Reference no: EM133180485
Question - Part A - Davion and Marci are started a partnership many years ago sharing profits and losses in the ratio of 3:2. The trial balance as at 31 December 2021 was as follows:
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Details
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Dr ($)
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Cr ($)
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Bank
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18,000
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|
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Inventory at 1st January 2021
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22,400
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|
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Trade receivables
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23,600
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|
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Plant and machinery
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95,000
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|
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Accumulated depreciation: Plant and machinery
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19,000
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Office equipment
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64,000
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|
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Accumulated depreciation: office equipment
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12,800
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Sales
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192,200
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Purchases
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68,000
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|
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Capital accounts
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|
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Davion
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50,000
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Marci
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30,000
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Current accounts
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Davion
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4,500
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Marci
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8,700
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Drawings
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|
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Davion
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5,000
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Marci
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4,000
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Long term loan
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50,000
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Trade payables
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7,800
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Salaries and wages
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28,500
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Rent expense
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27,500
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Utilities expense
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6,900
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|
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Interest expense
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3,750
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|
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Insurance expense
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8,350
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375,000
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375,000
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Following information is relevant:
1. Inventory was valued at $17,200 at December 31, 2021.
2. Interest on long term loan is payable at 10%. Interest of last quarter of 2021 is not yet paid.
3. Rent of $2,500 relating to the month of December is still outstanding.
4. Insurance of $2,350 relates to 2022.
5. Depreciation expense is to be charged at 10% on plant and machinery using the reducing balance method and 20% on office equipment using straight line basis.
6. Davion is entitled to a salary of $8,500. This amount is in addition to the salaries and wages expense given in trial balance.
7. Interest on capital is 5%. There is no interest on drawings.
From information given in Part A, prepare end-of-year financial statements for partnerships (Income statement, appropriation account, partner's current account and statement of financial position), incorporating appropriate adjustments.
Part B - On 31 December 2021, Riki is admitted for a 20% share in the profit or losses of the firm. Following information is relevant:
Capitals of partners in the new firm would be in the profit sharing ratio. Any excess or deficit is to be settled by contribution or withdrawal of cash.
Riki brought $21,000 to purchases 20% share in partnership.
Partnership's goodwill is valued at $25,000. Goodwill is not to be recorded in books.
Net assets of the partnership are to be revalued upwards by $6,000.
From information given in Part B, prepare the accounting entries to record goodwill for changes to a partnership?