BKAR3033 FINANCIAL ACCOUNTING & REPORTING III A202

MINI CASE 5 PARTNERSHIP

DUE DATE: 15/1/2022
QUESTION 1

Ahmad, Nehru and Yi (ANY & Partners) have been in partnership business in publication
services for 5 years. The following balances were extracted from the partnership books of
account as at 30 November 2021:

Account Debit (RM) Credit (RM)

Capital account 1 Dec 2020
Ahmad 142,500
Nehru 127,500
Yi 120,000
Current account 1 Dec 2020
Ahmad 45,000
Nehru 52,500
Yi 43,500
Land 255,000
Motor vehicles 150,000
Accumulated depreciation- motor vehicles 37,500
Building 165,000
Accumulated depreciation-building 112,500
Fixtures and fittings 82,500
Accumulated depreciation-fixtures and 45,000
fittings
Inventories 48,750
Accounts receivable (net) 96,000
Bank 117,750
Accounts payable 82,500
Net profit for the year 106,500
Total 915,000 915,000

Additional information:

1. The partnership profit sharing ratio for Ahmad, Nehru and Yi is 4:3:2.

2. The partners will be entitled to 12% interest per annum on capital account balances.

3. Annual salary for partners are paid based on partners’ commitment. Ahmad, Nehru
and Yi received RM27,000, RM9,000 and RM9,000, respectively as their salary for
2020.

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 4. Ahmad retired on 7 December 2021. Upon his retirement:

i. Land was revalued at 20% higher from its cost.

ii. Building was revalued at RM2,500 below its carrying amount.

iii. Nehru took over the inventories at a value of RM44,000.

iv. On his retirement, Ahmad’s current account is to be transferred to his capital

account. The partnership agreed to pay the amount due to Ahmad, except for
RM40,000 which remain as a loan to the partnership.

v. Ahmad also agreed to take over the fixtures and fittings at 10% below its book
value.

5. Following Ahmad’s decision to retire, Nehru and Yi invited Atef to join the
partnership on 7 December 2021. Atef agreed to pay RM80,000 into the new
partnership as his capital contribution and RM7,500 for his share of goodwill. This
entry has not been recorded in the books upon admission of Atef. The new partnership
profit sharing ratio for Nehru, Yi and Atef is 3:2:1.

6. Goodwill was valued at three year’s purchase of the annual super profit.

7. The net profit for the year is deemed to have been earned evenly throughout the year.

REQUIRED:
(Round up your answers to the nearest RM)

(a) Compute and prepare the goodwill account to record the allocation of goodwill among
partners on 7 December 2021.

(b) Prepare the revaluation account upon admission of Atef and retirement of Ahmad
from partnership on 7 December 2021.

(c) Prepare the partner’s capital account as at 7 December 2021 in a columnar format.

(d) Assume the partners agreed for dissolution of the partnership on 7 December 2021.
Referring to the Partnership Act 1961, explain how the dissolution will be settled.

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QUESTION 2

A partnership was formed by Salmah, Sally, and Selvi in 1999. The partnership provides
medical services to underprivileged individuals in Malaysia. Each partner shares the profits
or losses on the ratio of 5:3:2, respectively. The following balances were extracted from the
partnership books of account as at 30 November 2021.

RM RM
Capital account, beginning balance
Salmah 100,000
Sally 85,000
Selvi 70,000
Current account, beginning balance
Salmah 70,000
Sally 50,000
Selvi 47,000
Building 400,000
Motor vehicle 180,000
Furniture and fittings 100,000
Accumulated depreciation-building 160,000
Accumulated depreciation-motor vehicle 120,000
Accumulated depreciation-furniture and fittings 80,000
Supplies 72,500
Accounts receivable (net) 35,000
Cash and bank 80,000
Accounts payable 8,000
Net profit for the year 77,500
867,500 867,500

Additional information:
1. The salary for Sally is RM1,000 per month.
2. The partners are entitled to a 10% interest per annum on capital account balances.
3. Selvi withdrew RM1,000 cash in the partnership.
4. Sally resigned and retired from the partnership on 1 June 2021. Upon her retirement, the
building and motor vehicle were revalued at RM30,000 and RM4,000 above their
carrying amounts, respectively.
5. Due to her retirement, Sally's current account is to be transferred to her capital account.
The partnership agreed to pay the amount due to Sally, except for RM40,000, which
remains as a loan to the partnership.
6. Goodwill was valued at three years' purchase of the average profit for the last four years.
The profit for the previous four years was as follows:

RM
30 November 2020 62,000
30 November 2019 68,000
30 November 2018 58,000
30 November 2017 50,000

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 7. Following Sally's retirement, Salmah and Selvi decided to continue with the same
partnership with two member-partners. While Salmah agreed to pay RM100,000 into
the partnership as an additional capital contribution, Selvi consented to invest an
additional RM50,000. Each of them decided to pay for the goodwill based on the new
profit-sharing ratio. The entry was not recorded in books upon the formation of the
new partnership.
8. The new partnership profit-sharing ratio is 2:1.
9. The net profit for the year is deemed to have been earned evenly throughout the year.

REQUIRED:
(a) Compute the goodwill for the partnership and prepare the goodwill account.
(b) Prepare the partner's capital and current account as of 1 June 2021 in a columnar
form.
(c) If Salmah and Selvi dissolve the partnership, explain in what order the partnership net
assets must be distributed.

QUESTION 3

A partnership was formed by Maniam, Amin and David in 2000. Its main business is
providing engineering consultation works. They shared profits and losses in the ratio of 5:3:2
respectively. In early December 2021, Maniam decided to retire as he is in poor health.
Therefore, all the partners agreed to dissolve the partnership on 31 December 2021. On this
date, the statement of financial position of the business was as follow:

Statement of Financial Position

As at 31 December 2021
RM RM
ASSETS
Non-Current Assets
Building 180,000
Equipment 75,000
Vehicles 45,000 300,000
Current Assets
Debtors 75,000
Bank 168,000 243,000
TOTAL ASSETS 543,000

LIABILITIES & OWNERS EQUITY

Non-Current Liabilities
Loan from Maniam 12,000
Loan from Finance Company 30,000 42,000
Current Liabilities
Creditors 63,000
Bank Overdraft 48,000 111,000
Owners Equity
Capital Accounts
Maniam 240,000
Amin 90,000
David 30,000 360,000

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 Current Accounts
Maniam 15,000
Amin 6,000
David 9,000 30,000
TOTAL LIABILITIES & OWNERS EQUITY 543,000

Upon dissolution, the following transactions took place:

1. Building was sold for RM226,500. The proceeds were then used to settle the bank
overdraft.
2. Equipment was realised at a loss of RM15,000.
3. Maniam agreed to take over the vehicles at 20% below book value. The loan from
Maniam to the partnership was used as part of the settlement for the vehicles and the
balance was paid by cheque.
4. All debtors paid their debts in full except for an amount of RM1,500 which was
unrecoverable and was therefore written off as bad debt.
5. The amounts owing to the creditors were paid in full at a discount of RM3,000.
6. Dissolution expenses amounting to RM2,250 were fully paid.
7. All payments and receipts were made through the bank account.

REQUIRED:
(a) Prepare the following account to close the books of the partnership on 31 December
2021:
(i) Realisation account
(ii) Bank account
(iii) Partners’ capital account

(b) Assume Amin and David agreed with Maniam’s decision to retire from the partnership
and decided to continue the business with the following arrangement:
(i) Maniam agreed to take over the vehicles at 20% below book value.
(ii) The building and the equipment were revalued to RM226,500 and RM60,000
respectively.
(iii) Maniam’s capital and current account balances will be settled by RM100,000 in
cash and remaining balance as a loan to the partnership.
(iv) Prepare the journal entries to record the retirement of Maniam on 31 December
2021.