Question

Question 2 (16 marks: 29 minutes)
Mark and Tom are partners in a computer store trading as Blink Computers. They share profits and losses in the ratio 3:2
On 28 February 20.10 the statement of position indicated the following:
BLINK COMPUTERS STATEMENT OF FINANCIAL POSITION ON 28 FEBRUARY 20.10 ASSETS Non – current assets Property, plant and equipment (land and buildings) 1 000 000 Current Assets        Inventory 220 000        Cash and cash equivalent (land and buildings) 44 000 Total assets 1 264 000   EQUITY AND LIABILITIES Equity Capital: Mark 400 000 Capital: Tom 200 000 Current account : Mark 350 000 Current account : Tom 150 000 General reserve 100 000   Non – current liabilities Interest – free long term loan 64 000   Total equity and liabilities 1 264 000

1. On 1 March 20.10 Travis obtained a one third (1/3) interest in the partnership by depositing R650 000 into the cheque account of the partnership. 2. The partners do not want to show the general reserve on the statement of financial position after the admission of Travis. 3. The partner agreement states the following: a) Each partner is entitled to salary of R5 000 per month. b) Partners are entitled to interest on capital of 10% of the opening balance of their capital accounts. Newly admitted partners earn 10% of their capital contribution apportioned for the number of months that they served as partners. 4. Sales for the year amounted to R3 000 000. All sales were made in cash.

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5. Inventory purchases for the year amounted to R2 500 000. All purchases were made in cash. 6. Inventory on hand at 28 February 20. 11 amounted to R320 000. 7. Operating expenses of R160 000 was incurred and paid in cash during the year. Land and buildings are not depreciation. 8. Cash withdrawals by the partners during the year were as follows: Mark                                            R65 000 Tom                                             R30 000 Travis                                          R75 000 Total                                          R170 000

Required:
1) Calculate the new profit share ratio after the admission of Travis o1 March 2010. 2) Provide the journal entries to record the admission of Travis on 1 March 20.10. Journal narrations are not required. 3) Prepare the statement of financial position of the partnership on 28 February 20.11 Comparative figures are not required.

Answer 1

1	Calculate the new profit sharing ratio
	Let the total share be 1
	Travis Share	1/3
	Remaining Share	1-1/3	= 2/3
	Mark's Share	3/5* 2/3	=6/15
	Tom's Share	2/5 * 2/3	=4/15
	Travis Share	5/15
	New Profit Shareing Ratio	6:4:5
2	Providing Journal Entries for recording of Travis on March 1, 2010
Date	Particulars	Dt Amount	Cr. Amount
1-Mar	Cash a/c……..dr	650000
	To Travis ' s Capital		650000
	General Reserve……dr	100000
	To Mark's Current A/c		60000
	To Tom's Current A/c		40000
	Partner's Capital Account
		Mark	Tom	Travis		Mark	Tom	Travis
					By Balance b/d	400000	200000
	To Balance c/d	400000	200000	650000	By Cash			650000
		400000	200000	650000		400000	200000	650000
Partner's Current Account
	To Withdrawals	65000	30000	75000	By Balance b/d	350000	150000
					By General Reserve	60000	40000
					By Salary	60000	60000	60000
					By Interest on Capital	40000	20000	65000
					By Profit	54000	36000	45000
	To Balance c/d	499000	276000	95000
		564000	306000	170000		564000	306000	170000
	Statement of Financial Position
		Blink Computers
		Statement of Financial Position
		on 28th February, 2018
	Assets
	Non-Current Assets
	Property, Plant and Equipment		1000000
	Current Assets
	Inventory	320000
	Cash and Cash Equivalents	864000	1184000
	Total Assets		2184000
	Equity Liabilities
	Equity
	Mark Capital	400000
	Tom Capital	200000
	Travis Capital	650000	1250000
	Mark Current Account	499000
	Tom Current Account	276000
	Travis Current Account	95000	870000
	Non Current Liabilities
	Interest Free Long term loan		64000
	Total Equity and Liabilities		2184000