Question

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Kamal, Teoh and Mohan are in a legal partnership. The following balances were extracted from the...

Kamal, Teoh and Mohan are in a legal partnership. The following balances were extracted from the partnership books of account as at 31 March 2018.

RM

RM

Capital account as at 1 April 2017:

Kamal

72,000

Teoh

62,000

Mohan

52,000

Current account as at 1 April 2017:

Kamal

45,000

Teoh

44,000

Mohan

43,000

Land and building

102,000

Accumulated depreciation

66,000

Fixtures and fittings

52,000

Accumulated depreciation

46,000

Inventories

45,500

Accounts receivable (net)

67,000

Bank

83,500

Accounts payable

54,000

Revaluation surplus

63,500

Net profit for the year

66,500

482,000

482,000

Additional information:

    1. The partnership profit sharing ratio is 3:2:1.
  2. The partners will be entitled to 15 percent interest per annum on capital account balances.
  3. Kamal retired on 31 December 2017. Upon his retirement the assets are revalued resulting a revaluation surplus of RM63,500.
  4. Goodwill was valued at two year’s purchase of the average profit for the last three years. The profit for the last three years were:

RM

31 March 2017

90,000

31 March 2016

56,000

31 March 2015

52,000

  1. Due to his retirement, Kamal’s current account is to be transferred to his capital account. The partnership agreed to pay the amount due to Kamal, except for RM92,000 which remain as a loan to the partnership.
  2. Following Kamal’s decision to retire, Teoh and Mohan invited Salim to join the partnership on 1 January 2018. Salim agreed to pay RM57,000 into the new partnership as his capital contribution and RM49,000 for his share of goodwill. This entry has not been recorded in the books upon admission of Salim.
  3. The new partnership profit sharing ratio is 2:1:1.
  4. The net profit for the year is deemed to have been earned evenly throughout the year.

REQUIRED:

  1. Compute the goodwill for the partnership.
  2. Prepare the partnership appropriation account incorporating the pre and post period for the year ended 31 March 2018.
  3. Prepare the partner’s current account in a columnar form.
  4. Prepare the partner’s capital account in a columnar form.

Solutions

Expert Solution

Answers are in the photos attached

Read notes and assumptions carefully.

ekkarill92 answered 3 years ago
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