Hawthorn and Privet have carried on business in partnership for a number of years, sharing profits in the ratio of 4 : 3 after charging interest on capital at 4 per cent per annum. Holly was admitted into the partnership on 1 October 20X2, and the terms of the partnership from then were agreed as follows: 1. Partners' annual salaries

Hawthorn and Privet have carried on business in partnership for a number of years, sharing profits in the ratio of 4 : 3 after charging interest on capital at 4 per cent per annum. Holly was admitted into the partnership on 1 October 20X2, and the terms of the partnership from then were agreed as follows:

1. Partners' annual salaries to be: Hawthorn £1,800, Privet £1,200, Holly £1,100.

2. Interest on capital to be charged at 4 per cent per annum.

3. Profits to be shared: Hawthorn four-ninths, Privet three-ninths, Holly two ninths. On 1 October 20X2 Holly paid £7,000 into the partnership bank and of this amount £2,100 was in respect of the share of goodwill acquired by her. Since the partnership has never created, and does not intend to create, a goodwill account, the full amount of £7,000 was credited for the time being to Holly's capital account at 1 October 20X2.

The trial balance of the partnership at 30 June 20X3 was as follows:

Hawthorn and Privet have carried on business in partnership for

After taking into account the following information and the adjustment required for goodwill, prepare a statement of profit and loss for the year ended 30 June 20X3 and a statement of financial position as on that date. On 30 June 20X3:
1. Inventory was £15,000.
2. Rates (£110) and wages and salaries (£300) were outstanding.
3. Telephone rental paid in advance was £9.
4. Provision for bad debts is to be adjusted to 2.5 per cent of trade receivables.
5. Depreciation is to be provided on furniture, fixtures and fittings at 10 per cent.
Apportionments required are to be made on a time basis.

Goodwill
Goodwill is an important concept and terminology in accounting which means good reputation. The word goodwill is used at various places in accounting but it is recognized only at the time of a business combination. There are generally two types of...
Partnership
A legal form of business operation between two or more individuals who share management and profits. A Written agreement between two or more individuals who join as partners to form and carry on a for-profit business. Among other things, it states...

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Related Book For answer-question

Introduction To Financial Accounting

7th edition

Authors: Anne Marie Ward, Andrew Thomas

ISBN: 978-0077138448