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2 John and Banu are partners.

The partners provided the following list of balances at 31 March 2021.

$
Revenue 158 000
Inventory at 1 April 2020 9 400
Purchases 69 200
Rates and insurance 11 250
Wages 10 475
General expenses 9 675
Discount allowed 2 000
Commission receivable 4 800
Balance at bank 4 000
Trade receivables 14 150
Trade payables 5 835
Premises at cost 130 000
Fittings at cost 18 000
Provision for depreciation of fittings 8 100
Loan from John 10 000
Capital accounts
John 75 000
Banu 50 000
Current accounts
John 4 050
Banu 2 365
Drawings
John 19 000
Banu 21 000

Additional information

1 Inventory at 31 March 2021 was valued at $9200.

2 Rates of $650 were unpaid at 31 March 2021.

3 Commission receivable of $300 was due at 31 March 2021.

4 Depreciation on fittings is to be charged at 15% per annum using the straight-line method.

5 The partnership agreement provides for:

interest on partner’s loan of 5% per annum

interest on drawings of 6%
interest on capital of 3% per annum
a salary to John of $8500 per annum
residual profits and losses to be shared 40% to John and 60% to Banu.

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REQUIRED

(a) Prepare the income statement for John and Banu for the year ended 31 March 2021.

John and Banu

Income Statement for the year ended 31 March 2021
$ $

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[9]

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(b) Prepare the appropriation account for John and Banu for the year ended 31 March 2021.

John and Banu

Appropriation Account for the year ended 31 March 2021
$ $

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[5]

(c) State the purpose of:

(i) charging interest on the partners’ drawings

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(ii) paying interest on the loan from John.

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(d) Complete the table by placing a tick (3) against each statement which describes an advantage
to John of being in a partnership with Banu.

Continuity of existence of the business

Banu may have skills and knowledge which John does not have
John is only liable for business debts up to the amount he agreed to
contribute
Additional finance is available to the business

Risks and responsibilities are shared

John is bound by the actions of Banu carried out on behalf of the
business
John can discuss matters with Banu before making decisions
[4]

[Total: 20]

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