Question

The Capital balances of Partners Eliza and Sara are k20, 600 and K14, 400 respectively before
Ruth and Tatty are admitted to the Partnership. At admission Ruth purchased One third of Eliza’s
interest for k8, 000 and one third of Sara’s interest for k4, 200. Tatty was admitted to the
Partnership with an investment of K8, 000. For which she is to receive ownership title of K8, 000.
After one year of operations, the Partnership made an income of K7, 000 and the Partners participation in
net income was to be done under the following income ratios.
Interest allowance of 30% annually on their capital balances, salary allowance of K1, 600, k4, 000,
K3,000 and K2, 000 to Eliza, Sara, Ruth and Tatty respectively. Furthermore, Eliza was entitled to a
bonus of 10% if the difference between her salary allowance and Net income is less than k5, 000 and the
residual should be shared on an equal basis
i. Journalize the entries for the admission of Ruth and Tatty. ( 5 Marks)
ii. Determine the Capital balances of Eliza and Sara after admission of Ruth and Tatty (10
Marks)
iii. Prepare the income sharing schedule and pass the necessary journal entry

Answer 1