Reference no: EM133197510
Lau & Wang are partners in a trading business. Their partnership agreement is provided as follows:
Wang was to receive a salary of RM30,000
Interest was allowed at 10% per annum on capital
After allowing for the above said salary and interest, profits/ losses were shared in the ratio Lau 3/5,
Wang 2/5.
Their fixed capitals at 1 January 2008 were:
Lau RJ11140,000
Wang RMl00,000
Lau & Wang agreed to admit Chung to the partnership with effect from 1 July 2008. The terms and conditions under which Chung was admitted were:
(i) Chung would bring in RM80.000 as capital
(ii) Goodwill of the firm would be RM90,000 It was agreed that the goodwill account should not be retained in the books.
(iii) The three partners' capitals would be made equal by Lau & Wang either paying in additional cash or withdraw cash
(iv) No interest would be allowed on capital
(v) Wang's annual salary would remain at RM30,000 and Chung would receive an annual salary of RM25,000.
(vi) The residue of profits would be divided equally.
The net profit for 2008 was RM94,000 and this accrued evenly throughout the year.
Required:
(a) The journal entries for admission of Chung as a partner, i.e., items (i) to (iii) above.
(b) The income Appropriation Statement for the year ended 31 December 2008.
(c) Explain the nature of goodwill and why it after arises when a change in partnership takes place.
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