Theory question 104
Partnership Admission, Retirement and Dissolution4. Kolade and Kehinde are in partnership sharing profits and losses equally. On 1st January 1994, they decided to admit Adeolu as a partner on which date their Balance Sheet was as follows:
Capital Accounts: Kolade N80,000; Kehinde N80,000
Current Accounts: Kolade N12,510; Kehinde N8,340
Creditors N19,650
Total N200,500
Premises N75,000
Plant and Machinery N60,000
Stock N38,500
Debtors N15,350
Cash at bank N11,650
Total N200,500
It was agreed as follows:
(a) Adeolu shall bring N40,000 as capital for one fifth share of profit.
(b) Goodwill shall be brought into the books at N10,000;
(c) Assets are revalued at: Premises N100,000; Plant and Machinery N45,000; Stock N32,500
(d) A provision of N1,800 is to be made for bad debts.
You are required to prepare:
(i) Revaluation Account; (ii) Partners Current Accounts; (iii) Revised Balance Sheet as at 1/1/94.
Show the model answer
(i) Revaluation account: Dr plant 15,000 (60,000 − 45,000), stock 6,000 (38,500 − 32,500), provision for bad debts 1,800 = 22,800. Cr premises 25,000 (100,000 − 75,000), goodwill 10,000 = 35,000. Surplus 12,200 shared equally by the old partners: Kolade 6,100, Kehinde 6,100.
(ii) Current accounts: Kolade 12,510 + 6,100 = 18,610 (Cr); Kehinde 8,340 + 6,100 = 14,440 (Cr).
(iii) Balance sheet as at 1/1/94: Goodwill 10,000; premises 100,000; plant 45,000; stock 32,500; debtors 15,350 − 1,800 = 13,550; cash at bank 11,650 + 40,000 = 51,650; total 252,700.
Capital: Kolade 80,000, Kehinde 80,000, Adeolu 40,000 = 200,000; current accounts 18,610 + 14,440 = 33,050; creditors 19,650; total 252,700.
Gains and losses on revaluation (including the goodwill raised) belong to the old partners in their old ratio.