Proudie, Slope and Thorne were in partnership sharing profits and losses in the ratio 3:1:1. The draft
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$ | $ | $ | |
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 |
- 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.
- 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.
- Lands and buildings were to be revalued at $ 200000.
- Furniture was to be revalued at $ 5000.
- Proudie agreed to take over one of the motor vehicles at a value of $ 4000, the remaining motor vehicles being revalued at $ 10000.
- Stocks were to be written down by $ 5000.
- 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.
- A further accrual of $ 3000 for office expenses was to be made.
- Professional charges relating to the dissolution were estimated to be $1000.
- 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 |
- Goodwill is not to be carried in the books of the new partnership.
- 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.
- 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.
- Prepare the revaluation account as at 31 May 20X9.
- 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.
- Prepare Slope and Thorne’s statement of financial position as at 1 June 20X9.
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