BA7001 Basic Financial Statements - Exercises

Dominoez Partnership

Andrew, Guy and Martin are in partnership as camping equipment retailers trading
under the name Dominoez. The list of balances as at 31/12/21 was:

£
Fixed Assets 156,190
Stock as at 31 December 2020 167,200
Debtors (receivables) 13,400
Overheads 110,150
Purchases 786,260
Drawings:
- Andrew 48,000
- Guy 71,000
- Martin 56,000
Bank 12,200
Sales 1,122,200
Capital as at 31 December 2021
- Andrew 120,000
- Guy 70,000
10,000
- Martin
98,200
Creditors (payables)

Notes:
(a) Stock as at 31 December 2021 was valued at £223,000.
(b) The partnership agreement provides that profit shall be shared:
 Interest on capital 15% per annum
 Salaries: Guy £30,000, Martin £20,000
 Balance: 3:2:2

Required:

1. Construct for the Dominoez partnership, the profit and loss and appropriation
account for the year ended 31 December 2021 and the balance sheet at that
date.

2. Consider what might happen if the profit was insufficient to cover the interest and
salaries.
 SA Chan

SA Chan has just completed his first three months of trading. He has constructed a
cash flow statement to show his actual cash flows during the first three months as
follows:

Jan Feb Mar Summary

£ £ £ £
Cash Inflow
Capital 1,000     1,000
Short term loan 300 300
Sales 250 640 1,310 2,200
Total 1,550 640 1,310 3,500
Cash Outflow        
Purchases 230 120 260 610
Rent 200 200 200 600
Advertising 150 50 50 250
Wages 60 120 120 300
Drawings 500 500 500 1,500
Total 1,140 990 1,130 3,260
Opening balance --- 410 60  ---
Net cash flow 410 -350 180 240
Closing balance 410 60 240 240

At the end of the first three months, a stock take reveals closing stock which had an
original cost price of £160. SA Chan is a cash only business with no credit sales or
purchases, and all expenses paid up to date.

Required:

Prepare a profit and loss account for the first three months of trading for SA Chan and
a balance sheet at the end of the first three months of trading.
 Brushe, Payperr and Paynte

Brushe, Payperr and Paynte are thinking of setting up a partnership in the catering
business. They have looked at various arrangements for the appropriation of net
profits - which they have estimated will be no lower than £28,200 but will be no greater
than £36,400. After much discussion, their selection of possibilities has been reduced
to two:

Arrangement 1:

(i) drawings to be permitted through out the year but no interest to be charged to
them;
(ii) interest to be credited at 5% per annum on partners' capitals;
(iii) partnership salary to Brushe of £2,000 per annum;
(iv) residual profits and losses to be shared 3:5:2 between Brushe, Payperr and
Paynte respectively.

Arrangement 2:

(i) drawings to be permitted only after profit for the year has been ascertained;
(ii) interest to be credited at 10% per annum on partners' capitals;
(iii) no partnership salaries to be paid;
(iv) residual profits and losses to be shared 4:3:3 between Brushe, Payperr and
Paynte respectively.

Capital introduced by the partners will be Brushe £10,000, Payperr £14,000 and
Paynte £20,000.

Brushe is unsure which arrangement would be most beneficial to her and has come to
you for advice.

Required:

(a) Prepare, in tabular format, your calculations of the amounts which individual
prospective partners would receive at each of the two extreme profit levels.

(b) State what advice you would give to Brushe.