Reference no: EM133180485
Question - Part A - Davion and Marci are started a partnership many years ago sharing profits and losses in the ratio of 3:2. The trial balance as at 31 December 2021 was as follows:
Details
|
Dr ($)
|
Cr ($)
|
Bank
|
18,000
|
|
Inventory at 1st January 2021
|
22,400
|
|
Trade receivables
|
23,600
|
|
Plant and machinery
|
95,000
|
|
Accumulated depreciation: Plant and machinery
|
|
19,000
|
Office equipment
|
64,000
|
|
Accumulated depreciation: office equipment
|
|
12,800
|
Sales
|
|
192,200
|
Purchases
|
68,000
|
|
Capital accounts
|
|
|
Davion
|
|
50,000
|
Marci
|
|
30,000
|
Current accounts
|
|
|
Davion
|
|
4,500
|
Marci
|
|
8,700
|
Drawings
|
|
|
Davion
|
5,000
|
|
Marci
|
4,000
|
|
Long term loan
|
|
50,000
|
Trade payables
|
|
7,800
|
Salaries and wages
|
28,500
|
|
Rent expense
|
27,500
|
|
Utilities expense
|
6,900
|
|
Interest expense
|
3,750
|
|
Insurance expense
|
8,350
|
|
|
375,000
|
375,000
|
Following information is relevant:
1. Inventory was valued at $17,200 at December 31, 2021.
2. Interest on long term loan is payable at 10%. Interest of last quarter of 2021 is not yet paid.
3. Rent of $2,500 relating to the month of December is still outstanding.
4. Insurance of $2,350 relates to 2022.
5. Depreciation expense is to be charged at 10% on plant and machinery using the reducing balance method and 20% on office equipment using straight line basis.
6. Davion is entitled to a salary of $8,500. This amount is in addition to the salaries and wages expense given in trial balance.
7. Interest on capital is 5%. There is no interest on drawings.
From information given in Part A, prepare end-of-year financial statements for partnerships (Income statement, appropriation account, partner's current account and statement of financial position), incorporating appropriate adjustments.
Part B - On 31 December 2021, Riki is admitted for a 20% share in the profit or losses of the firm. Following information is relevant:
Capitals of partners in the new firm would be in the profit sharing ratio. Any excess or deficit is to be settled by contribution or withdrawal of cash.
Riki brought $21,000 to purchases 20% share in partnership.
Partnership's goodwill is valued at $25,000. Goodwill is not to be recorded in books.
Net assets of the partnership are to be revalued upwards by $6,000.
From information given in Part B, prepare the accounting entries to record goodwill for changes to a partnership?