Tutorial 3 - Topic 3: Accounting for Partnership – Part 2

Question 1 - Argy and Bargy

Argy and Bargy were in partnership sharing profits and losses in the ratio of 2:1.
Thepartnership’s SOFP at 30 April 2004 was:

RM RM
Non-current assets
Freehold land 5,000
Freehold buildings 20,000
Equipment 8,000
33,000
Current assets
Inventory 11,000
Accounts receivables 6,000
Bank 2,000 19,000
52,000
Equity
Capital accounts – Argy 50,000
- Bargy 25,000 75,000
Less Drawing accounts
Argy (18,000)
Bargy (12,000) (30,000)
Non-current liabilities
Loan from Argy at 10% 4,000
Current liabilities
Accounts payable 3,000
52,000

Inventory 9,000
Accounts receivables 5,000
Accounts payable 3,000

The purchase consideration was RM62,000 settled as follows:

1. Argy received sufficient 8%debentures in Shindig Ltd to ensure that he continued to

receive the same amount of interest as he had been entitled to on his loan to the
partnership
2. Shindig Ltd paid RM12,000 into partnership bank account
3. The balance of purchase price was settled in ordinary shares of Shindig Ltd price of
RM1.50

The shares were distributed on their Capital accounts were settled in cash
Required:

(i) Prepare the realization account.

(ii) Calculate the breakdown of the purchase consideration in RM (refer to items 1-3 in
the question).
(iii) Prepare the partners’ capital accounts in columnar form to show the closing entries.
(iv) Draw up the bank ledger account to show the closing entries.
(v) The SOFP of Shindig Ltd at 30 April 2004 before the purchase of the partnership
business was:
RM RM
Non-current assets
Leasehold buildings 10,000
Furniture 2,000
12,000
Current assets
Inventory 20,000
Accounts receivables 12,000
Bank 24,000 56,000
68,000
Equity
Ordinary shares 50,000
Retained earnings 4,000

Current liabilities
Accounts payable 14,000
68,000

Prepare the statement of financial position of Shindig Ltd as it will appear after the
purchase of the partnership business.
Question 2 – Ann and Bill

Ann and Bill are in partnership sharing profits and losses in the ratio of 2:1. Each partner
receives a salary of RM40,000 and interest on capital of 15% per year. The draft statement
of financial position at the year-end 31 March 2017 is as follows:
Cost Acc. NBV
Depn.
Non-current assets RM’000 RM’000 RM,000
Furniture 500 440 60
Motor vehicles 240 120 120
740 420 180
Current assets
Inventories 280
Trade receivables 200
Provision for doubtful debts (40) 160
Bank 240 680
Total assets 860
Equity :
Capital accounts
Ann 80
Bill 160 240

Current accounts
Ann 40
Bill (20) 20
260
Profit for the year (not yet apportioned) 320
Total equity 580

Non-current liabilities
Long-term loan 80
Current liabilities
Trade payables 200
Total equity and liabilities 860

The partners agreed to admit Don on 31 March 2017. Don agreed to introduce
RM200,000 of capital. Ann, Bill and Don have agreed to share profits in the new
ratio of 4:3:3. Goodwill on that date is valued at RM600,000 and is not to be retained
in the books. It is agreed that inventories are worth RM360,000 and trade receivables
RM140,000. All other entries are of similar value to the book value amounts shown
in the above statement of financial position.

Required:
Prepare the following:
(a) Appropriation account for the year ended 31 March 2017.
(b) Revaluation account.
(c) The partners’ capital account in columnar format.
(d) The partners’ current account in columnar format.
Question 3 – Wembo and Bob

Wembo and Bob are in partnership. They share profits and losses in the ratio 3:2. On 1
January 2020, Bob retired from the partnership and it was agreed Singh should join the
partnership, paying a sum of RM30,000 using cheque. From this date, profit are to be shared
equally between the remaining partners.

Statement of Financial Position (SOFP) as at 31 December 2019

RM
Non-current assets
Property 60,000
Vehicles 30,000

Current assets
Inventories 30,000
Trade receivables 15,000
Bank 5,000
140,000

Capital accounts
Wembo 85,000
Bob 40,000

Current accounts
Wembo 2,500
Bob 2,500

Current liabilities
Trade payable 10,000
140,000
 It was agreed that in preparing the revised opening statement of financial position of the
partnership on 1 January 2020, the following adjustments matters;

 Property is to be revalued at RM65,000 and vehicles are to be revalued at

RM36,000
 Inventories are considered to be shown at its market value. A provision for
doubtful debts of RM1,200 is required.
 The value of goodwill of partnership as at 31 December 2019 was taken to be an
amount equal to the average annual profit of the three years. The profit of such
three years were:
Year ended 31 December 2017 RM 7,800
Year ended 31 December 2018 RM 9,400
Year ended 31 December 2019 RM11,600
 It was decided that goodwill should not be opened in the books
 On retirement of Bob, RM3,000 was paid to Bob and he agreed to leave the
balance as a loan to the new partnership. Partnership agreed to pay Bob’s loan in 12
month.

Required to prepare:

(i) The revaluation account.

(ii) The partners’ capital accounts (in columnar format), reflecting the
revaluation and goodwill transaction.
(iii) The revised statement of financial position as at 1 January 2020.

Self-learning question

Gurmit and Hamid are in partnership sharing profit/losses in the ratio 3:2. The following
information relates to the year to 31 December 2007:

Debit Credit
Capital accounts (at 1 Jan 2007): RM’000 RM’000
Gurmit 300
Hamid 100
Cash at bank 5
Creditors and accruals 25
Debtors and prepayments 18
Drawings: Gurmit (all at 30 Jun 2007) 40
Hamid (all at 31 Mar 2007) 40
Fixed assets at cost 300
Accumulated depreciation (at 31 Dec 2007) 100
Hamid – salary 10
Net profit (year to 31 December 2007) 60
 inventory at cost (at 31 December 2007) 90
Trade creditors and debtors 223 141
0 0

Additional information:

1. The partnership agreement allows for Hamid to be paid a salary of RM20,000 per
annum, and for interest of 5% per annum to be paid on the partners’ capital account
balances as at 1 January in each year. Interest at a rate of 10% per annum is charged on
the partners’ drawings.
2. The partners decide to dissolve the partnership as at 31 December 2007, and the
business was then sold to Valley Bhd. The purchase consideration was to be 400,000
RM1 ordinary shares in Valley Bhd at a premium of 25 sen per share. The shares were
to be issued between them in their profit-sharing ratio.
The sale agreement allowed Gurmit to take over one of the business cars at an agreed
valuation of RM10,000. Apart from the car and the cash and bank balances, the
company took over all the other partnership assets and liabilities at their book values as
at 31 December 2007.

3. Matters relating to the appropriation of profit for the year to 31 December 2007 are to be
dealt with in the partners’ capital accounts, including any arrears of salary owing to
Hamid.

Required:

Write up the following accounts for the year ended 31 December 2007:

i. the profit and loss appropriation account;

ii. Gurmit and Hamid’s capital accounts; and
iii. the realization account

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