Theory question 107
Partnership Admission, Retirement and DissolutionAde and Bola are in partnership sharing profits and losses in the ratio 3 : 2 respectively. Their balance sheet as at 30th June, 2010 is as follows:
Balance sheet as at 30th June, 2010
Capital: Ade Le 120,000; Bola Le 80,000
Current Account: Ade Le 5,000; Bola Le 9,000
Loan: Bola Le 20,000; Interest accrued Le 4,000 (Le 24,000)
Trade creditors Le 7,000
Total Le 245,000
Equipment Le 100,000; Fixtures Le 40,000; Stock Le 23,000; Debtors Le 48,000; Cash Le 34,000
Total Le 245,000
They decided to admit Caro into the partnership on the following terms:
(i) Caro shall contribute Le 50,000 as capital and be entitled to one-fifth of future profits.
(ii) Ade and Bola shall henceforth share profits and losses equally.
(iii) Bola shall have her loan converted to capital but the accrued interest must be paid immediately.
(iv) Assets are to be revalued as follows: Equipment Le 90,000; Fixtures Le 52,000; Stock Le 21,000; Debtors Le 46,400.
You are required to prepare: (a) Revaluation Account; (b) Partners Current Accounts in columnar form; (c) Opening Balance Sheet for Ade, Bola and Caro partnership.
Show the model answer
(a) Revaluation Account
Dr: equipment (100,000 − 90,000) 10,000; stock (23,000 − 21,000) 2,000; debtors/provision (48,000 − 46,400) 1,600 = 13,600
Cr: fixtures (52,000 − 40,000) 12,000; loss on revaluation: Ade (3/5) 960, Bola (2/5) 640 = 13,600
(b) Current Accounts (Ade | Bola)
Cr: balance b/d 5,000 | 9,000; interest on loan – | 4,000
Dr: cash paid (interest) – | 4,000; revaluation loss 960 | 640; balance c/d 4,040 | 8,360
Totals 5,000 | 13,000
(c) Balance Sheet of Ade, Bola and Caro as at 1st July, 2010
Capital: Ade 120,000; Bola (80,000 + 20,000 loan) 100,000; Caro 50,000 = 270,000
Current accounts: Ade 4,040; Bola 8,360 = 12,400
Trade creditors 7,000
Total Le 289,400
Equipment 90,000; fixtures 52,000; stock 21,000; debtors 46,400; cash (34,000 + 50,000 − 4,000) 80,000
Total Le 289,400
The revaluation loss is shared in the OLD ratio (3 : 2), before Caro joins.