Chapter 10 Financial Statements for Partnerships

Notes to teachers
1 Start with Chapter 3 of Business Environment and Introduction to Management,
and briefly explain to students the characteristics of a partnership.

2 Compare the financial statements of a partnership shown on pages 15−16 with

those of a sole proprietorship shown in any exhibit of Chapters 5 and 6 of Frank
Wood’s Introduction to Accounting. Ask students to highlight the differences.

3 The profit and loss appropriation account (or simply called the appropriation
account) is opened to record appropriation items. In earlier years, this account
was usually treated as part of the income statement in public examinations.
However, teachers must clarify that it is a double-entry account (kept in the
general ledger) and not a financial statement.

4 Most students have difficulty deciding whether an item such as salaries

(staff/partners’) or loan interest should be entered in the profit and loss account or
the appropriation account.

5 Teachers should tell students that the profit and loss sharing ratio is not restricted
to the sharing of operating profits. It is also applied to the sharing of non-
operating profits, such as revaluation profit (to be taught in Chapter 12) and
realisation profit (to be taught in Chapter 13) as well as the sharing of goodwill
(to be taught in Chapter 11).

6 There are two types of capital accounts. Fixed capital accounts (together with
current accounts) are more commonly used. However, most students have
difficulty understanding the different natures of capital accounts and current
accounts and their relationship.

The balances in capital accounts arise mainly from the contribution of personal
resources by partners, while the balances in current accounts arise mainly from
the appropriation of operating profits.

When partners withdraw from the partnership or the partnership is dissolved, the
balances in their current accounts will be transferred to the capital accounts for
final settlement.

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 1
7 The calculation of interest on capital will be complicated when capital balances
fluctuate and interest is charged on a monthly basis.

8 Students should understand why a debit balance may arise in a partner’s capital
account or current account. The treatment of debit balances will be explained in
Chapter 13.

9 Details of capital and current accounts are not required to be shown on the face of
the statement of financial position, but must be included as workings in public
examinations.

Check Your Progress

Q10-1 General features of partnerships include:
• There must be at least two partners.
• A partnership is not a legal entity. Partners need to bear unlimited
liability.
• Since the sources of capital available to a partnership are quite limited,
the scale of the business is usually small.
• All partners are legally bound by the decisions made in the name of the
firm by any one of the general partners and are responsible for the
consequences of those decisions.

Q10-2 When fluctuating capital accounts are used, a capital account is opened for
each partner to record the amount of capital contributed, the profit or loss
shared, the amount of drawings and also appropriations such as interest on
capital, interest on drawings and the partner’s salary. As a result, the
balance in the capital account fluctuates.

When fixed capital accounts are used, an additional account called a

‘current account’ is opened for each partner. It records recurrent items such
as the profit or loss shared, the amount of drawings, interest on capital,
interest on drawings and the partner’s salary. As a result, the capital account
shows only the amount of capital contributed.

Q10-3 The partner’s current account is used to record recurrent items such as the
profit or loss shared, the amount of drawings made, interest on capital,
interest on drawings and the partner’s salary.

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 2
Q10-4 If a partnership incurs a loss in one year, the share of loss borne by one of
the partners may exceed the total of his undrawn profits. When this
happens, his current account will have a debit balance.

Also, if a partner has overdrawn his current account, it is possible to have a

debit balance in his current account. This is because the drawings have
exceeded the balance accumulated from the share of profit and other
appropriation items.

Q10-5 Partners’ capital accounts record the amounts of capital contribution by

partners. If fluctuating capital accounts are used, they will also record the
profit or loss shared, the amount of drawings, interest on capital, interest on
drawings and partners’ salaries. The (credit) capital balances may be repaid
when partners withdraw from the partnership or when the partnership is
dissolved.

When a partner makes a loan to the partnership, a loan account will be

opened for that partner to record this transaction. The balance of the loan
account is separately treated as a liability of the partnership and not part of
the partner’s capital. The partnership is required to pay loan interest and
repay the loan principal by a certain date. When the partnership is
dissolved, partners who have made loans to the partnership will have their
loans repaid first before their capital balances are repaid.

Q10-6 (a) Loans from partners should be shown as liabilities in the statement of
financial position. If the loan is repayable within one year, it should be
shown as a current liability. If it is repayable after one year, it should be
shown as a non-current liability.

(b) Interest on loans from partners should be charged as an expense and

credited to the partners’ capital accounts or current accounts. This
seldom involves direct payments to the partners.

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 3
Try This Activity
A10-1 Items covered in a partnership agreement include:
• Capital contributed by each partner
• Profit and loss sharing ratio
• Rate of interest on capital
• Rate of interest on drawings
• Salaries to partners

A10-2 Interest may be allowed on partners’ capital as a minimum return on their

capital contributions.

A10-3 To discourage partners from taking resources out of the partnership, interest
may be charged on their drawings.

A10-4 Excessive share of loss of the partnership

A10-5 No. This is because the capital account will only record the amount of
capital contributed by the partner and it cannot be negative.

A10-6
Current: Chan
2015 $ 2015 $
Jul 1 Drawings 1,000,000 Dec 31 Profit and loss
Dec 31 Profit and loss appropriation —
appropriation — Interest on capital 20,000
Interest on drawings 50,000 Share of profit 515,000
" 31 Balance c/f 515,000
1,050,000 1,050,000

The closing balance of Chan’s current account would become a debit

balance of $515,000.

A10-7 The combined balance of Chan’s capital and current accounts would show a
negative figure, which represents a capital deficiency: $400,000 (capital) −
$515,000 (current) = ($115,000)

A10-8 The capital account records only the capital contributed by a partner. As a

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 4
 result, its balance is unaffected by the other types of transactions between
the partner and the partnership, which are recorded in the current account
instead.

Interest on loans from the partner, interest on capital, share of profit or loss,
drawings and interest on drawings are all recorded in the current account. If
drawings are excessive, the current account will end up with a debit
balance, which will act as a warning signal to the partnership.

A10-9 This statement is true. Employee salaries are treated as operating expenses
in the books of a partnership, while partners’ salaries are treated as
appropriations and deducted from the net profit for the period before it is
shared by partners.

A10-10 Differences in financial statements of a sole proprietorship and a

partnership:

(i) Differences in the income statement:

For a partnership, appropriation items such as interest on capital,
interest on drawings and partners’ salaries are shown in the income
statement. The net profit or loss after appropriations will be shared by
partners according to the agreed profit and loss sharing ratio.

A sole proprietorship has no appropriation items. The net profit or loss

belongs to the owner.

(ii) Differences in the statement of financial position:

A partnership has separate capital (and current) accounts shown for
each partner. Sometimes, there are loans from partners, which are
shown as liabilities of the partnership.

A sole proprietorship has only one capital account. No current account

is used. Drawings by the owner are recorded in the drawings account.

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 5
Assessment
Short Questions
10.1
Item Period covered Interest to be charged
(a) 12 months $200 (= $4,000 × 5%) 1 1

(b) 9 months $135 (= $3,600 × 5% × 9/12) 1 1

(c) 6 months $150 (= $6,000 × 5% × 6/12) 1 1

(d) 3 months $35 (= $2,800 × 5% × 3/12) 1 1

10.2X
Effect on the balance of
Entry in the current account
profit shared
Item
No No entry
Increase Decrease Debit Credit
effect required
Capital contributed   0.5 0.5

Interest on capital   0.5 0.5

Drawings   0.5 0.5

Interest on drawings   0.5 0.5

Partner’s salary   0.5 0.5

Partner’s year-end   0.5 0.5

bonus
Loan from a partner   0.5 0.5

Interest on the loan 0.5 0.5

 
from a partner

10.3
Lam and Kwan
Income Statement for the year ended 31 March 2014 (extract)
$ $ $
Net profit 262,500 0.5

Less Interest on capital:

Lam 20,000 0.5

60,00 0.5
Kwan 40,000
0
Salary to Lam 52,50 112,500 0.5

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 6
 0
150,000
Balance of profit shared:
75,00 1
Lam (1/2)
0
75,00 1
Kwan (1/2) 150,000
0

Lam and Kwan

Statement of Financial Position as at 31 March 2014 (extract)
$ $ $
Capital: Lam 200,000 0.5

Kwan 400,000 0.5

600,000
Current accounts* Lam Kwan
Balance as at 1 April 2013 45,000 54,000 0.5 0.5

Add Interest on capital 20,000 40,000 0.5 0.5

Salary 52,500 — 0.5

Share of profit 75,000 75,000 0.5 0.5

192,500 169,000 361,500 0.5 0.5

961,500 0.5

*
The workings in the current accounts can be shown as a note instead of being shown in
the statement of financial position.

10.4X
Wing, Poon and Ho
Income Statement for the year ended 31 December 2014 (extract)
$ $ $
303,50 0.5
Net profit
0
Add Interest on drawings:
Wing 2,400 0.5

Poon 1,800 0.5

Ho 1,300 5,500 0.5

309,00
0

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 7
 Les
Interest on capital:
s
Wing ($400,000 × 5%) 20,000 0.5

Poon ($300,000 × 5%) 15,000 0.5

Ho ($180,000 × 5%) 9,000 44,000 0.5

Salaries:
Poon 20,000 0.5

Ho 35,000 55,000 99,000 0.5

210,00
0
Balance of profit shared:
Wing (50%) 105,000 1

Poon (30%) 63,000 1

210,00 1
Ho (20%) 42,000
0

Wing, Poon and Ho

Statement of Financial Position as at 31 December 2014 (extract)
$ $ $ $
Capital: Wing 400,000 0.5

Poon 300,000 0.5

Ho 180,000 0.5

880,000
Current accounts Wing Poon Ho
Balance as at 1 January 2014 18,600 9,460 7,170 0.5 each

Add Interest on capital 20,000 15,000 9,000 0.5 each

Salaries — 20,000 35,000 0.5 each

Share of profit 105,000 63,000 42,000 0.5 each

143,600 107,460 93,170

Less Drawings 92,000 71,000 69,000 0.5 each

Interest on drawings 2,400 1,800 1,300 0.5 each

49,200 34,660 22,870 106,730 0.5 each

986,730

10.5
(a)
Sun, Wai and Ma
Income Statement for the year ended 31 December 2015 (extract)

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 8
 $ $ $
Net profit 252,000 0.5

Les
Interest on capital:
s
Sun ($60,000 × 10%) 6,000 0.5

Wai ($40,000 × 10%) 4,000 0.5

Ma ($20,000 × 10%) 2,000 12,000 0.5

Salaries:
Wai 30,000 0.5

Ma 30,000 60,000 72,000 0.5

180,000
Balance of profit shared:
Sun (2/5) 72,000 1

Wai (2/5) 72,000 1

Ma (1/5) 36,000 180,000 1

(b)
Sun, Wai and Ma
Statement of Financial Position as at 31 December 2015 (extract)
$ $ $ $
Capital: Sun 60,000 0.5

Wai 40,000 0.5

Ma 20,000 0.5

120,000
Current accounts Sun Wai Ma
Balance as at 1 January 2015 48,000 24,000 36,000 0.5 each

Add Interest on capital 6,000 4,000 2,000 0.5 each

Salaries — 30,000 30,000 0.5 each

Share of profit 72,000 72,000 36,000 0.5 each

126,000 130,000 104,000 360,000 0.5 each

480,000 0.5

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 9
10.6X
(a)
Kung, Lo and Wong
Income Statement for the year ended 31 December 2015 (extract)
$ $ $
Net profit 504,000 0.5

Add Interest on drawings:

Kung ($40,000 × 10% × 9/12 + $40,000 × 10% × 3/12) 4,000 1

Lo ($36,000 × 10% × 9/12 + $36,000 × 10% × 3/12) 3,600 1

Wong ($24,000 × 10% × 9/12 + $24,000 × 10% × 3/12) 2,400 10,000 1

514,000
Les
Interest on capital:
s
Kung ($300,000 × 10%) 30,000 0.5

Lo ($280,000 × 10%) 28,000 0.5

Wong ($160,000 × 10%) 16,000 74,000 0.5

Salaries: Lo 20,000 94,000 0.5

420,000
Balance of profit shared:
Kung (3/6) 210,000 1

Lo ( /6)
2
140,000 1

Wong (1/6) 70,000 420,000 1

(b)
Kung, Lo and Wong
Statement of Financial Position as at 31 December 2015 (extract)
$ $ $ $
Capital: Kung 300,000 0.5

Lo 280,000 0.5

Wong 160,000 0.5

740,000
Current accounts Kung Lo Wong
Balance as at 1 January 2015 7,500 13,400 2,200 0.5 each

Add Interest on capital 30,000 28,000 16,000 0.5 each

Salaries — 20,000 — 0.5 each

Share of profit 210,000 140,000 70,000 0.5 each

247,500 201,400 88,200

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 10
 Less Drawings 80,000 72,000 48,000 0.5 each

Interest on drawings 4,000 3,600 2,400 0.5 each

163,500 125,800 37,800 327,100 0.5 each

1,067,100 0.5

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 11
Application Problems
10.7
(a)
Sung and Yau
Income Statement for the year ended 30 June 2015
$ $
Sales 2,545,200 0.5

Less Cost of goods sold:

Opening inventory 180,000 0.5

Add Purchases 1,849,800 0.5

2,029,800
Less Closing inventory 190,000 1,839,800 0.5

Gross profit 705,400 0.5

Less Expenses:
Wages and salaries ($327,000 + $5,000) 332,000 1

Rent, rates and insurance ($35,500 − $2,500) 33,000 1

Electricity 9,800 0.5

Stationery and printing 4,200 0.5

Motor expenses 34,800 0.5

General expenses 17,000 0.5

Depreciation: Vans ($160,000 × 20%) 32,000 1

Office equipment [($84,000 − $28,000)

× 10%] 5,600 468,400 1

Net profit 237,000 0.5

Less Interest on capital:

Sung ($500,000 × 10%) 50,000 1

Yau ($200,000 × 10%) 20,000 70,000 1

167,000
Balance of profit shared:
Sung (3/5) 100,200 1

Yau ( /5)
2
66,800 167,000 1

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 12
(b)
Sung and Yau
Statement of Financial Position as at 30 June 2015
$ $ $
Accumulated Net book
Non-current assets Cost depreciation value
Land 280,000 — 280,000 1

Office equipment 84,000 (W1) 33,600 50,400 1

Vans 160,000 (W2) 82,000 78,000 1

524,000 115,600 408,400

Current assets
Inventory 190,000 0.5

Trade receivables 280,000 0.5

Prepayments 2,500 0.5

Cash at bank 72,500 545,000 0.5

Less Current liabilities:

Trade payables 152,000 0.5

Accruals 5,000 157,000 0.5

Net current assets 388,000

796,400
Financed by:
Capital: Sung 500,000 0.5

Yau 200,000 700,000 0.5

Current: Sung (W3) 56,600 2.5

Yau (W3) 39,800 96,400 2.5

796,400

Workings:
(W1) $28,000 + $5,600 = $33,600

(W2) $50,000 + $32,000 = $82,000

(W3) Current accounts Sung Yau

$ $
Balance as at 1 July 2014 6,400 3,000 0.5 each

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 13
 Add Interest on capital 50,000 20,000 0.5 each

Share of profit 100,200 66,800 0.5 each

156,600 89,800
Less Drawings 100,000 50,000 0.5 each

56,600 39,800 0.5 each

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 14
10.8X
(a)
Wong and Tsang
Income Statement for the year ended 31 December 2014 (extract)
$ $ $
Gross profit 560,000 0.5

Less Expenses
Wages and salaries ($185,600 − $60,000) 125,600 1

Rent and rates 44,400 0.5

Interest on loan from Au 20,000 190,000 0.5

Net profit 370,000 0.5

Add Interest on drawings:

Wong ($60,000 × 10%) 6,000 1

Tsang ($90,000 × 10%) 9,000 15,000 1

385,000
Less Interest on capital:
Wong ($400,000 × 10%) 40,000 0.5

Tsang ($600,000 × 10%) 60,000 100,000 0.5

Salary: Tsang 60,000 160,000 0.5

225,000
Balance of profit shared:
Wong (2/3) 150,000 1

Tsang (1/3) 75,000 225,000 1

(b)
Current Accounts
Wong Tsang Wong Tsang
$ $ $ $
Balance b/f 5,000 — Balance b/f — 37,000 0.5 0.5

Interest on drawings 6,000 9,000 Salary — 60,000 1 0.5

Drawings 60,000 90,000 Interest on capital 40,000 60,000 1 1

Balances c/f 119,000 133,000 Share of profit 150,000 75,000 1 1

190,000 232,000 190,000 232,000

(c) Keeping capital and current accounts separately can help prevent partners
from taking out more than their capital contributions from the partnership. 2

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 15
10.9
(a)
Mok, Wai and Kwan
Income Statement for the year ended 30 September 2014
$ $ $
Sales 2,105,000 0.5

Less Returns inwards 68,000 0.5

2,037,000
Less Cost of goods sold:
Opening inventory 428,500 0.5

Add Purchases 1,371,900 0.5

Carriage inwards 15,000 1,386,900 0.5

1,815,400
Less Closing inventory 510,600 1,304,800 0.5

Gross profit 732,200

Less Expenses:
Discounts allowed 1,100 0.5

Salaries and wages 182,960 0.5

Bad debts 12,340 0.5

Increase in allowance for doubtful accounts

($8,700 − $8,000) 700 1

General expenses 9,450 0.5

Rent and rates ($25,650 − $1,200) 24,450 1

Electricity and water 52,500 0.5

Postage ($24,500 − $1,900) 22,600 1

Motor expenses 39,400 0.5

Depreciation: Vans ($125,000 × 20%) 25,000 1

Office equipment ($84,000 × 20%) 16,800 387,300 1

Net profit 344,900 0.5

Add Interest on drawings:

Mok 1,700 0.5

Wai 1,100 0.5

Kwan 1,200 4,000 0.5

348,900
Less Salaries:
Wai 12,000 0.5

Kwan 7,000 19,000 0.5

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 16
 Interest on capital:
Mok ($300,000 × 10%) 30,000 1

Wai ($160,000 × 10%) 16,000 1

Kwan ($120,000 × 10%) 12,000 58,000 77,000 1

271,900
Balance of profit shared:
Mok (5/10) 135,950 1

Wai (3/10) 81,570 1

Kwan (2/10) 54,380 271,900 1

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 17
(b)
Mok, Wai and Kwan
Statement of Financial Position as at 30 September 2014
$ $ $
Accumulated Net book
Non-current assets Cost depreciation value
Office equipment 84,000 (W1) 43,800 40,200 1

Vans 125,000 (W2) 67,000 58,000 1

209,000 110,800 98,200

Current assets
Inventory 510,600 0.5

Trade receivables 319,280 0.5

Less Allowance for doubtful accounts 8,700 310,580 0.5

Prepayments ($1,200 + $1,900) 3,100 1

Cash at bank 6,660 0.5

830,940
Less Current liabilities:
Trade payables 243,560 0.5

Net current assets 587,380

685,580
Financed by:
Capital: Mok 300,000 0.5

Wai 160,000 0.5

Kwan 120,000 580,000 0.5

Current: Mok (W3) 52,050 3

Wai (W3) 22,770 3.5

Kwan (W3) 30,760 105,580 3.5

685,580

Workings:
(W1) $27,000 + $16,800 = $43,800

(W2) $42,000 + $25,000 = $67,000

(W3) Current accounts Mok Wai Kwan

$ $ $

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 18
 Balance as at 1 October 2013 13,900 (1,530) 20,740 0.5 each

Add Salaries — 12,000 7,000 0.5 each

Interest on capital 30,000 16,000 12,000 0.5 each

Share of profit 135,950 81,570 54,380 0.5 each

179,850 108,040 94,120

Less Drawings 126,100 84,170 62,160 0.5 each

Interest on drawings 1,700 1,100 1,200 0.5 each

52,050 22,770 30,760 0.5 each

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 19
10.10X
(a)
Yau and Pang
Income Statement for the year ended 30 June 2015
$ $ $
Sales 3,752,000 0.5

Less Returns inwards 12,000 0.5

3,740,000
Less Cost of goods sold:
Opening inventory 347,400 0.5

Add Purchases ($2,468,000 − $6,000) 2,462,000 1

Carriage inwards 16,500 2,478,500 0.5

2,825,900
Less Closing inventory 428,000 2,397,900 0.5

Gross profit 1,342,100 0.5

Add Discounts received 30,000 0.5

1,372,100
Less Expenses:
Salaries ($226,000 − $20,000) 206,000 1

General expenses 31,000 0.5

Rent and rates 58,600 0.5

Carriage outwards ($30,800 − $16,500) 14,300 1

Depreciation: Machinery (W1) 191,200 2

Equipment [($800,000 − $240,000) × 15%] 84,000 1

Loss on disposal of machinery ($16,000 − $12,000) 4,000 1

Bad debts 2,000 0.5

Allowance for doubtful accounts (W2) 13,200 604,300 2

Net profit 767,800 0.5

Less Salary: Yau 20,000 0.5

Interest on capital:
Yau ($300,000 × 5%) 15,000 1

Pang ($420,000 × 5%) 21,000 36,000 56,000 1

711,800
Balance of profit shared:
Yau (3/5) 427,080 1

Pang (2/5) 284,720 711,800 1

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 20
Workings:
(W1) Cost of machinery as at 30 June 2015: $1,560,000 − $16,000
= $1,544,000

Accumulated depreciation as at 30 June 2015:

$600,000 − $12,000 = $588,000

Depreciation on machinery for the year ended 30 June 2015:

($1,544,000 − $588,000) × 20% = $191,200

(W2) Accounts receivable: $270,000 − $2,000 = $268,000

Allowance for doubtful accounts: ($268,000 − $8,000) × 2% + $8,000
= $13,200

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 21
(b)
Yau and Pang
Statement of Financial Position as at 30 June 2015
$ $ $
Accumulated Net book
Non-current assets Cost depreciation value
Machinery 1,544,000 (W3) 779,200 764,800 2

Equipment 800,000 (W4) 324,000 476,000 1

2,344,000 1,103,200 1,240,800

Current assets
Inventory 428,000 0.5

Accounts receivable 268,000 0.5

Less Allowance for doubtful accounts 13,200 254,800 0.5

Cash at bank 64,000 0.5

Cash in hand 22,000 0.5

768,800
Less Current liabilities:
Accounts payable 360,000 0.5

Net current assets 408,800

1,649,600
Financed by:
Capital: Yau 300,000 0.5

Pang 420,000 720,000 0.5

Current: Yau (W5) 526,880 3

Pang (W5) 402,720 929,600 3

1,649,600

(W3) Accumulated depreciation on machinery as at 30 June 2015:

$588,000 + $191,200 = $779,200

(W4) Accumulated depreciation on equipment as at 30 June 2015:

$240,000 + $84,000 = $324,000

(W5) Current accounts Yau Pang

$ $
Balance as at 1 July 2014 164,800 123,000 0.5 each

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 22
 Add Salaries 20,000 — 0.5

Interest on capital 15,000 21,000 0.5 each

Share of profit 427,080 284,720 0.5 each

626,880 428,720
Less Drawings 100,000 26,000 0.5 1

526,880 402,720 0.5 each

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 23
10.11
(a)
Chow and Sze
Income Statement for the year ended 30 June 2014
$ $ $
Sales ($1,236,500 + $8,800) 1,245,300 1

Less Cost of goods sold:

Opening inventory 419,790 0.5

Add Purchases 854,160 0.5

1,273,950
Less Closing inventory 563,400 710,550 0.5

Gross profit 534,750 0.5

Add Reduction in allowance for doubtful accounts

($4,000 − $3,200) 800 1

535,550
Less Expenses:
Carriage outwards ($12,880 − $1,000) 11,880 1

Discounts allowed 1,150 0.5

Loan interest 40,000 0.5

Office expenses ($24,160 + $960 + $5,000) 30,120 1.5

Salaries and wages ($189,170 + $2,000) 191,170 1

Bad debts 5,030 0.5

Depreciation: Buildings ($500,000 × 2%) 10,000 1

Fixtures [($110,000 − $33,000) × 10%] 7,700 297,050 1

Net profit 238,500 0.5

Add Interest on drawings:

Chow 1,800 0.5

Sze 1,200 3,000 0.5

241,500
Less Salary: Chow 8,000 0.5

Interest on capital:
Chow ($350,000 × 10%) 35,000 1

Sze ($280,000 × 10% + $1,500) 29,500 64,500 72,500 1

169,000
Balance of profit shared:
Chow (1/2) 84,500 1

Sze (1/2) 84,500 169,000 1

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 24
NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 25
(b)
Chow and Sze
Statement of Financial Position as at 30 June 2014
$ $ $
Accumulated Net book
Non-current assets Cost depreciation value
Buildings 500,000 10,000 490,000 1

Fixtures 110,000 (W1) 40,700 69,300 1.5

610,000 50,700 559,300

Current assets
Inventory 563,400 0.5

Accounts receivable ($162,430 − $10,200) 152,230 1

Less Allowance for doubtful debts 3,200 149,030 0.5

Cash at bank 6,770 0.5

719,200
Less Current liabilities:
Accounts payable 111,500 0.5

Accruals ($960 + $2,000) 2,960 114,460 0.5

Net current assets 604,740

1,164,040
Less Non-current liabilities:
Loan from Tan 400,000 0.5

764,040
Financed by:
Capital: Chow 350,000 0.5

Sze 280,000 630,000 0.5

Current: Chow (W2) 74,760 3.5

Sze (W2) 59,280 134,040 3

764,040

Workings:
(W1) $33,000 + $7,700 = $40,700

(W2) Current accounts Chow Sze

$ $
Balance as at 1 July 2013 13,060 2,980 0.5 each

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 26
 Add Salaries 8,000 — 0.5

Interest on capital 35,000 29,500 0.5 each

Share of profit 84,500 84,500 0.5 each

140,560 116,980
Less Drawings 64,000 56,500 0.5 each

Interest on drawings 1,800 1,200 0.5 each

74,760 59,280 0.5 each

(c)
Suspense
$ $
Sales (1) 8,800 Balance b/f 15,000 0.5

Carriage outwards (2) 1,000 Office expenses (3) 5,000 0.5 0.5

Accounts receivable (4) 10,200 0.5

20,000 20,000

10.12X
(a)
Leung and Ma
Income Statement for the year ended 31 December 2015
$ $
Sales 420,600 0.5

Les 0.5
Returns inwards 2,100
s
418,500
Les
Cost of goods sold:
s
Opening inventory 35,000 0.5

Add Purchases 124,000 0.5

159,000
Less Closing inventory ($38,200 – $4,400 × 50%) 36,000 123,000 1

Gross profit 295,500

Add Decrease in allowance for doubtful debts
[$1,200 – ($28,800 – $2,800) × 4%] 160 1

295,660
Les Expenses:

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 27
 s
Rent ($78,000 ÷ 13 × 12) 72,000 1

Staff salaries ($8,000 × 12) 96,000 1

Water and electricity 4,670 0.5

Carriage outwards 2,230 0.5

Overdraft interest 350 0.5

Miscellaneous expenses 1,650 0.5

Depreciation: Furniture and fixtures ($380,000 × 10%) 38,000 1

Depreciation: Office equipment [($260,000 – $44,000) × 20%] 43,200 1

Bad debts 2,800 260,900 0.5

Net profit 34,760

Add Interest on drawings:
Leung 630 0.5

Ma 1,110 1,740 0.5

36,500
Les
Interest on capital:
s
Leung ($300,000 × 3%) 9,000 1

Ma ($150,000 × 3%) 4,500 1

Salary: Leung 20,000 33,500 0.5

3,000
Balance of profit shared:
Leung (2/3) 2,000 1

Ma (1/3) 1,000 3,000 1

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 28
(b)
Leung and Ma
Statement of Financial Position as at 31 December 2015
$ $ $
Non-current assets
Furniture and fixtures 380,000 0.5

Less Accumulated depreciation ($86,000 + $38,000) 124,000 256,000 1

Office equipment 260,000 0.5

Les 1
Accumulated depreciation ($44,000 + $43,200) 87,200 172,800
s
428,800
Current assets
Inventory 36,000 0.5

Trade receivables ($28,800 – $2,800) 26,000 0.5

Les Allowance for doubtful accounts

s [($28,800 – $2,800) × 4%] 1,040 24,960 1

Prepaid expenses ($78,000 – $72,000) 6,000 0.5

Cash 1,280 68,240 0.5

497,040
Financed by:
Capital: Leung 300,000 0.5

Ma 150,000 450,000 0.5

Current: Leung (W1) 44,370 3

(49,810 2.5
Ma (W2) (5,440)
)
444,560
Current liabilities
Trade payables 32,200 0.5

Accrued expenses ($96,000 – $88,000) 8,000 0.5

Bank overdraft 12,280 52,480 0.5

497,040

Workings:
(W1)
Current: Leung

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 29
 $ $
Drawings 12,000 Balance b/f 26,000 0.5

Interest on drawings 630 Interest on capital 9,000 0.5 0.5

Balance c/f 44,370 Salary 20,000 0.5 0.5

Share of profit 2,000 0.5

57,000 57,000

(W2)
Current: Ma
$ $
Balance b/f 34,600 Interest on capital 4,500 0.5

Drawings 19,600 Share of profit 1,000 0.5 0.5

Interest on drawings 1,110 Balance c/f 49,810 0.5 0.5

55,310 55,310

$ 68,240
(c) (i) Current ratio = : 1 = 1.3 : 1 1
$ 52,480
$ 68,240−$ 36,000−$ 6,000
(ii) Acid test ratio = : 1 = 0.5 : 1 1
$ 52,480
The partnership did not have sufficient liquidity, as reflected in its current
ratio of less than 2 : 1 and its acid test ratio of less than 1 : 1. The
partnership held too much inventory, which could not be easily converted
into cash. As a result, the partnership may have difficulty paying its current
liabilities on time. 2

10.13
(a)
Chan and Fan
Income Statement for the year ended 31 March 2015
$ $
Sales ($471,000 – $500) 470,500 1

Les 0.5
Returns inwards 1,450
s
469,050
Les
Cost of goods sold:
s

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 30
 Opening inventory 14,700 0.5

110,80 0.5
Add Purchases
0
125,50
0
Less Returns outwards 1,290 0.5

124,21
0
Less Closing inventory 16,600 107,610 0.5

Gross profit 361,440

Add Discounts received 1,050 0.5

362,490
Les
Expenses:
s
Rent ($88,000 – $8,000) 80,000 1

100,20 0.5
Salaries
0
Water and electricity ($2,430 + $570) 3,000 1

Discounts allowed 870 0.5

Motor expenses 2,020 0.5

Sundry expenses 1,854 0.5

Depreciation: Office furniture and equipment

[($356,000 – $2,000) × 20%] 70,800 1

Depreciation: Delivery van [($280,000 – $100,800) × 20%] 35,840 1

Bad debts ($4,600 – $600) 4,000 1

Increase in allowance for doubtful debts

($33,600 × 6% – $1,860) 156 1

Loss on disposal of office equipment (W1) 300 299,040 1

Net profit 63,450 0.5

Add Interest on drawings:

Chan 600 0.5

Fan 540 1,140 0.5

64,590
Les
Interest on capital:
s
Chan ($100,000 × 4%) 4,000 1

Fan ($100,000 × 4%) 4,000 8,000 1

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 31
 Salary: Fan 12,000 0.5

44,590
Balance of profit shared:
Chan (1/2) 22,295 1

Fan (1/2) 22,295 44,590 1

(b)
Chan and Fan
Statement of Financial Position as at 31 March 2015
$ $ $
Non-current assets
Office furniture and equipment ($356,000 – $2,000) 354,000 1

102,40 1.5
Less Accumulated depreciation (W2) 251,600
0

Delivery vans 280,000 0.5

Les 143,36 1
Accumulated depreciation ($100,800 + $35,840) 136,640
s 0
245,76
0
Current assets
Inventory 16,600 0.5

Trade receivables 33,600 0.5

Les 2,016 1
Allowance for doubtful debts ($33,600 × 6%) 31,584
s
Bank and cash ($12,780 + $600) 13,380 61,564 1

307,32
4
Financed by:
Capital: Chan 100,000 0.5

200,00 0.5
Fan 100,000
0

Current: Chan (W3) 58,195 3

Fan (W4) 18,159 76,354 3

276,354
Current liabilities

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 32
 Trade payables 30,400 0.5

Accrued expenses 570 30,970 0.5

307,324

Workings:
(W1) $2,000 – ($2,000 × 20% × 3) – $500 = $300
(W2) $182,000 – ($2,000 × 20% × 3) + $70,800 = $251,600

(W3)
Current: Chan
$ $
Drawings ($12,000 + $8,000) 20,000 Balance b/f 52,500 1

Interest on drawings 600 Interest on capital 4,000 0.5 0.5

Balance c/f 58,195 Share of profit 22,295 0.5 0.5

78,795 78,795

(W4)
Current: Fan
$ $
Balance b/f 9,996 Interest on capital 4,000 0.5

Drawings 9,600 Share of profit 22,295 0.5 0.5

Interest on drawings 540 Salary 12,000 0.5 0.5

Balance c/f 18,159 0.5

38,295 38,295

(c) Accrual concept. This concept requires expenses be recognised when they
are incurred, not when they are paid. 2

10.14X
(a)
Suspense
$ $
Balance b/f 20,000 Appropriations: 0.5

Sales 4,000 Salary: Elle ($2,000 × 12) 24,000 0.5 1

24,000 24,000

(b)
Daisy and Elle

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 33
 Income Statement for the year ended 31 December 2015
$ $
Sales ($347,000 + $4,000) 351,000 1

Less Cost of goods sold:

Purchases ($108,900 – $3,000) 105,900 1

Less Returns outwards 2,900 0.5

103,000
Less Closing inventory 9,200 93,800 0.5

Gross profit 257,200

Less Expenses:
Salaries 107,400 0.5

Water and electricity ($1,770 + $1,050) 2,820 1

Rates 2,178 0.5

Insurance ($880 ÷ 2) 440 1

Sundry expenses 1,650 0.5

Depreciation: Office premises ($1,200,000 × 5%) 60,000 1

Depreciation: Office furniture and equipment

[($325,000 + $3,000) × 20%] 65,600 1

Allowance for doubtful debts ($27,800 × 4%) 1,112 241,200 1

Net profit 16,000

Less Interest on capital:
Daisy [($1,300,000 − $1,000,000) × 2%] 6,000 1

Elle ($200,000 × 2%) 4,000 10,000 1

Salary: Elle ($2,000 × 12) 24,000 0.5

(18,000
)
Balance of loss shared:
Daisy (3/5) (10,800) 1

(18,000 1
Elle (2/5) (7,200)
)

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 34
(c)
Daisy and Elle
Statement of Financial Position as at 31 December 2015
$ $ $
Non-current assets
Office premises 1,200,000 0.5

Less Accumulated depreciation 60,000 1,140,000 0.5

Office furniture and equipment ($325,000 + $3,000) 328,000 1

Less Accumulated depreciation 65,600 262,400 0.5

1,402,400
Current assets
Inventory 9,200 0.5

Trade receivables 27,800 0.5

Less Allowance for doubtful debts 1,112 26,688 0.5

Prepaid expenses 440 0.5

Bank and cash 46,780 83,108 0.5

1,485,508
Financed by:
Capital: Daisy 300,000 0.5

Elle 200,000 500,000 0.5

Current: Daisy (W1) (14,800) 2

Elle (W2) (11,200) (26,000) 2

474,000
Non-current liabilities
Loan from Daisy’s uncle 1,000,000 1

Current liabilities
Trade payables 10,458 0.5

Accrued expenses 1,050 11,508 0.5

1,485,508

Workings:
(W1)
Current: Daisy
$ $

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 35
 Drawings 10,000 Interest on capital 6,000 0.5 0.5

Share of loss 10,800 Balance c/f 14,800 0.5 0.5

20,800 20,800

(W2)
Current: Elle
$ $
Drawings 8,000 Interest on capital 4,000 0.5 0.5

Share of loss 7,200 Balance c/f 11,200 0.5 0.5

15,200 15,200

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 36
Past Exam Questions
10.15
(a)
Becky, Carol and Kirsty
Profit and Loss Appropriation Account for the year ended 31 December 2011
$000 $000
Net profit 5,880
Interest on drawings:
Becky [$150,000 × 12% × (12/12 + 9/12 + 6/12 + 3/12)] 45
Carol ($600,000 × 12% × /12) 4
24
Kirsty [($300,000 × 12% × 9/12) + ($400,000 × 12% × 3/12)] 39 108
5,988
Interest on fixed capital:
Becky ($1,500,000 × 16%) (240)
Carol ($600,000 × 16%) (96)
Kirsty ($450,000 × 16%) (72) (408)
Salary:
Kirsty (600)
4,980
Residual profit:
Becky [($4,980,000 × 3/6)  ($268,000 (W1) × 3/4)] 2,28
9
Carol [($4,980,000 × /6) + $268,000 (W1)]
2
1,92
8
Kirsty [($4,980,000 × /6)  ($268,000 (W1) × /4)]
1 1
763 4,980

Workings:
(W1) $000
Interest on drawings (24)
Interest on fixed capital 96
Share of residual profit (before adjustment) ($4,980,000 × 2/6) 1,660
1,732
Shortfall to be borne by Becky and Kirsty at 3 : 1 (balancing figure) 268
Guaranteed minimum net appropriation to Carol 2,000

(b)
Current Accounts

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 37
 Becky Carol Kirsty Becky Carol Kirsty
2011 $000 $000 $000 2011 $000 $000 $000
Dec 31 Drawings 600 600 700 Jan 1 Balance b/d 800 700 750
Dec 31 Interest on Dec 31 Interest on fixed
drawings 45 24 39 capital 240 96 72
Dec 31 Balance c/d 2,684 2,100 1,446 Dec 31 Salary — — 600
Dec 31 Share of residual
profit 2,289 1,928 763
3,329 2,724 2,185 3,329 2,724 2,185

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 38
10.16X
(a)
Mr Yiu and Mr Wan
Trading, Profit and Loss and Appropriation Account for the year ended 31 March 2006
$ $
Sales 827,000
Less Cost of goods sold:
Opening stock 46,000
Add Purchases 482,600
528,600
Less Closing stock 54,000 474,600
Gross profit 352,400
Less Operating expenses:
Rent ($79,800 − $1,800) 78,000
Salaries 126,000
General expenses 26,100
Increase of provision for doubtful debts 1,000
Loan interest ($20,000 × 12% × /12) 7
1,400
Depreciation: Office furniture ($202,000 × 10%) 20,200 252,700
Net profit 99,700
Add Interest on drawings: Mr Wan ($30,000 × 8%) 2,400
102,100
Less Appropriations:
Interest on capital: Mr Yiu ($35,000 × 10%) 3,500
Mr Wan ($22,000 × 10%) 2,200 5,700
Partner’s salary: Mr Wan 8,800
87,600

Share of profit: Mr Yiu ($87,600 × 3/5) 52,560

Mr Wan ($87,600 × /5) 2
35,040
87,600

(b)
Partner’s Current Accounts
Yiu Wan Yiu Wan
2006 $ $ 2006 $ $
Mar 31 Balance b/f 40,000 — Mar 31 Balance b/f — 25,000

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 39
Mar 31 Drawings — 30,000 Mar 31 Salaries — 8,800
Mar 31 Interest on Mar 31 Interest on capital 3,500 2,200
drawings — 2,400 Mar 31 Share of profit 52,560 35,040
Mar 31 Balance c/f 16,060 38,640
56,060 71,040 56,060 71,040

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 40
(c)
Mr Yiu and Mr Wan
Balance Sheet as at 31 March 2006
$ $ $
Fixed assets
Office furniture 202,000
Less Provision for depreciation ($43,730 + $20,200) 63,930
138,070
Current assets
Stock 54,000
Trade debtors 66,200
Less Provision for doubtful debts ($5,630 + $1,000) 6,630 59,570
Prepayment 1,800
115,370
Less Current liabilities:
Trade creditors 71,740
Accrual 1,400
Bank overdraft 48,600 121,740
Net current liabilities (6,370)
131,700
Less Long-term liabilities:
Loan from Mr Yiu 20,000
111,700
Financed by:
Capital accounts
Mr Yiu 35,000
Mr Wan 22,000
57,000
Current accounts
Mr Yiu 16,060
Mr Wan 38,640 54,700
111,700

(d) A partnership agreement would include the following items:

(i) the partnership’s name and nature of business
(ii) the amount of capital each partner should contribute
(iii) whether interest on capital should be allowed

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 41
 (iv) whether interest on drawings should be charged
(v) the amount of partner’s salaries
(vi) how the partnership’s profit and loss should be shared
(Any two points)

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 42
10.17X
(a)
The Partnership of Maggie and Sammy
Statement of Comprehensive Income for the year ended 31 March 2010
$000 $000
Sales 14,860
Cost of sales
Inventory, at 1 April 2009 500
Purchases 6,500
Inventory, at 31 March 2010 (400) 6,600
Gross profit 8,260
Administrative expenses
Depreciation — Property, plant and equipment
[($1,140,000  $600,000) × 30%] 162
Electricity 900
General expenses ($360,000 + $15,000) 375
Insurance expenses ($120,000  $25,000) 95
Office expenses 1,480
Rent and rates ($1,360,000 + $320,000  $32,000) 1,648
Salaries ($1,300,000 + $60,000) 1,360
Telephone 640 6,660
Net profit c/f 1,600

The Partnership of Maggie and Sammy

Appropriation Account for the year ended 31 March 2010
$000 $000
Net profit b/f 1,600
Add Interest of drawings:
Maggie ($300,000 × 10%) 30
Sammy ($1,500,000 × 10%) 150 180
Less Interest on capital:
Maggie ($3,000,000 × 5%) (150)
Sammy ($1,500,000 × 5%) (75) (225)
Salary:
Maggie (200)
Sammy (290) (490)
1,065

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 43
 Share of remaining profit:
Maggie (3/5) 639
Sammy (2/5) 426 1,065

(b)
Current Accounts
Maggie Sammy Maggie Sammy
$000 $000 $000 $000
Balance b/d — 200 Balance b/d 240 —
Drawings 300 1,500 Interest on capital 150 75
Interest on drawings 30 150 Salary 200 290
Balance c/d 899 — Share of profit 639 426
Balance c/d — 1,059
1,229 1,850 1,229 1,850

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 44
(c)
The Partnership of Maggie and Sammy
Statement of Financial Position as at 31 March 2010
$000 $000
Non-current assets
Property, plant and equipment ($1,140,000  $600,000  $162,000) 378

Current assets
Inventories 400
Trade receivables 3,620
Prepayments ($25,000 + $32,000) 57
Cash and bank 1,080
5,157
Total assets 5,535

Equity and liabilities

Capital accounts:
Maggie 3,000
Sammy 1,500 4,500

Current accounts:
Maggie 899
Sammy (1,059)
(160)
Total equity 4,340

Current liabilities
Trade payables 800
Accrued expenses ($60,000 + $15,000 + $320,000) 395
Total liabilities 1,195
Total equity and liabilities 5,535

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 45
10.19
(a)
John and Kelly
Trading, Profit and Loss and Appropriation Account for the year ended 31 December 2010
$ $
Sales 3,577,000
Less Returns inwards (26,500)
3,550,500
Less Cost of goods sold:
Opening inventories 283,500
Purchases 2,706,100
Carriage inwards 24,000
3,013,600
Less Ending inventories (325,000) (2,688,600)
Gross profit 861,900
Add Discounts received 21,500
883,400
Less Operating expenses:
Rent 255,000
Wages and salaries ($224,000 + $36,000) 260,000
Allowance for impairment loss on trade receivables
($35,760  $28,380) 7,380
Utilities expenses 43,000
Sundry expenses 3,000
Bad debts 21,000
Motor expenses 57,000
Stationery ($4,500 + $2,500) 7,000
Discounts allowed 31,000
Loan interest ($100,000  11%) 11,000
Depreciation: Motor vehicles [($200,000  $90,000)  25%] 27,500
Depreciation: Plant and machinery ($370,000  10%) 37,000 (759,880)
Net profit 123,520
Appropriations:
Add Interest on drawings:
John ($120,000  4%) 4,800
Kelly ($330,000  4%) 13,200 18,000
141,520

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 46
 Less Interest on capital:
John ($530,000  2%) 10,600
Kelly ($540,000  2%) 10,800 (21,400)
Partner’ s salary: Kelly ($10,000  12) (120,000)
120
Share of profit:
John (3/5) 72
Kelly (2/5) 48
120

(b)
Current Accounts
John Kelly John Kelly
2010 $ $ 2010 $ $
Jan 1 Balance b/f 150,000 — Jan 1 Balance b/f — 139,500
Dec 31 Drawings 120,000 330,000 Dec 31 Interest on capital 10,600 10,800
Dec 31 Interest on Dec 31 Partner’s salary — 120,000
drawings 4,800 13,200 Dec 31 Share of profit 72 48
Dec 31 Bank 264,128 72,852
274,800 343,200 274,800 343,200

NSS BAFS: Frank Wood’s Financial Accounting 2 © Pearson Education Asia Limited 2016
Teacher’s Manual 2nd Edition (Revised) 47