Question: On 1st January, 1961, Black, White and Brown were in partnership and, at that date, their capital accounts showed credit balances of £5,000, £4,000 and £1,000 respectively. The partnership agreement provided that interest at the rate of 5 per cent per annum should be allowed on capital but no interest charged on drawings; that White should be credited with a salary of £1,200 per annum and Brown with a salary of £840 per annum before division of profits; that of the first £2,000 of net divisible profit. Black should take 50 per cent. White should take 30 per cent and Brown 20 per cent, and that any profit in excess of £2,000 should be divided equally.
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Before making any adjustments required by the agreement, the profit for the year ending 31st December, 1961, amounted to £5,440 and, during the year, each partner had drawn £100 per month. Prepare the Profit and Loss Appropriation Account and the partners; Current Accounts for the year ending 31st December, 1961.