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