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A and B are in partnership sharing profits and losses 3:2. Under the terms of the partnership
agreement, the partners are entitled to interest on capital at 5 per cent per annum and B is
entitled to a salary of £4,500. Interest is charged on drawings at 5 per cent per annum and the
amounts of interest are given below. No interest is charged or allowed on current accounts.
The partners’ capitals at 1 July 2006 were: A £30,000 and B £10,000.
The net trading profit of the firm, before dealing with partners’ interest or B’s salary for the
year ended 30 June 2007 was £25,800. Interest on drawings for the year amounted to A £400,
B £300.
At 1 July 2006, there was a credit balance of £1,280 on B’s current account, while A’s current
account balance was a debit of £500. Drawings for the year to 30 June 2007 amounted to £12,000
for A and £15,000 for B.
Required:
Prepare, for the year to 30 June 2007:
(a) The profit and loss appropriation account.
(b) The partners’ current accounts.