Kamau and Kimani are partners sharing profits and losses in the ratio 3:2 respectively. The partnership agreement provides for Kimani to receive a salary of Sh.4,000,000...

Kamau and Kimani are partners sharing profits and losses in the ratio 3:2 respectively. The
partnership agreement provides for Kimani to receive a salary of Sh.4,000,000 per annum, and
interest on capitals for both partners at 5% per annum. The partnership balance sheet as at 31
December 1998 was as follows:

On I April 1999 Kimata was admitted to the partnership. He had been a salaried employee,
earning Sh.8, 000,000 per annum. The terms of his admission to the partnership were as
follows:
1. Kimata should introduce Sh. 12,000,000 in cash as capital into the business.
2. Goodwill should be valued at Sh.14, 000,000 for the purpose of his admission. It was
agreed that goodwill should not be included in the balance sheet of the new partnership.
3. Kimata should receive a salary as a partner of Sh.6 , 000,000 per annum.
Kimani's salary should be raised to Sh.6, 000,000.
4. Interest on capital should be raised from 5% to 6% per annum and calculated on the
capital accounts after the elimination of goodwill.
5. The new profit sharing ratio for Kamau, Kimani and Kimata should be 4:2:1
respectively.
In preparing the draft financial statements for the year ended 31 December 1999, the
partnership accountant, Otieno, calculated that the partnerships profit for the year was Sh.55,
155,000, and that the working capital of the business as at 31 December 1999 was:

Profit is assumed to accrue evenly during the year.
Partners cash drawings for the year were Kamau Sh.23,705,000, Kimani Sh.19,525,000 and
Kimata Sh.8,250,000.
Required:
(a) The profit and loss appropriation account for the year ended 3 1 December 1999.
(b) The current and capital accounts of the partners for the year ended 31 December
1999.
(c) Balance Sheet as at 31 December 1999.

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Mutiso answered the question on November 16, 2018 at 04:44

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