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Frank Wood's Partnership Solution 1a
Frank Wood's Partnership Solution 1a
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Answers to review questions
42.1 (cont’d ) goodwill. The goodwill was created by previous partners, and this is where the new
Balance Sheet as at 1 April 20X3 partner buys his share from them. The £10,000 will be credited to the old partners
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Net assets 100,000 in their old profit sharing ratio.
100,000 If C, the new partner, has paid £10,000 for one-fifth of the goodwill, then total
Appendix 1
goodwill is £50,000. Should the business be sold at a future date, and the goodwill
Capitals Vantuira (30,000 − 4,800) 25,200
realise £50,000, then C would receive one-fifth of the proceeds, i.e. £10,000, thus
Aparecida (20,000 + 1,800) 21,800
getting his money back. This illustrates the fairness of the accounting treatment of
Fraga (50,000 + 3,000) 53,000
his original payment for goodwill. If anything had been credited to his account from
100,000
this original payment for goodwill then he would have received that in addition.
Obviously this would be unfair.
42.3
(a)
42.7
Goodwill Dr 40,000
(a) Stone, Pebble & Brick trading as Bigtime Building Supply Company
Capitals Black 20,000
Profit and Loss Account for the year ended 31 March 20X9
Smart 20,000
Cash Dr 70,000 Apl–Dec Jan–Mar
Capital King 70,000 Net profit per accounts 27,225 9,075
(b) Balance Sheet Less Interest on Stone’s Loan – 385
Goodwill 40,000 27,225 8,690
Fixed and current assets (other than cash) 160,000
Cash 71,000 Interest on capitals: Stone 250
271,000 Pebble 200
Current liabilities ( 41,000) Brick 125
230,000 Salary: Brick 2,125
Capitals Black 90,000 Balance of profits shared:
1 1
Smart 70,000 Stone /3 9,075 /2 2,995
1 3
King 70,000 Pebble /3 9,075 /10 1,797
1 2
230,000 Brick /3 9,075 /10 1,198
(c) 27,225 8,690
Capitals Black Dr 20,000
Smart Dr 7,500 (b) Capitals
King Dr 12,500 Stone Pebble Brick Stone Pebble Brick
Goodwill 40,000 Goodwill
adjustment* 2,000 6,000 Balances b/d 26,000 18,000 16,000
42.5 Transfer to Goodwill
(a) Capital Accounts (£000) loan 14,000 adjustment* 8,000
Wilson Player Sharp Titmus Wilson Player Sharp Titmus Balances c/d 20,000 16,000 10,000
Bal b/d 57 76 38 34,000 18,000 16,000 34,000 18,000 16,000
Cash 30
Bal c/d 73 108 62 30 Goodwill 16 32 24 Current Accounts
73 108 62 30 73 108 62 30 Stone Pebble Brick Stone Pebble Brick
Interest on
(b) Goodwill 72,000; Other assets except cash 200,000; cash 32,000; Capitals as Drawings 8,200 9,600 7,200 capital 250 200 125
in (a); Creditors 31,000. Balances c/d 4,120 1,472 5,323 Salary 2,125
Share of profits:
42.6 Apl–Dec 9,075 9,075 9,075
The senior partner’s objection is a correct response. The money does not belong to Jan–Mar 2,995 1,797 1,198
the new partner once it has been paid. 12,320 11,072 12,523 12,320 11,072 12,523
This is because a new partner becomes an owner of part of the business, and this
includes a part of the goodwill. This payment is specifically for that part of the
*Note: Goodwill: Value of goodwill Elimination Net effect (b) Balance Sheet as at 1 January 20X6
taken over of goodwill Fixed assets
Stone 30,000 22,000 8,000 Cr Buildings at valuation 106,000
Pebble 20,000 22,000 2,000 Dr Motor vehicles at valuation 13,000
Brick 16,000 22,000 6,000 Dr Office fittings at valuation 1,450
66,000 66,000 – 120,450
Current assets
43.1 Stock at valuation 4,894
(a) Buildings Debtors 7,400
Balance b/d 80,000 Balance c/d 106,000 Bank 800 13,094
Revaluation: Increase 26,000 133,544
106,000 106,000 Capitals:
Pitt 71,968
Motor Vehicles Lamb 35,984
Balance b/d 16,500 Revaluation: Reduction 3,500 Soul 25,592
Balance c/d 13,000 133,544
16,500 16,500
43.3
Stock (a) Revaluation*
Balance b/d 6,100 Revaluation: Reduction 1,206 Premises 90,000 Premises 120,000
Balance c/d 4,894 Plant 37,000 Plant 35,000
6,100 6,100 Stock 62,379 Stock 54,179
Provision doubtful debts 3,000
Office Fittings Profit on revaluation
Balance b/d 1,800 Revaluation: Reduction 350 3
Alan /6 8,400
Balance c/d 1,450 2
Bob /6 5,600
1,800 1,800 Charles 1/6 2,800 16,800
209,179 209,179
Revaluation
Motor vehicles 3,500 Buildings 26,000 *Just the net increases/decreases could have been recorded. Either method is acceptable.
Stock 1,206
Office fittings 350 Goodwill
Profit on revaluation Goodwill Goodwill cancelled
3
Pitt 11,968 Capitals: Alan /6 21,000 Capitals: Alan 3/7 18,000
2
Lamb 5,984 Bob /6 14,000 Bob 2/7 12,000
Soul 2,992 20,944 Charles 1/6 ,
7 000 Don 2/7 12,000
26,000 26,000 42,000 42,000
Capitals
Capitals
Alan Bob Charles Don Alan Bob Charles Don
Pitt Lamb Soul Pitt Lamb Soul
Goodwill 18,000 12,000 – 12,000 Balances b/d 85,000 65,000 35,000 –
Balances c/d 71,968 35,984 25,592 Balances b/d 60,000 30,000 22,600
Retirement 42,000 Goodwill 21,000 14,000 7,000 –
Profit on
Cash 21,000 Cash 79,000
revaluation 11,968 5,984 2,992 Balances b/d 67,000 67,000 67,000
71,968 35,984 25,592 71,968 35,984 25,592
106,000 79,000 42,000 79,000 106,000 79,000 42,000 79,000
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Answers to review questions