- 20 Marks
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.
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