FAC 1601 About Financial Accounting Vol 2 .

FAC 1601 About Financial Accounting Vol 2 . Example 2.1 Specialised ledger accounts used when recording transactions between the partners and the partnership On 21 February 20.5, A Apple and P Pie decided to form a partnership trading as Applepie Furniture and Fittings. The partnership will commence trading on 1 March 20.5 and both partners will be actively involved in the partnership. Apple and Pie accordingly drew up the partnership agreement stipulating the following: 1. Apple will contribute R100 000 in cash towards the capital of the business. Pie will contribute R40 000 in cash, a delivery vehicle with a fair market value of R60 000 and office equipment worth R50 000. 2. Each partner will receive a monthly salary of R5 000. 3. Interest on relevant accounts at year-end will be charged as follows: – 10% per annum on the opening balance of the capital accounts; – 12% per annum on the opening balance of the current accounts; and – no interest will be charged on drawings. 58 About Financial Accounting: Volume 2 Interest, with regard to the above, must be capitalised against the current accounts of the partners. On 1 March 20.5, the partners deposited their respective cash capital contributions, recorded the non-cash contributions towards capital and commenced trading. The business uses a periodic inventory system. The following is a summary of the transactions which Applepie Furniture and Fittings entered into during the financial year ended 28 February 20.6. (For purposes of this example, a summary of the transaction data during the year is provided and dates are therefore omitted.) 1. Cash withdrawn for salaries: A Apple, R45 000 P Pie, R45 000 2. Drawings of merchandise: A Apple, R4 000 P Pie, R6 000 3. Cash purchases of merchandise, R110 000 4. Cash sales of merchandise, R400 000 5. Salaries paid to sales personnel, R60 000 6. Rent paid, R36 000 7. Other operating expenses paid in cash, R40 000 8. On 1 September 20.5, A Apple granted a loan of R20 000 to the partnership. The terms of the loan state that interest on the loan will be calculated at 14% per annum payable in March of each year and the loan will be repaid in full on 31 December 20.9. The loan was used to finance the purchase of additional office equipment on 1 September 20.5. 9. Depreciation must be provided as follows: Office equipment at 10% per annum, according to the straight line method; and Vehicles at 20% per annum, according to the diminishing balance method. 10. On 28 February 20.6, the closing inventory amounted to R15 000. Required: (a) Record all the above transactions, including all adjustments and closing transactions, in the general journal of Applepie Furniture and Fittings for the year ended 28 February 20.6. (b) Post the general journal to the following accounts in the general ledger of the partnership: l Capital accounts, current accounts and drawings accounts of the partners; l Bank; l Interest on capital; l Salary: A Apple; l Salary: P Pie; Chapter 2: Establishment and financial statements of a partnership 59 l Trading account; l Profit or loss account; and l Appropriation account. All ledger accounts must be balanced/closed off on 28 February 20.6. Folio references are not required and dates in the general journal and ledger accounts can be ignored. Solution: (a) Applepie Furniture and Fittings General journal Debit Credit R R Bank (R100 000 + R40 000) 140 000 Capital: A Apple 100 000 Capital: P Pie 40 000 Cash capital contributions deposited Vehicles 60 000 Office equipment 50 000 Capital: P Pie 110 000 Recording of non-cash capital contributions Drawings: A Apple 45 000 Drawings: P Pie 45 000 Bank 90 000 Cash withdrawal of salaries by partners Drawings: A Apple 4 000 Drawings: P Pie 6 000 Purchases 10 000 Merchandise withdrawn by partners Purchases 110 000 Bank 110 000 Recording of cash purchases Bank 400 000 Sales 400 000 Recording of cash sales Salaries 60 000 Bank 60 000 Recording of salaries paid to employees Rental expenses 36 000 Bank 36 000 Recording of rent paid Sundry operating expenses 40 000 Bank 40 000 Recording of operating expenses paid continued 60 About Financial Accounting: Volume 2 Debit Credit R R Bank 20 000 Long-term loan: A Apple 20 000 Loan acquired from A Apple Office equipment 20 000 Bank 20 000 New office equipment purchased for cash Interest on long-term loan: A Apple (R20 000 × 14% × 6/12) 1 400 Interest payable 1 400 Recording of interest payable on long-term loan Depreciation 18 000 Accumulated depreciation: Office equipment 6 000 Accumulated depreciation: Vehicles 12 000 Provision for depreciation: Office equipment at 10% per annum according to the straight-line method and vehicles at 20% per annum according to the diminishing-balance method Salary: A Apple 60 000 Salary: P Pie 60 000 Current account: A Apple 60 000 Current account: P Pie 60 000 Recording of salaries payable to partners Interest on capital  25 000 Current account: A Apple 10 000 Current account: P Pie 15 000 Recording of interest on capital Trading account 100 000 Purchases (R110 000 – R10 000) 100 000 Closing transfer Sales 400 000 Inventory 15 000 Trading account 415 000 Closing transfer Trading account (R415 000 – R100 000) 315 000 Profit or loss account 315 000 Closing transfer of gross profit Profit or loss account 155 400 Salaries 60 000 Rental expenses 36 000 Sundry operating expenses 40 000 Depreciation 18 000 Interest on long-term loan: A Apple 1 400 Transfer of expenses to profit or loss account continued .