Theory question 109
Partnership Admission, Retirement and Dissolution9. Idowu has been in business for several years as a sole-proprietor of a hotel business. The balance sheet of his business on 31st December, 2001, was as follows:
Capital N200,000; Profit N26,000 (N226,000); Drawings N12,000 (N214,000); Creditors N47,000; Accruals N13,000; total N274,000
Leasehold premises N100,000; Fixtures and Fittings N120,000 (N220,000); Current Assets: Stock N38,000; Debtors N7,000; Bank N9,000 (N54,000); total N274,000
On 1st January 2002, he decided to admit Alaba into the business to form a partnership on the following terms: (a) Alaba is to contribute N250,000 as capital (b) Profits and losses are to be shared equally. (c) The partnership is to take over the assets and liabilities at their book values except for those revalued as follows: Leasehold premises N150,000; Fixtures and Fittings N100,000; Stock N35,000
(d) Idowu is to maintain a capital of N250,000 by credit from revaluation or private resources. Any balance shall be kept in his current account.
You are required to prepare: (i) Revaluation Account; (ii) Partners' Capital Account; and (iii) Opening Balance Sheet for the partnership on 1st January, 2002.
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(i) Revaluation account: Dr fixtures 20,000 (120,000 − 100,000); stock 3,000 (38,000 − 35,000); profit on revaluation to Idowu's capital 27,000. Cr leasehold premises 50,000.
(ii) Capital accounts: Idowu – balance 214,000 + revaluation 27,000 = 241,000; he pays in 9,000 from private resources to bring it to 250,000. Alaba – bank 250,000.
(iii) Opening balance sheet 1/1/2002: leasehold 150,000; fixtures 100,000; stock 35,000; debtors 7,000; bank 9,000 + 250,000 + 9,000 = 268,000; total 560,000. Capital Idowu 250,000, Alaba 250,000; creditors 47,000; accruals 13,000; total 560,000.
Revaluation gains before admission belong to the old owner.