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QUESTION THREE [20] Pitso and Steve are partners operating a business Topclass Pro Services. The information that follows is relevant to the business activities of

QUESTION THREE [20]

Pitso and Steve are partners operating a business Topclass Pro Services. The information that follows is relevant to the business activities of the partnership for the year ended

30 June 2020. Pitso and Steve share in profits and losses in the ratio of 3:2 respectively.

Topclass Pro Services

Extract of relevant account balances as at 30 June 2020

Debit

R

Credit

R

Capital: Pitso

270 000

Capital: Steve

270 000

Current account: Pitso: balance at 1 July 2019

76 600

Current account: Steve: balance at 1 July 2019

52 900

Drawings for the year: Pitso

68 310

Drawings for the year: Steve

43 470

Long term loan from Pitso

110 000

Salaries paid to partners during the year:

Pitso

144 000

Steve

126 000

Profit for the year before taking the any of the additional

765 500

information into account

Additional information:

The following has been extracted from the partnership agreement:

:

  1. Interest must be calculated and recorded at the following rates at the end of each financial period. All interest must be processed through the current accounts of the partners. Interest rates are as follows:

  1. Interest on capital must be calculated at 10% per year,
  2. Interest at 10% per year on current account balances at beginning of the year,
  3. Interest on drawings accounts balances has been calculated as follows:
    • Pitso R4 500
    • Steve R2 900

  1. The following salaries are payable to the partners for the current year:
  • Pitso: R12 000 per month, and Steve R15 000 per month.

Year-end adjustments:

  1. On 1 January 2020 Pitso contributed another R90 000 as capital to the partnership. It was agreed that the amount will be included in his fixed capital account. The transaction was correctly recorded as at 30 June 2020.

  1. Pitso granted an unsecured loan to the partnership on 1 January 2020. According to the loan agreement, interest will be charged at 10% per year. The loan will be repaid in annual installments beginning 31 December 2024. Interest on the loan is still to be calculated and recorded in the books of the partnership.

Required:

Take the above information into account and adjust the Profit for the year to show the correct amount to be shared between the partners, Pitso and Steve. Thereafter,

prepare the statement of changes in equity for Topclass Pro Services for the year ended 30 June 2020 to clearly show the distribution of profits in terms of the partnership agreement.

Show all calculations. Use the format suggested below.

Recommended format:

Topclass Pro Services

Statement of changes in equity for the year ended 30 June 2020

Capital account

PITSO

R

Steve

R

Total

R

Balance at 1 July 2019
Additional contributions
Balance at 30 June 2020
Current Account:

Pitso

R

Steve

R

Total

R

Profit for the Year
Appropriation:
Interest on Capital
Interest on current a/c
Interest on Drawings
Salaries due
Share of profits
Drawings
Balance at 30 June 2020

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