Day: April 16, 2020

Jack and Diane, the only two partners in a firm, invested capital of £20,000 and £30,000 respectively and agreed their entitlements to be:

• Jack = Annual salary £18,000; Interest on capital (per annum) 10%; Share of remaining profit or loss 40%
• Diane = Annual salary £22,000; Interest on capital (per annum) 10%; Share of remaining profit or loss 60%

If the profit for the year was £40,000, what share would be debited / credited to Diane’s current account?

Select ONE answer:

1. Nil
2. £3,000 Debit
3. £22,000 Credit
4. £24,000 Credit

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Not correct
2. Correct
   – Profit for the year: £40,000
   – Jack & Diane
   – Salary: £ 18,000 & £22,000 = £40,000
   – Interest on capital (10%): £2,000 & 3,000 = £5,000
   – Loss to be shared: -£5,000
   – Share of loss (40% : 60%) -£2,000 & -£3,000 = £5,000
3. Not correct
4. Not correct

 

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