Part 1 -
Taj, Ula and Valda decided to form a partnership on 1 April 2015. Taj and Ula dissolved their sole trader businesses and transferred the assets and liabilities of their businesses to the partnership. The value of the net assets transferred by Taj was considered as her capital contribution to the partnership. An amount of $50,000 of the value of net assets transferred by Ula was considered as loan to the partnership and the balance as capital contribution. The balance sheets of the sole trader businesses of Ula and Taj prior to transferring the assets and liabilities to the partnership are as follows:
Ula Sole Trader Balance Sheet as at 1 April 2015
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$
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$
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Fixed assets
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100,000
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100,000
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Current Assets:
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Stock
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10,000
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Accounts Receivable
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50,000
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Cash
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28,000
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88,000
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Current Liabilities:
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Accounts Payable
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60,000
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Working Capital
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28,000
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128,000
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Financed By;
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Capital Account:
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128,000
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Taj Sole Trader Balance Sheet as at 1 April 2015
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$
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$
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Fixed Assets
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140,000
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140,000
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Current Assets:
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Stock
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5,000
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Accounts Receivable
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25,000
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Cash
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60,000
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90,000
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Current Liabilities:
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Accounts Payable
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51,000
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Working Capital
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39,000
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179,000
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Financed By;
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Capital Account:
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179,000
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The assets of Taj Sole Trader and Ula Sole Trader were transferred to the partnership at the following values:
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Taj Sole Trader
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Ula Sole Trader
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Fixed Assets
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$120,000
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$110,000
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Stock
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$7,000
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$8,000
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Bad debts to be written off from accounts receivable are as follows:
Taj Sole trader - $5,000
Ula Sole trader - $15,000
The cash transferred and paid to the partnership was deposited into a cheque account with ASB. The bank account was used for all cash transactions of the partnership.
Valda paid cash of $40,000 as capital contribution to the partnership.
The following terms were agreed by the partners and included in their partnership agreement:
i. Profits and losses are to be shared between Taj, Ula and Valda in the ratio 2:2:1 respectively.
ii. Ula is to be allowed a salary of $30,000 per annum.
iii. Interest of 10% is allowed on the capital account balances outstanding as at the beginning of the financial year.
iv. No interest is allowed on current accounts.
v. Interest at 10% is charged on drawings for the year irrespective of when the drawings were made.
vi. Interest of 15% is allowed on the loan accounts of the partners.
Required:
(a) Prepare journal entries (with narrations) in general journal form to account for the formation of the Taj, Ula and Valda Partnership.
(b) Prepare a balance sheet for the Taj, Ula and Valda Partnership as at 1 April 2015.
Part 2 -
The Taj, Ula and Valda Partnership commenced trading on 1 April 2015. A summary of business transactions for the year ended 31 March 2016 are as follows:
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$
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Cash Drawings:
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Taj
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15,000
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Ula
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9,000
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Valda
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3,000
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Cash Expenses:
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Utilities
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36,000
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Salaries
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60,000
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Rental
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108,000
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Maintenance
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27,000
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Other expenses
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21,000
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Cash sales
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630,000
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Credit sales
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900,000
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Cash purchases
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270,000
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Credit purchases
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360,,000
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Sales returns (from credit sales)
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6,000
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Purchases returns (from credit purchases)
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9,000
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Transportation cost related to purchases (not paid)
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12,000
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Transportation costs for delivery of good to customers (not paid)
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6,000
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Purchases discounts (for credit purchases)
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12,000
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Sales discounts (for credit sales)
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3,000
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Payments received from debtors
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870,000
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Payments made to creditors
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390,000
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The following additional information relates to the financial year end 31 March 2016:
- Depreciation on fixed assets for the year ended 30/3/2016 is to be provided on a diminishing balance basis at the rate of 10% per annum.
- Stock as at 31/3/2016: Cost $42,000 and Net Realizable Value $45,000
- Rental expense is for 12 months commencing 1/12/2015.
- Allowance for doubtful debts is to be made at 4% of debtors outstanding as at financial year end.
- Bad debts to be written off is $6,000
- Utilities expenses for the month of March 2016 amounting to $6,000 were only settled in April 2016.
Required: Prepare the following for the partnership (Ignore GST and tax implications):
(a) The following ledger accounts to record all balances and transactions until 31 March 2016:
- Bank Account
- Accounts Receivable
- Accounts Payable
- Sales Account
- Purchases Account
(b) An unadjusted trial balance as at 31 March 2016.
(c) Balance day journal adjustments in general journal form for the year ended 31 March 2016.
(d) An Adjusted Trail Balance as at 31 March 2016.
(e) Closing journal entries for the year ended 31 March 2016.
(f) An Income Statement for the year ended 31 March 2016.
(g) A Profit and Loss appropriation statement for the year ended 31 March 2016.
(h) Current accounts of the partners to record all balances and transactions until 31 March 2016.
(i) Balance Sheet as at 31 March 2016.
Part 3 -
On 1st April 2016, Valda decided to retire from the partnership. A new partner, Wade was admitted to the partnership on that date. The following matters are agreed:
- Non-current assets were revalued to $ 200,000
- Bad debts to be written off by an amount of $15,000
- Goodwill amounting to $135,000 is to be recorded in the books on the day Valda retires. The partners in the new firm do not wish to maintain a goodwill account and the amount is to be written off against the partnership's capital accounts.
- The amount due to/from Valda was settled in cash.
- The new partners Taj, Ula and Wade are to share profits and losses in the ratio 3:3:1 respectively.
- Wade transferred a motor vehicle and office equipment worth $30,000 and $10,000 to the partnership. The capital account balances of Taj, Ula and Wade were adjusted through contribution of cash or reimbursement by the partnership so that their capital account balances are in proportion to the profit sharing ratio of 3:3:1.
Required:
(i) Prepare journal entries in general journal form (with narrations) to record the above transactions.
(ii) Prepare the following ledger accounts to show the changes in the partnership:
-Revaluation Account
-Goodwill Account
-Capital Accounts of the partners
-Retirement Account
-Bank Account
(ii) Prepare a balance sheet of the new partnership of Taj, Ula and Wade after the changes have been made.