Dum and Sor were in partnership as retail traders sharing profits and losses: Dum three quarters (3∕4) and Sor one quarter (1∕4). The partners were credited annually with interest at the rate of 6% per annum on their fixed capitals, no interest was charged on their drawings.
Sor was responsible for the buying department of the business. Dum managed the head office and Sor was employed as the branch manager. Dum and Sor were each entitled to a commission of 10% of the net profits (after charging such commission) of the shop managed by him.
All goods were purchased by head office and goods sent to the branch were invoiced at cost.
The following was the trial balance as at 31st December 2014.
You are given the following additional information:
i) Inventory on 31st December 2014 amounted to :
Head office GH¢14,440
Branch GH¢ 6,570
ii) Administrative expenses are to be apportioned between head office and the branch in proportion to sales.
iii) Depreciation is to be provided on furniture and fittings at 10% of cost.
iv) The provision for bad & doubtful doubts is to be increased by GH¢50 in respect of head office receivables and decreased by GH¢20 in the case of those of the branch.
v) On 31st December 2014 cash amounting to GH¢2,400 in transit from the branch to head office, had been recorded in the branch books but not in those of head office, and on that date goods invoiced at GH¢800, in transit from head office to the branch, had been recorded in the head office books but not in the branch books. Any adjustments necessary are to be made in the head office books
Required:
a) Prepare the statement of profit or loss and the appropriation account for the year ended 31st December 2014, showing the net profit of the head office and branch respectively. (6 marks)
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b) Prepare the statement of financial position as on that date. (6 marks)
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c) Prepare the current accounts for Head office and the branch. (3 marks)
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