Proudie, Slope and Thorne were in partnership sharing profits and losses in the ratio 3 : 1 :

1. The draft balance sheet of the partnership as at 31 May 2019 is shown below:

Additional information:
1 Proudie decided to retire on 31 May 2019. However, Slope and Thorne agreed to form a new partnership out of the old one, as from 1 June 2019. They agreed to share profits and losses in the same ratio as in the old partnership.
2 Upon the dissolution of the old partnership, it was agreed that the following adjustments were to be made to the partnership balance sheet as at 31 May 2019.

(a) Land and buildings were to be revalued at £200,000.

(b) Furniture was to be revalued at £5,000.

(c) Proudie agreed to take over one of the motor vehicles at a value of £4,000, the remaining motor vehicles being revalued at £10,000.

(d) Inventory was to be written down by £5,000.

(e) A bad debt of £2,000 was to be written off, and the allowance for doubtful debts was then to be adjusted so that it represented 5% of the then outstanding trade receivables as at 31 May 2019.

(f) A further accrual of £3,000 for office expenses was to be made.
(g) Professional charges relating to the dissolution were estimated to be £1,000.

3 It has not been the practice of the partners to carry goodwill in the books of the partnership, but on the retirement of a partner it had been agreed that goodwill should be taken into account.
Goodwill was to be valued at an amount equal to the average annual profits of the three years expiring on the retirement. For the purpose of including goodwill in the dissolution arrangement when Proudie retired, the net profits for the last three years were as follows:

The net profit for the year to 31 May 2019 had been calculated before any of the items listed in 2 above were taken into account. The net profit was only to be adjusted for items listed in 2(d), 2

(e) and 2

(f) above.
4 Goodwill is not to be carried in the books of the new partnership.
5 It was agreed that Proudie’s old loan of £8,000 should be repaid to him on 31 May 2019, but any further amount owing to him as a result of the dissolution of the partnership should be left as a long-term loan in the books of the new partnership.
6 The partners’ current accounts were to be closed and any balances on them as at 31 May 2019 were to be transferred to their respective capital accounts.
Required:

(a) Prepare the revaluation account as at 31 May 2019.

(b) Prepare the partners’ capital accounts as at the date of dissolution of the partnership and bring down any balances on them in the books of the new partnership.

(c) Prepare Slope and Thorne’s balance sheet as at 1 June 2019.

Transcribed Image Text:

Non-current assets Land and buildings Furniture Motor vehicles Current assets Inventory Trade receivables Less Allowance for doubtful debts Prepayments Cash Total assets Current liabilities Trade payables Accruals Non-current liabilities Loan - Proudie Total liabilities Net assets Capital accounts Proudie Slope Thorne Current accounts Proudie Slope Thorne Total capital 000 Cost 200 30 60 290 42 (1) 15 3 | 000 Depreciation 40 18 40 98 23 41 2 10 18 co 100 60 40 24 10 8 000 160 12 20 192 76 268 (26) 242 200 42 242