3,200
					24,000
Current accounts
Kerubo	3,200
Mogaka	(300)	2,900	Stock	5,600
			Debtors	2,200
Creditors accruals		3,300	Cash	400	8,200
		32,200			32,200

On I April 1999 Ngare was admitted to the partnership. He had been a salaried employee, earning Sh.8, 000,000 per annum. The terms of his admission to the partnership were as follows:

1. Ngare should introduce Sh. 12,000,000 in cash as capital into the business.

2. Goodwill should be valued at Sh.14, 000,000 for the purpose of his admission. It was agreed that goodwill should not be included in the balance sheet of the new partnership.

3. Ngare should receive a salary as a partner of Sh.6, 000,000 per annum. Mogaka's salary should be raised to Sh.6, 000,000.

4. Interest on capital should be raised from 5% to 6% per annum and calculated on the capital accounts after the elimination of goodwill.

5. The new profit sharing ratio for Kerubo, Mogaka and Ngare should be 4:2:1

respectively.

In preparing the draft financial statements for the year ended 31 December 1999, the partnership accountant, Otieno, calculated that the partnerships profit for the year was Sh.55, 155,000, and that the working capital of the business as at 31 December 1999 was:

	Sh. 000
Stock	12,555
Debtors	3,500
Cash	8,800
Creditors and accruals	3,480

Profit is assumed to accrue evenly during the year.

Partners cash drawings for the year were Kerubo Sh.23,705,000, Mogaka Sh.19,525,000 and Ngare Sh.8,250,000.

Required:

(a) The profit and loss appropriation account for the year ended 3 1 December 1999.

(8 marks)

(b) The current and capital accounts of the partners for the year ended 31 December

1999. (7 marks)

(c) Balance Sheet as at 31 December 1999. (5 marks)