Ashaiman and Nima are in partnership sharing profits and losses 2:1. They had originally invested TZS 50,000 and TZS 40,000, respectively. Their current account balances on 1 November 2016 were TZS 14,000 credit for Ashaiman and TZS 9,900 debit for Nima.
The partnership agreement specifies the following:
- The payment of interest on drawings and receipt of interest on capital at the rate of 5% per annum and 3% per annum, respectively.
- The partners take drawings in the same proportion as they share profits or losses. Ashaiman takes drawings of TZS 2,400 a month with Nima taking the amount of drawings as allowed by the partnership rules.
- Nima is entitled to take a salary of TZS 2,000 a month.
- The interest on drawings is calculated as if the drawings for the six month period had been taken in full on the first day of the period.
On 1 May 2017, Ashaiman decides to retire. Both partners agree to have the partnership valued and bring in the resultant goodwill into the partnership. Ashaiman agrees to leave TZS 30,000 of his capital as a loan to the business earning interest at the rate of 4% per annum and to withdraw the balance of what is owing to him. An independent expert values the goodwill on 1 May 2017 at TZS 90,000.
On 1 May 2017, Nima decides to enter into a new partnership with Asawasi where they share profits or losses 3:1. They decided to keep the same interest rates from the previous partnership agreement in relation to drawings and capital. Nima’s salary was changed to TZS 2,200 a month from this period to the year-end, Nima took drawings of TZS 10,000 and Asawasi took drawings of TZS 5,000. Asawasi introduced capital of TZS 25,000 on his admission to the partnership. The goodwill was cancelled in the same proportion as they share profits or losses.
The profits for the year amounted to TZS 108,000 and these profits accrued evenly throughout the year.
For the year ended 31 October 2017:
i) Prepare the Profit & loss Appropriation Accounts.
ii) Prepare the Current Account of all the individual partners.