Reference no: EM133084878
Question - Barbara and Hannah are partners who run an accounting and tax consultancy business. The partners share profits and losses 60% (Barbara) to 40% (Hannah) after paying themselves salaries of £20,000 (Barbara) and £25,000 (Hannah). Their accounting records show the following totals at 31 December 2020:
£
Cash 60,000
Receivable from customers 44,000
Provision for doubtful debts at 1 January 2020 200
Motor vans: at cost 150,000
Motor vans: Accumulated depreciation at 1 January 2020 25,000
Payable to suppliers 4,000
Loan from bank 45,000
Capital: at 1 January 2020: Barbara 50,000
Capital: at 1 January 2020: Hannah 60,000
Current account at 1 January 2020: Barbara 25,000
Current account at 1 January 2020: Hannah 30,000
Drawings: Barbara 40,000
Drawings: Hannah 35,000
Administrative expenses 28,000
Premises rent 38,000
Staffing salary 55,000
Utility expenses 14,000
Revenue 224,800
Notes:
1. Staff salary of £5,000 for the month of December has not yet been recorded and paid.
2. The partnership makes an allowance of 1% against the total trade receivables each year.
3. Depreciation is charged on motor van at 25% on the reducing balance method. The residual value of motor vans is NIL.
4. There were no acquisitions or disposals of non-current assets during the year.
5. The examination of the Premises rent account reveals that the partnership paid a rent of £12,000 for six months from 1 January till 30 June 2020 and a rent of £26,000 for 12 months from 1 July 2020 till 30 June 2021.
Required -
1. Prepare a statement of profit or loss for the year ended on 31 December 2020.
2. Prepare a statement of appropriation of profit for the year ended on 31 December 2020.
3. Prepare a statement of financial position as at 31 December 2020.
4. Discuss the effect of following transactions on Assets, Liabilities and Shareholders' equity. Show also that accounting equation would remain in balance after these transactions.
5. The partnership pays the staff salary of £5,000 to its employees on 15 January 2021 (see note 1 above).
6. The recording of depreciation on motor van at 31 December 2020 (see note 2 above).