Theory question 108
Partnership Admission, Retirement and DissolutionLolly and Willy were in partnership sharing profits and losses in the ratio of 3:2 respectively. The balances were shown as follows:
Balance Sheet as at 31st December, 2019 (Le)
Capital: Lolly 200,000; Willy 150,000 = 350,000
Loan 100,000
Current Liabilities: Creditors 90,000
Total 540,000
Fixed Assets: Plant & machinery 240,000; Furniture & Fittings 80,000; Motor Vehicles 30,000 = 350,000
Current Assets: Stock 50,000; Debtors 60,000 less Provision for Doubtful debts 5,000 = 55,000; Cash 85,000 = 190,000
Total 540,000
Additional Information: (a) Plant and Machinery were revalued at Le 300,000 (b) Furniture and Fittings were revalued at Le 60,000 (c) Stock was revalued by Le 10,000 (d) Provision for doubtful debts was increased to Le 7000 (e) Lolly take over motor vehicle for Le 10,000 (f) Joe paid Le 100,000 as capital and paid Le 75,000 for goodwill which was shared among the partners.
You are required to prepare: (a) Revaluation Account (b) Partner's Capital Account (c) Partner's Balance Sheet on the admission of Joe.
Show the model answer
(a) Revaluation Account (Le): Dr Furniture (80,000 − 60,000) 20,000; Provision for doubtful debts (7,000 − 5,000) 2,000; Motor vehicle 30,000; Profit on revaluation – Lolly 3/5 16,800, Willy 2/5 11,200 = 80,000 | Cr Plant (300,000 − 240,000) 60,000; Stock 10,000; Lolly's capital (motor vehicle taken over) 10,000 = 80,000.
(b) Capital Accounts (Le) – Lolly | Willy | Joe: Cr balance b/d 200,000 | 150,000 | –; revaluation profit 16,800 | 11,200 | –; goodwill (75,000 shared 3:2) 45,000 | 30,000 | –; cash – capital – | – | 100,000. Dr motor vehicle 10,000 | – | –. Balances c/d 251,800 | 191,200 | 100,000.
(c) Balance Sheet after Joe's admission (Le): Fixed assets – plant 300,000; furniture 60,000 = 360,000. Current assets – stock 60,000; debtors 60,000 less provision 7,000 = 53,000; cash (85,000 + 100,000 + 75,000) 260,000 = 373,000. Total 733,000.
Capital: Lolly 251,800; Willy 191,200; Joe 100,000 = 543,000; loan 100,000; creditors 90,000 = 733,000.
Revalue first and share the gain 3:2; Joe's goodwill payment goes to the old partners in their ratio.