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FA – L1 – Q79 – Preparation of Partnership accounts

Prepare journal entries for partner retirement and admission, excluding goodwill in the books.

Question

A summarized statement of financial position of ABC Partnership as on January 31, 20X9 is given below:

Debit	GH₵	Credit	GH₵
Non-current assets	1,700,000	Current liabilities	1,900,000
Current assets	4,700,000	James, Capital	1,000,000
		Emma, Capital	1,500,000
		Liam, Capital	2,000,000
	6,400,000		6,400,000

James, Emma, and Liam share profits in the ratio of their capital in the partnership.
On January 31, 20X9, James retired from the partnership. For the purposes of his retirement, goodwill of the partnership was estimated at GH₵1.89 million. It was agreed that James would take cash from the business equal to the value of his closing capital after the goodwill adjustment.
On February 1, 20X9, Sophia was admitted to the partnership. The new profit sharing ratio was agreed at 3:4:2 for Emma, Liam, and Sophia respectively. Sophia agreed to bring in cash equivalent to her share of assets (excluding goodwill) in the new partnership plus an additional amount of GH₵0.5 million for goodwill.

Required:
Prepare journal entries to record the above transactions under the following assumption:
(a) Goodwill is not recorded in the books of account.

(b) Goodwill is recorded in the books of account.

Answer

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Tags: Admission, Capital accounts, Goodwill, Journal entries, Partnership accounting, Profit-sharing ratio, Retirement
Level: Level 1

Topic: Preparation of Partnership accounts

FA – L1 – Q78 – Preparation of Partnership accounts

Prepare capital accounts and statement of financial position for M, N, O partnership after O's retirement and T's admission, adjusting for goodwill and revaluations.

Question

M, N, and O are partners sharing profit in the ratio of their capitals. Their statement of financial position at June 30, 20X9 was as follows:

Statement of financial position as at June 30, 20X9

Assets	GH₵
Land and building	450,000
Motor cars	350,000
Equipment	95,000
Inventories	500,000
Receivables	400,000
Less: Allowance	(60,000)
	340,000
Investments	300,000
Cash in hand	65,000
Cash at bank	450,000
Total Assets	2,550,000

Capital and Liabilities	GH₵
Capital:
M	640,000
N	320,000
O	480,000
	1,440,000
Payables and accrued expenses	485,000
Loan from N	625,000
Total Capital and Liabilities	2,550,000

On July 1, 20X9, O retired. His share of the net assets of the partnership was ascertained after taking into account the following adjustments:
(i) The allowance against receivables was to be adjusted to 10% of the book value of the receivables.
(ii) Inventories were to be written down by 5%.
(iii) The investments were revalued to their market value which was GH₵ 435,000.
(iv) Investments with a market value of GH₵ 160,000 were taken over by O.
(v) A motor car having a book value of GH₵ 150,000 was taken over by O for GH₵ 200,000.
(vi) O’s share of goodwill was agreed at GH₵ 216,000.

T was admitted as a partner on the same day that O retired and on the basis of the adjusted statement of financial position. He was given one-fourth share in the profits and he bought a proportionate share of capital and goodwill by paying cash into the business. The basis of valuation of goodwill for the purpose of admission of T as a partner was the same as at the time of O’s retirement.

M and N have decided that the cash paid in by T in respect of goodwill will be taken out of the business by them in their profit-sharing ratio.

Required:
Prepare capital accounts of the partners in columnar form and the statement of financial position of the firm as at July 1, 20X9 after the admission of T, assuming that goodwill is not retained in the books of account.

Answer

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Tags: Admission, Capital accounts, Cash Payments, Financial Statements, Goodwill, Partnership accounts, Profit-sharing ratio, Retirement, Revaluation, Statement of Financial Position
Level: Level 1

Topic: Preparation of Partnership accounts

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FA – L1 – Q79 – Preparation of Partnership accounts

Prepare journal entries for partner retirement and admission, excluding goodwill in the books.

FA – L1 – Q78 – Preparation of Partnership accounts

Prepare capital accounts and statement of financial position for M, N, O partnership after O's retirement and T's admission, adjusting for goodwill and revaluations.

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FA – L1 – Q79 – Preparation of Partnership accounts

Prepare journal entries for partner retirement and admission, excluding goodwill in the books.

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FA – L1 – Q78 – Preparation of Partnership accounts

Prepare capital accounts and statement of financial position for M, N, O partnership after O's retirement and T's admission, adjusting for goodwill and revaluations.

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