Question

QUESTION 2 PARTNERSHIPS (8 MARKS)
2. Donal and David have been in business as a partnership for a number of years sharing profits in the
ratio of 4:1 and entitled to annual salaries of R20 000 and R12 000 respectively. Interest on capital
allowed is 3% per annum. Donal and David each take drawings from the partnership of R500 per month.
The partnership accounts are prepared annually to 31 December.
On 1 July 2013, Damian was admitted as a partner and from that day forward, the new partnership
terms agreed were as follows:
1. Annual salaries for Donal, David and Damian to be R16 000, R12 000 and R8 000 respectively.
2. The rate of interest on capital is to stay the same as the old partnership. The amount paid is based
on the closing balance in the capital account on 31 December. Interest is calculated as if the
closing balance was in the capital account for the full year and is paid on 31 December.
3. Profits or losses to be shared between Donal, David and Damian in the ratio 1:1:1.
4. Donal and David monthly drawings will continue and Damian is allowed to withdraw R400 a month.
Interest on drawings of 5% is calculated at the end of the year based on the closing amount of
drawings at the year-end.
On 1 July, Damian paid R36 000 into the partnership bank account. R24 000 of this was in respect of the
share of goodwill acquired by him. The partners do not want to have goodwill in their partnership
accounts and therefore, the full amount of the R24 000 was credited to Damian’s capital account. Any
goodwill created on initiation of the new partnership is to be cancelled and allocated to the partners’
capital accounts in the new profit sharing ratio. On 1 July, Donal withdrew R10 000 from his capital
account.
The profit of the partnership for the year ended 31 December 2013 amounted to R180 000, which
accrues evenly over the year.
The opening balances on Donal and David’s capital and current accounts were as follows:
Donal David
R R
Capital Account 40,000 20,000
Current Account 10,000 6,000
REQUIREMENT:
Prepare the following accounts:
(a) The partners’ capital accounts for the year ended 31 December 2013 to reflect the admission of Damian.
(2 Marks)
(b) The Profit & Loss appropriation account(s) for the year ended 31 December 2013. (4 Marks)
(c) The partners’ current accounts for the year ended 31 December 2013. (2 Marks)

Answer 1

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Profit and Loss Appropriation Account
Dr			Cr
Particulars	Amount	Particulars	Amount
Partners Salary	34000	Current Year Profit	180000
Interest on Capital	1830	Interest on Drawings	720
Profit to Distribute	144890
Total	180720	Total	180720
Workings- PL Appropriation Account
Particulars	up to 30/06/2013	After 30/06/2013	Total
Profit	90000	90000	180000
Interest on drawings	300	420	720
Partners Salary	16000	18000	34000
Interest	825	1005	1830
Profit	73475	71415	144890
Allocation				Asumed that the profit given in the question befor allocation of partners salary,Interest on capital and interest on Drawings
Donal	58780	23805
David	14695	23805
Domain		23805
Partners Current Account
Dr				Cr
Particulars	Donal	David	Domain	Particulars	Donal	David	Domain
Drawings	6000	6000	2400	Opening Balance	10000	6000	0
Interest on Drawings	300	300	120	Salary up to July	10000	6000
				Salaries from July	8000	6000	4000
Balance	105335	50800	25465	Interest on Capital	1050	600	180
				Profit - up to July	58780	14695
				Profit - after July	23805	23805	23805
Total	111635	57100	27985	Total	111635	57100	27985
Partners Capital Account
Dr				Cr
Particulars	Donal	David	Domain	Particulars	Donal	David	Domain
Withrawel of Capital	10000			Opening Balance	40000	20000	0
				Capital	0	0	12000
				Goodwill Shared	12000	12000	0
Balance	42000	32000	12000
Total	52000	32000	12000	Total	52000	32000	12000

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