Reference no: EM132991211
Question - Adam & Hisham Tax Services is a partnership formed by Adam and Hisham in 2010. The partnership provides accounting and tax services to clients in the northern states of Malaysia. The partners agree to share profits and losses on the ratio of 2:1 respectively. On 1 January 2020 the partners have agreed to admit Rahim in the partnership. The following is the summarised statement of financial position of the partnership as at 31 December 2019.
Additional information:
1. The agreement for the new partnership on 1 January 2020 is as follows:
Sharing profit and losses at ratio 4:3:3 between Adam, Hisham and Rahim.
Salary for Rahim is RM1,000 per month.
10% interest on capital per annum.
6% interest on drawing.
When Rahim joined the partnership, he contributed RM80,000 cash as capital. All partners agree to pay for goodwill based on the new profit-sharing ratio.
4. During the year 2020, drawings by partners were RM15,000 (Adam), RM10,000 (Hisham) and RM12,000 (Rahim).
5. The net profit for the year ended 31 December 2020 is RM80,000. The net profits have considered the interest on loan by Adam.
REQUIRED -
(a) Prepare the revaluation account, and partners' capital account on the admission of Rahim in the partnership. Show all the workings.
(b) Prepare profit appropriation account and current account as at 31 December 2020. Show all the workings.
(c) Assume partners agree to the dissolution of the partnership on 1 January 2021. Referring to the Partnership Act 1961, explain how the dissolution will be settled.
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