Question

Partnership: Changes in Ownership

Study the scenario below and answer the question that follows:

Jones and Smith Partnership

The following balance occur in the books of of Jones and Smith who currently share profits/losses equally. the given balances as at 30 June 2020 are:

Description	Carrying amount	New Values due to change in partnership ownership
Capital: Jones	3 000
Capital: Smith	2 000
Current account: Jones (Dr)	100
Current account: Smith (Cr)	200
General reserve	1 000
Trade accounts payable	2 400
Land and Buildings	5 000	8 000
Trade accounts receivable	1 500
Bank (Dr)	500
Provision for credit losses		300
Inventories	1 500	1 200
Goodwill		2 100

Additional Information:

1. Jones and Smith will withdraw or pay in sums of money so that their net interest in the old partnership will be R5 000 each.

2. On the 1st of July they admit Brown as a partner and according to the new partnership agreement, he has to deposit a capital sum of R5 000 in the partnership's bank account.

3. The partners decided that the general reserve should be re-instated in the books of the new partnership.

4. The new partners will share profit and losses equally and the new partnership will be known as JSB partners.

Required:

Prepare all journal entries required to close off the old partnership.

Answer 1

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