A and B are partners and share profits and losses in the ratio 3:2. The partnership agreement stipulates that, should one of the partners retire, the non-current assets must be re-valued. Furthermore, it is also stipulates that the value of the goodwill be set as two

(2) years’ purchase of the last three (3) years’ average profits.

A decided to retire on the 31 December. On this date the following statement of financial position was obtained from the books:

	R		R
Goodwill at CP	10 000	Capital: A	20 000
Land and building	20 000	B	60 000
Inventory	40 000	Creditors	15 000
Debtors	30 000	Bank	5 000
	R100 000		R100 000

Additional information:

1. Land and building are re-valued at R50 000.
2. Profits for the previous years are as follows:

20.1-R70 000

20.2-R80 000

20.3-R90 000

Goodwill must not appear in the books after the retirement.

1. The amount owed to A must be paid out in cash.
2. After A retired, C was allowed as a partner.
3. C agrees with the valuation of the assets and brings in R100 000 as capital. The goodwill is determined and C has to pay R35 000 for 1/5 of the goodwill in the partnership.
4. A general reserve to the amount of R10 000 must be created.

REQUIRED:

Journal entries in order to carry out the above-mentioned transactions.

Answer rating: 100% (QA)

To carry out the mentioned transactions the following journal en... View the full answer