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Prepare Current Accounts in columnar form for Hove and Midzi on 31 December 2020. Draw up a Statement of Financial Position as at 31 December 2020.

Accounting

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Part a· 4 steps

Prepare Current Accounts in columnar form for Hove and Midzi on 31 December 2020.

  1. Identify opening balances and transactions affecting current accounts.

    • Opening balances (1 Jan 2020): Hove $5,000 Cr, Midzi $1,900 Dr.
    • Interest on capital: Hove $8,000 (Cr), Midzi $8,000 (Cr).
    • Interest on current account: Hove $250 (Cr).
    • Salary: Hove $10,000 (Cr).
    • Share of profits: Hove $10,300 (Cr), Midzi $10,300 (Cr).
    • Drawings: Hove $3,600 (Dr), Midzi $3,900 (Dr).
    • Interest on drawings: Hove $180 (Dr), Midzi $75 (Dr).
    • Interest on current account (charged): Midzi $95 (Dr) (as it's listed under "add Interest on drawings" in the appropriation account).
    • Salary paid to Hove $4,000: This is a cash payment to Hove and reduces his current account balance (Dr).

  2. Calculate the closing balance for Hove's Current Account.

    Hove’s Current Account (Cr)=Opening Balance+Interest on Capital+Interest on Current Account+Salary+Share of Profits=$5,000+$8,000+$250+$10,000+$10,300=$33,550Hove’s Current Account (Dr)=Drawings+Interest on Drawings+Salary Paid=$3,600+$180+$4,000=$7,780Closing Balance (Cr)=$33,550−$7,780=$25,770\begin{align*} \text{Hove's Current Account (Cr)} &= \text{Opening Balance} + \text{Interest on Capital} + \text{Interest on Current Account} + \text{Salary} + \text{Share of Profits} \\ &= \$5,000 + \$8,000 + \$250 + \$10,000 + \$10,300 \\ &= \$33,550 \\ \\ \text{Hove's Current Account (Dr)} &= \text{Drawings} + \text{Interest on Drawings} + \text{Salary Paid} \\ &= \$3,600 + \$180 + \$4,000 \\ &= \$7,780 \\ \\ \text{Closing Balance (Cr)} &= \$33,550 - \$7,780 \\ &= \$25,770 \end{align*}

  3. Calculate the closing balance for Midzi's Current Account.

    Midzi’s Current Account (Cr)=Interest on Capital+Share of Profits=$8,000+$10,300=$18,300Midzi’s Current Account (Dr)=Opening Balance+Drawings+Interest on Drawings+Interest on Current Account (charged)=$1,900+$3,900+$75+$95=$5,970Closing Balance (Cr)=$18,300−$5,970=$12,330\begin{align*} \text{Midzi's Current Account (Cr)} &= \text{Interest on Capital} + \text{Share of Profits} \\ &= \$8,000 + \$10,300 \\ &= \$18,300 \\ \\ \text{Midzi's Current Account (Dr)} &= \text{Opening Balance} + \text{Drawings} + \text{Interest on Drawings} + \text{Interest on Current Account (charged)} \\ &= \$1,900 + \$3,900 + \$75 + \$95 \\ &= \$5,970 \\ \\ \text{Closing Balance (Cr)} &= \$18,300 - \$5,970 \\ &= \$12,330 \end{align*}

  4. Prepare the Current Accounts in columnar form.

    ParticularsHove ($)Midzi ($)ParticularsHove ($)Midzi ($)Balance b/d1,900Balance b/d5,000Drawings3,6003,900Interest on capital8,0008,000Interest on drawings18075Interest on current account250Interest on current account95Salary10,000Salary paid4,000Share of profits10,30010,300Balance c/d12,330Balance c/d25,770Total33,55018,300Total33,55018,300\begin{array}{|l|r|r|l|r|r|} \hline \textbf{Particulars} & \textbf{Hove (\$)} & \textbf{Midzi (\$)} & \textbf{Particulars} & \textbf{Hove (\$)} & \textbf{Midzi (\$)} \\ \hline \text{Balance b/d} & & 1,900 & \text{Balance b/d} & 5,000 & \\ \text{Drawings} & 3,600 & 3,900 & \text{Interest on capital} & 8,000 & 8,000 \\ \text{Interest on drawings} & 180 & 75 & \text{Interest on current account} & 250 & \\ \text{Interest on current account} & & 95 & \text{Salary} & 10,000 & \\ \text{Salary paid} & 4,000 & & \text{Share of profits} & 10,300 & 10,300 \\ \text{Balance c/d} & & 12,330 & & & \\ \text{Balance c/d} & 25,770 & & & & \\ \hline \textbf{Total} & \textbf{33,550} & \textbf{18,300} & \textbf{Total} & \textbf{33,550} & \textbf{18,300} \\ \hline \end{array}

    The final balances are: Hove Current Account: \boxed{\textbf{\25,770 Cr}},MidziCurrentAccount:, Midzi Current Account: \boxed{\textbf{$12,330 Cr}}$.

Part b· 5 steps

Draw up a Statement of Financial Position as at 31 December 2020.

  1. Calculate Total Non-current Assets.

    Motor van=$134,000Furniture and Fittings=$25,000Total Non-current Assets=$134,000+$25,000=$159,000\begin{align*} \text{Motor van} &= \$134,000 \\ \text{Furniture and Fittings} &= \$25,000 \\ \text{Total Non-current Assets} &= \$134,000 + \$25,000 \\ &= \boxed{\$159,000} \end{align*}

  2. Calculate Total Current Assets.

    Trade receivables=$36,900Bank=$4,425Cash=$455Insurance prepaid=$540Inventory=$12,000Total Current Assets=$36,900+$4,425+$455+$540+$12,000=$54,320\begin{align*} \text{Trade receivables} &= \$36,900 \\ \text{Bank} &= \$4,425 \\ \text{Cash} &= \$455 \\ \text{Insurance prepaid} &= \$540 \\ \text{Inventory} &= \$12,000 \\ \text{Total Current Assets} &= \$36,900 + \$4,425 + \$455 + \$540 + \$12,000 \\ &= \boxed{\$54,320} \end{align*}

  3. Calculate Total Equity.

    Capital Accounts:Hove=$80,000Midzi=$80,000Total Capital=$160,000Current Accounts:Hove=$25,770 (Cr)Midzi=$12,330 (Cr)Total Current Accounts=$25,770+$12,330=$38,100Total Equity=$160,000+$38,100=$198,100\begin{align*} \text{Capital Accounts:} \\ \text{Hove} &= \$80,000 \\ \text{Midzi} &= \$80,000 \\ \text{Total Capital} &= \$160,000 \\ \\ \text{Current Accounts:} \\ \text{Hove} &= \$25,770 \text{ (Cr)} \\ \text{Midzi} &= \$12,330 \text{ (Cr)} \\ \text{Total Current Accounts} &= \$25,770 + \$12,330 \\ &= \$38,100 \\ \\ \text{Total Equity} &= \$160,000 + \$38,100 \\ &= \boxed{\$198,100} \end{align*}

  4. Calculate Total Current Liabilities.

    Trade payables=$14,500Rent owing=$720Total Current Liabilities=$14,500+$720=$15,220\begin{align*} \text{Trade payables} &= \$14,500 \\ \text{Rent owing} &= \$720 \\ \text{Total Current Liabilities} &= \$14,500 + \$720 \\ &= \boxed{\$15,220} \end{align*}

  5. Prepare the Statement of Financial Position.

    Statement of Financial Position as at 31 December 2020$Non-current AssetsMotor van134,000Furniture and Fittings25,000Total Non-current Assets159,000Current AssetsInventory12,000Trade receivables36,900Insurance prepaid540Bank4,425Cash455Total Current Assets54,320Total Assets213,320Equity and LiabilitiesEquityCapital Accounts:Hove80,000Midzi80,000160,000Current Accounts:Hove25,770Midzi12,33038,100Total Equity198,100Current LiabilitiesTrade payables14,500Rent owing720Total Current Liabilities15,220Total Equity and Liabilities213,320\begin{array}{lrr} \textbf{Statement of Financial Position as at 31 December 2020} & & \textbf{\$} \\ \hline \textbf{Non-current Assets} & & \\ \text{Motor van} & 134,000 & \\ \text{Furniture and Fittings} & 25,000 & \\ \quad \text{Total Non-current Assets} & & 159,000 \\ & & \\ \textbf{Current Assets} & & \\ \text{Inventory} & 12,000 & \\ \text{Trade receivables} & 36,900 & \\ \text{Insurance prepaid} & 540 & \\ \text{Bank} & 4,425 & \\ \text{Cash} & 455 & \\ \quad \text{Total Current Assets} & & 54,320 \\ & & \\ \textbf{Total Assets} & & \boxed{\textbf{213,320}} \\ & & \\ \textbf{Equity and Liabilities} & & \\ \textbf{Equity} & & \\ \text{Capital Accounts:} & & \\ \quad \text{Hove} & 80,000 & \\ \quad \text{Midzi} & 80,000 & 160,000 \\ \text{Current Accounts:} & & \\ \quad \text{Hove} & 25,770 & \\ \quad \text{Midzi} & 12,330 & 38,100 \\ \quad \text{Total Equity} & & 198,100 \\ & & \\ \textbf{Current Liabilities} & & \\ \text{Trade payables} & 14,500 & \\ \text{Rent owing} & 720 & \\ \quad \text{Total Current Liabilities} & & 15,220 \\ & & \\ \textbf{Total Equity and Liabilities} & & \boxed{\textbf{213,320}} \\ \hline \end{array}
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