Question

Question 5

Susan and Tina have been in partnership for several years. They share profits and losses equally. On 1 January 2019, Bella was invited to join the partnership.

Upon the admission of Bella,

1. No assets were revalued upwards or downwards;
2. Goodwill was valued at $220,000 and no goodwill account was to be opened in the books; and
3. Bella introduced $130,000 into the partnership and brought in additional amount to pay for her share of goodwill.

However, they did not make any entries regarding the admission of Bella in the books. The trial balance as at 31 December 2019 was shown as follows:

Susan and Tina Trial Balance as at 31 December 2019
	Dr		Cr
	$		$
Net profit for the year			67,000
Furniture and fittings, Net book value	140,000
Motor vehicles, Net book value	88,000
Inventory as at 31 December 2019	20,000
Bank			11,500
Trade receivable	58,100
Trade payable			39,400
Salary to Susan	4,000
Capital accounts:
- Susan			110,000
- Tina			80,000
Current accounts:
- Susan			38,500
- Tina	12,300
Drawings:
- Susan (made on 1 November 2019)	6,000
- Tina (made on 1 December 2019)	18,000
	346,400		346,400

The followings were the partnership agreement among Susan, Tina and Bella:

• Profits and losses are shared in the following ratio: Susan 40%, Tina 30% and Bella 30%.
• Susan is entitled to partners' salaries of $10,000 annually.
• 10% interest is charged on partners' drawings.
• Each partner's capital balance is fixed at $130,000. Any surplus or deficit would be transferred to their respective current accounts.

REQURIED:

(a)    Prepare the appropriation account for the year ended 31 December 2019.

(b)     Prepare capital and current account in columnar form for the year ended      31 December 2019.                                        

Answer 1

Calculation of Sacrificing ratio: Sacrificing ratio = Old ratio of partners - New ratio of partners Bella Old Ratio Less: New Ratio Susan 1/2 2/5 Tina 1/2 3/10 3/10 Sacrificing Ratio 1/10 (Loss) 1/5 (Loss) - 3/10 (Gain) Sacrificing Ratio of Susan and Tina = 1:1 Journal Entries to be passed on Bella's admission: $ 130,000 Cash To Bella's Capital A/C (Capital introduction) 130,000 $ 66,000 Cash To Bella's Capital A/c ($200,000*30%) (Goodwill brought in by Bella) 66,000 Bella's Capital A/C $ 66,000 To Susan's Capital A/C 33,000 To Tina's Capital A/C 33,000 (Goodwill brought in by Bella transferred to Susan and Tina in the sacrificing ratio)

Parta Amount $ 71,000 Profit and Loss Appropriation Account for the Year ended December 31, 2019 Particulars Amount Particulars To Salary - Susan $ 10,000 By Net Profit b/d (67000 + 4000) By Interest on Partner's Drawings - Susan (110000*10%*2/12) - Tina (80000*10%*1/12) $ 10,000 $ 1,833 $ 667 $ 73,500 To Current A/c - Share of Profit - Susan (40%) - Tina (30%) - Bella (30%) $ $ $ $ 25,400 19,050 19,050 73,500 $ 73,500

Part b Susan Tina Particulars To Susan's Capital To Tina's Capital To Current A/c To Balance c/d $ $ 13,000 130,000 $ Capital A/C Bella Particulars Susan $ 33,000 By Balance b/d $ 110,000 $ 33,000 By Cash By Cash $ 130,000 By Bella's Capital $ 33,000 By Current A/C $ 196,000 Total $ 143,000 By Balance b/d $ 130,000 Tina Bella $ 80,000 $ $ 130,000 $ 66,000 $ 33,000 $ 17,000 $ 130,000 $ 196,000 $ 130,000 $ 130,000 130,000 Total $ 143,000 $ 130,000 Susan Particulars To Balance b/d To Interest on Drawings $ ital A/C $ Tina 12,300 667 17,000 $ $ $ 1,833 - Current A/C Bella Particulars Susan Tina Bella $ - By Balance b/d $ 38,500 $ . By Salary $ 10,000 $ - By Share of Profit $ 25,400 $ 19,050 $ 19,050 By Capital A/C $ 13,000 $ 19,050 By Balance c/d $ 10,917 $ 19,050 Total $ 86,900 $ 29,967 $ 19,050 By Balance b/d $ 85,067 - $ 19,050 S $ Total By Balance c/d 85,067 $ 86,900 $ $ 29,967 10,917