Farah and Salma are sisters operating as a partnership. Their partnership agreement states:
interest on capital of 2% per annum
interest on drawings of 4% per annum
a salary to Farah of $11 200 per annum
residual profits and losses to be shared as Farah 30%, Salma 70%.
Farah and Salma gave the following information.
Profit for the year ended 28 February 2025 $38 175
Capital accounts at 1 March 2024: Farah $52 000, Salma $75 000
Current accounts at 1 March 2024: Farah $3450 credit, Salma $1900 debit
Drawings for the year ended 28 February 2025: Farah drawn from bank on 31 December 2024 $14 250; Salma drawn from bank on 31 December 2024 $14 250; Salma goods taken for own use 31 August 2024 $5750
(a)[6]
Prepare the appropriation account for Farah and Salma for the year ended 28 February 2025.
(b)[7]
Prepare Farah’s current account for the year ended 28 February 2025. Balance the account and carry the balance down at 1 March 2025.
(c)[2]
State two reasons why Salma should not take any more drawings.
(d)[5]
Advise Farah and Salma whether they should make the changes above or not. Justify your answer with advantages and disadvantages to them of making these changes.
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