Nanny, Marcus, and Bob have been in partnership for many years, sharing profits and losses in proportion
Question:
Nanny, Marcus, and Bob have been in partnership for many years, sharing profits and losses in proportion to their fixed capital balances. Bob is planning to retire and write a book. He will leave the business on January 1, 2020. However, his absence will not be felt because Marcus and Nanny have invited George to join them in business on that date.
The statement of financial position as at December 31, 2019 is shown below
$ | $ | $ | |
Non-current assets | |||
Land and Buildings | 148,000 | 40,000 | 108,000 |
Plant and machinery | $85,000 | 30,000 | 55,000 |
Motor vehicles | 75,000 | 60,000 | 15,000 |
Furniture and fixtures | 14,000 | 4,500 | 9,500 |
187,500 | |||
Current assets | |||
Inventory | 85,000 | ||
Receivables | 70,000 | ||
Bank | 28,000 | ||
183,000 | |||
Total assets | 370,500 | ||
Financed by | |||
Capital: | |||
Nanny | 90,000 | ||
Marcus | 60,000 | ||
Bob | 50,000 | ||
200,000 | |||
Current accounts | |||
Nanny | 50,000 | ||
Marcus | (8,000) | ||
Bob | 25,000 | 67,000 | |
Long term Liability | |||
Loan | 45,000 | ||
Current Liability | |||
Payables | 58,500 | ||
370,500 |
Additional information:
i. Assets were revalued as follows:
Land and buildings $200 000
Plant and machinery $ 80 000
Inventory $78 000
ii. Of the trade receivables, $5 000 was found to bad, and 2.5% of the remainder is judged to be doubtful.
iii. Goodwill is valued at $60 000. The new partnership has elected not to maintain a goodwill account on the books.
iv. Bob will receive inventory at an agreed value of $5 000 in part payment and the balance will be paid from the partnership’s bank account. Bob will also assume responsibility for the current loan
v. George will bring into the partnership cash of $100 000 and fixtures valued at $15 000. He will also bring in the payables associated with his previous business, valued at $10 500.
vi. The new partnership of Nanny, Marcus and George will share profits 2:1:2.
Required
Prepare the following:
a. Revaluation account
b. Goodwill Account
c. Capital accounts of the old partnership (bring down the balances)
d. Capital accounts of the new partnership
e. Opening balance sheet of the new partnership at January 1
f. Why is revaluation an essential part of the process of accounting for changes in the partnership?
Advanced Accounting
ISBN: 978-1259444951
13th edition
Authors: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupni