Proudie, Slope and Thorne were in partnership sharing profits and losses in the ratio 3:1:1. The draft statement of financial position of the partnership as at 31 May 20X9 is shown below:

	$	$	$
Non-Current Assets	Cost	Dep.	NBV
Land and buildings	200000	40000	160000
Furniture	30000	18000	12000
Motor vehicles	60000	40000	20000
	290000	98000	192000
Current Assets
Stocks		23000
Debtors	42000
Less: Provision for doubtful debts	1000	41000
Prepayments		2000
Cash		10000
		76000
Less: Current Liabilities
Creditors	15000
Accruals	3000	18000	58000
Total Net Assets			250000
Financed by:
Capital: Proudie		100000
Slope		60000
Thorne		40000	200000
Current Account: Proudie		24000
Slope		10000
Thorne		8000	42000
Loan: Proudie			8000
Net Worth			250000

Additional information:

1. Proudie decided to retire on 31 May 20X9. However, Slope and Thorne agreed to form a new partnership out of the old one, as from 1 June 20X9. 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 statement of financial position as at 31 May 20X9.

1. Lands and buildings were to be revalued at $ 200000.
2. Furniture was to be revalued at $ 5000.
3. Proudie agreed to take over one of the motor vehicles at a value of $ 4000, the remaining motor vehicles being revalued at $ 10000.
4. Stocks were to be written down by $ 5000.
5. A bad debt of $ 2000 was to be written off, and the provision for doubtful debt was then to be adjusted so that it represented 5% of the then outstanding trade debtors as at 31 May 20X9.
6. A further accrual of $ 3000 for office expenses was to be made.
7. Professional charges relating to the dissolution were estimated to be $1000.

1. 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:

	$
Year to 31 May 20X7	130000
Year to 31 May 20X8	150000
Year to 31 May 20X9	181000

The net profit for the year to 31 May 20X9 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(f) and 2(f) above.

1. Goodwill is not to be carried in the books of the new partnership.
2. It was agreed that Proudie’s old loan of $ 8000 should be repaid to him on 31 May 20X9, 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.
3. The partners’ current accounts were to be closed and any balances on them as at 31 May 20X9 were to be transferred to their respective capital accounts.

Required:

1. Prepare the revaluation account as at 31 May 20X9.
2. 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.
3. Prepare Slope and Thorne’s statement of financial position as at 1 June 20X9.

Answer rating: 100% (QA)

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