Partner A (50%)

Partner B (50%) sharing profits equally

New partner introduced $13,000 total cash including $3000 as goodwill which is raised to its full value. Partner C

Balance Sheet @ 31 Dec 2009 Partners A & B

Capital A - 20,000

Capital B - 25,000

Current Liabilities

Bank overdraft $16650, Accounts Payable $15210, Bills Payable $8140

Total $85,000 above

Non-current assets

Plant $35000 less accumdepn $17500 = $17500

Freehold premises $80,000 less accumdepn $30,000 = $50,000

Advertising prepaid $5,000

Current assets

Prepayments $2,500, Accounts receivable $10,000

Total above $85,000

Adjustments before admitting Partner C:

1. Plant depn to be adjusted to 7.5% pa fixed instalment method as from commencement 5 years ago.

2. Freehold to be adjusted to its full value of $80,000 net

3. Advertising to be written off and not capitalised

4. Accounts payable should be $16,509

5. $1,000 in goods was taken from business by Partner B and was never recorded

6. Office equipment has been charged to profit and loss account each year as purchases, and should be now valued at $5000, less accumdepn of $1200

Partners capital accounts are to be adjusted by cash contribution or withdrawal, to the ratio in which they share profits.

Required:

Taking Partner C capital as the basis, show:

A  journal entries required to effect the necessary adjustments and admission of partner C

B  the equity adjustment account

C  partners' capital accounts, and

D  a balance sheet of the new partnership

Note:  you may assume that any additional overdraft facility required is available

Net assets should = $65,000

Equity adjustment credit $47,876