Reference no: EM132047505

Problem - Kamau and karanja are in partnership sharing profits and losses in the ratio of 3:1. Karanja receives a salary of ksh30,000 per annum. They both earn interest on capital at 12% per annum, based on their capital balances at the beginning of the year. Both the salary and interest occur evenly throughout the year. The following is the b. sheet as at 31st Dec 2010: Karanja & Kamau's Statement of Financial Position as at 31st December 2010

Non-Current Assets PPE 400,000

Current Assets Trade Receivables 30,000

Cash & Cash Equivalents 100,000

Total Current Assets 130,000

Total Assets 530,000

Equity & Liabilities

Capital Accounts Kamau 300,000

Karanja 150,000 450,000

Current Accounts Kamau 60,000

Karanja 20,000

Total Equity & Liabilities 530,000

On the 30th April 2011, Kamau decides to retire and agrees to leave the entire amount owing to him as a loan to the partnership bearing interest at 6% per annum which accrues evenly over the year. Karanja and Kamau agree that the goodwill of the business at that date amounts to ksh150,000 and that it should be brought into the books.

John joins Karanja in a new partnership on the 30th April 2011 and introduces capital of ksh100,000. Add info

(i) This new partnership is to share profits from 1st April in the ratio Karanja 3: John 2.

(ii) Karanja' salary stays the same and John's salary is ksh24,000 per annum.

(iii) Karanja and John took drawings of ksh12,000 each on the 30th September 2011

(iv) They pay interest on drawings of 10% per annum.

(v) The new partnership decided to leave the interest on capital at 12% per annum and have agreed that John can earn interest on his capital from the date of the new partnership.

(vi) The profits, which occurred evenly throughout the year and before any adjustments, amounts to ksh150,000

(vii) The new partnership agrees to eliminate the goodwill from their statement of financial position.

REQUIREMENT: For the year ended 31st December 2011:

(a) Prepare the partnership's appropriation account.

(b) Prepare the partner's current accounts.