Gaaba and Hapuru contribute ₦700,000 and ₦400,000 respectively to commence a partnership business in April 2018. Based on the partnership agreement, the profits or losses of the business are to be shared equally. The accounting records are to be prepared to 31 March every year.
Based on the partnership agreement, Gaaba and Hapuru are entitled to monthly salaries of ₦10,000 each.
Required: How should the salaries be treated in the accounting records of the partnership?
A suggested solution to practice activity 11.7
Calculation of salaries
Salaries paid to Gaaba for the year ended 31 March 2019
= ₦10,000 x 12 months = ₦120,000
Salaries paid to Hapuru for the year ended 31 March 2019
= ₦10,000 x 12 months = ₦120,000
Total salaries for the year ended 31 March 2019 is ₦240,000.
The salaries should be deducted from the revenue generated by the partnership before sharing the profits between the partners.
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