Designs Services is a partnership with Adam and Max as partners. The partnership has been operating successfully for a number of years now. The partners have a written partnership agreement. The following information was extracted from the accounting records of Adax.
Design Services for the financial year ended 28 February 2021:
Balances in the ledger as at 28 February 2021
R
Land and buildings at cost 835 000
Accumulated depreciation: buildings (65 000)
Equipment at carrying amount 270 000
Debtors 103 000
Capital- Andile 400 000
Capital- Sipho 300 000
Current account- Andile Credit balance (1 March 2020) 40 000
Current account -Sipho - Debit balance (1 March 2020 20 000
Drawings - Andile: General 130 000
Drawings - Sipho: General 102 000
Net profit for the year ended 28 February 2021 800 000
The following must still be taken into account:
The partnership agreement makes provision for the following:
- Interest on capital must be provided at 12% per year on the balances in the capital accounts for the period 1 March 2020 to 31 August 2020. The interest rate increases to 15% per year for the remainder of the year ie 1 September 2020 to 28 February 2021. The capital accounts remained unchanged.
- Interest on current accounts must be provided at 12% per year on the opening balances of the current accounts.
The partners are entitled to the following monthly salaries:
- Andile R18 000 per month for a full year.
- Sipho R20 000 per year for the full year.
- Andile and Sipho withdrew 50% of their monthly salaries in cash as drawings. These amounts are not included in the drawings account shown above.
- Sipho is entitled to a special bonus equal to 2,5% of the net profit for the year.
- Andile and Sipho share profits and losses in the ratio of 3:2 respectively.
Required:
Problem 1: Use the information provided above to prepare the statement of changes in equity (current accounts only) for the year ended 28 February 2021.