Reference no: EM132589556
A and B have been in partnership for several years. The financial year of their business ends on 31 May. As at 31 May 2011 the partners had the following balances on their capital and current Accounts:
A - Capital account 60,000
B - Capital account 130,000
A - Current account 1,500 (CR)
B - Current account 1,200 (CR)
On the initial formation of the partnership an agreement drawn up on behalf of the partners included the following terms:
- Partners would receive interest on their capital at the rate of 3% per year
- B would receive a partnership salary of 5,000 per year.
- Remaining profits or losses would be shared equally
As from 1 June 2011 it was decided that the profit sharing ratio within the original agreement be revised as follows:
A 40%
B 60%
All other terms of the original agreement were to remain the same.
At the time of the change in the profit sharing ratio the goodwill of the business was valued at 40,000.
In the year ended 31 May 2012 the partnership generated a net profit of 54,800. Drawings in the year were:
A 18,000
B 32,000
Required:
Question 1) Why A and B start partnership business, what are its advantages.
Question 2) Write down the partnership deed and what will be the possible deed of partnership between A and B based on the current data, draft the whole content, include data from your own if missing in the question.
Question 3) Prepare the partners' Capital Accounts for the year ended 31 May 2012.
Question 4) Prepare the Profit and Loss Appropriation Account of the partnership for the year ended 31 May 2012.
Question 5) Prepare the partners' Current Accounts for the year ended 31 May 2012.
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