Reference no: EM132945116
Question - You are the accountant of Adelaide Finance Limited (AFL), a financial planning and investment Partnership and you have been asked to assist in preparing the partnership accounts for the year ended 30 June 2020. Based on their records you have been able to determine AFL generated a profit of $170,000.
Currently there are 3 Partners in the firm, John Spencer, Jenny Chance and Leah Tee.
John is involved in a number of projects and so has minimal day to day activity with the firm, as a result Jenny and Leah are responsible for most of the management tasks.
The partners agreed that any profits or losses would be distributed between the 3 partners as follows:
John - 40%
Jenny - 30%
Leah - 30%.
To reward Leah and Jenny for their work, both are allocated a salary each year. Leah receives $75,000 and Jenny is allocated $45,000. To ensure John maintains his investment in the firm it was agreed to pay him a bonus of $1,000. It was also agreed each partner would receive 3% interest each year on their current capital investment.
The Partnership's latest Statement of Changes in Equity revealed the following
John - Capital 500,000
- Retained Earnings 8,000
Leah - Capital 200,000
- Retained Earnings 70,000
Jenny - Capital 300,000
- Retained Earnings 12,000
REQUIRED -
1. Based on the information above show how the profit for the year should be distributed amongst the partners.
2. Show the closing balances of Capital and Retained Earnings for each partner at 30 June 2020.