PARTNERSHIP PARTNERSHIP FORMATION AND OPERATION
I. On 1 November, 2013, Ken Langer and Ann Walters formed a partnership. Langer ontrib!ted some b!siness assets and the liabilities ass!med b" the partnership, #hih are listed belo# at both fair val!e and arr"ing amo!nt. $air %al!e &arr"ing Amo!nt &ash at ban' +2,00 +2,00 (ar'etable se!rities -,+20 3,/0 Ao!nts reeivable +-,000 +,0 Inventor" 13+,/0 132,000 )*!ipment 3-2,000 33,000 Ao!nt pa"able pa"able 10+,00 10+,00 Walters ontrib!ted a b!ilding #orth 3/,000, land #orth 13,000 and a 330,000 mortgage #as ta'en over b" the partnership. he" agreed to share profits and losses in the ratio of -. 4!ring the first "ear of the partnership, partnership, Langer invested ,000 in the b!siness and #ithdre# -+,00. Walters invested /,000 and #ithdre# 1-,-00. he partnership had a net profit of 1,00. 5etained profits ao!nts are not !sed. 5e*!ired 1. repare the 6o!rnal 6o!rnal entries entries to reord reord the initial investment investment of both partners. partners. 2. repare a statement statement of finanial position as at 1 November, November, 2013. 3. repare a statement statement of partner7s e*!it" e*!it" for for the "ear "ear ended ended 31, Otober 201-. II. 8eleted ao!nts from the trial balane as at 30, 9!ne 2013 of the partnership of W. )arp, 9. )arp and 4. :olida" are as follo#s 4ebit
&redit 13,0+0
Loan ; 8tate $inane Ltd. rofit < Loss 8!mmar" =after !s!al ad6!sting and losing entries for net profit determination> -1,/2+ 8alar", 9. )arp ,+00 W. )arp, &apital -/,+00 W. )arp, 5etained profits 1,0+0 9. )arp, &apital 2-,+0 9. )arp, 5etained profits +2+ 4. :olida", &apital 1,+00 4. :olida", 5etained profits + Advane, 4. :olida" =repa"able in Otober Otober 201-> ,00 $!rther ad6!stments for the finanial "ear ended 30 9!ne, 2013 have "et to be made as follo#s a. Interest Interest ar! ar!ed ed to 8tate 8tate $inan $inane e Ltd. Ltd. ; 1,100. 1,100. b. he partner partnership ship ao!n ao!ntant tant has d!l" d!l" paid 9. )arp7s agreed agreed salar" salar" as part?time part?time manager manager = ,+00 ,+00 per ann!m> b!t #as !nertain ho# to harge it. . artn artners ers have have agree agreed d to to @ per ann!m interest on fied apitals. @ interest on total dra#ings for the "ear #hih #ere W. )arps ; 12,000B 9. )arps ; ,+0 and 4. :olida" ; ,2+0. @ per ann!m interest on advane from :olida". rofitClosses to be shared D, 1C3, 1C to W. )arp, 9. )arp and 4. :olida", respetivel". • •
• •
5e*!ired 1. &omplete the rofit and Loss 8!mmar" ao!nt. 2. repare rofit 4istrib!tion ao!nt. 3. &omplete eah partner7s 5etained rofits ao!nt after all ad6!stments. III. Ero#n, Eall and Ela' are in partnership sharing profits and losses in the proportion of a half, one?third and one?sith, respetivel". heir apitals at 9!l" 1, 2013, the date of ommenement of b!siness, #ere Ero#n -,000, Eall 0,000 and Ela' 3+,000, all ontrib!ted in ash. he partners did not 'eep a omplete set of ao!nting reords and at 9!ne 30, 2013 their assets and liabilities #ere val!ed as follo#s before ad6!stments =a> to =d> belo# Inventor" 11+,+00B Ao!nts 5eeivable -/,+0B Eills 5eeivable 1,/20B lant and )*!ipment -0,320B remises -,-00B Eills a"able .-00B Ao!nt a"able 3-, 10B Ean' Overdraft 1,20. 4ra#ings made b" the partners in antiipation of profits for the "ear ended 9!ne 30, 2012 amo!nted to Ero#n ,000, Eall +,00 and Ela' -,200. Ero#n paid in an additional 1,00 on 9an!ar" 1, 2013. 5e*!ired 1. repare a statement of distrib!tion of profit for the "ear to eah partner after ma'ing the follo#ing ad6!stments a. depreiation on plant and e*!ipment, 10@ and on b!siness premises, 2@ =!se straight line method> b. allo#ane for do!btf!l debts e*!al to -@ of ao!nts reeivable and bills reeivable . interest on dra#ings Ero#n 1B Eall 1+-B Ela' 1-0 d. interest on apital at @ per ann!m 2. repare a statement of finanial position for the partnership as at 9!ne 30, 201-. I%. Able, Eabel and &able are in a hard#are b!siness trading as AE& &o. he partnership agreement inl!des the follo#ing provisions a. Interest on apital is to be allo#ed at @ per ann!m. b. 8alaries are to be allo#ed Able, nilB Eabel, ,000B &able, ,000. . Interest is to be allo#ed on advanes b" partners at @ per ann!m. A trial balane at 9!ne 30, 2013, after the ativities of the preeding "ear had been reorded b!t before the sto' ta'e, is sho#n belo# AE& &ompan" rial Ealane as of 9!ne 30, 2013 &ost of goods sold &ash at ban' Ao!nts reeivable Allo#ane for do!btf!l debts Inventor" $!rnit!re, plant and e*!ipment A!m!lated depreiation ; f!rnit!re, plant and e*!ipment repaid ins!rane repaid rent Ao!nt pa"able Advane from Able =d!e for pa"ment on April 1+, 2012>
4ebit 300,000 ,000 120,000
&redit
3,000 22+,000 200,000 12+,000 2,+00 -,000 100,000 0,000
Able, &apital Eabel, &apital &abel, &apital Able, 5etained profits Eabel, 5etained profits &abel, 5etained profits 8ales reven!e 8elling and general epenses 4iso!nt reeived roeeds from sale of motor vehile &arr"ing amo!nt of motor vehile sold
0,000 -0,000 -0,000 2,000 13, 000 10,000 --0,000 +,00 +00 12,000 13,000 /-+,+00
/-+,+00
Additional information a. (erhandise o -00 p!rhased on redit #as reeived on 9!ne 30, 2013, b!t had not been reorded in the ao!ntsB nevertheless, it had been inl!ded in the ph"sial sto' ta'e of 223,000. b. Ins!rane and rents to be epenses #ere assessed at 1,200 and 2,200, respetivel". . 4epreiation epense to be bro!ght to ao!nt, ,00. d. Wages o#ed b!t not paid amo!nted to 3,00. e. artners Eabel7s and &abel7s salaries had not been bro!ght to ao!nt. f. Interest on Able7s advane had not been bro!ght to ao!nt. g. %erifiation of ao!nts reeivable revealed that the balane of the allo#ane for do!btf!l debts sho!ld be inreased to 3,00. he inrease is related to sales reven!e reogniFed in the !rrent period. 5e*!ired 1. repare the statement of finanial performane for the period ended 9!ne 30, 2013. 2. repare a rofit 4istrib!tion ao!nt for the same period. 3. 8et o!t the statement of finanial position as at 9!ne 30, 2013, properl" lassified. %. On 9an!ar" 2, 2010, 4ave and 4on formed a general partnership. Eelo# #ere the movements of their apital balanes d!ring the "ear
Investment, 9an!ar" 2 Additional investment, Otober 30 Withdra#als, 4eember 1
4ave -+0,000 2+,+00 =12,000>
Investment, 9an!ar" 2 Withdra#als, 9!l" 1
4on ++0,000 =100,000>
repare a 8hed!le of rofit or Loss !nder the follo#ing independent ass!mptions 1. Net inome is 12+,000. he partnership is silent as to the sharing of net inome or loss. 2. Net inome is 310,000. he" agreed to provide for 10@ interest on average apital balanesB monthl" salar" of +00 and 00 to 4ave and 4on respetivel"B 20@ bon!s based on inome after interest, salaries and bon!s to partners =shared e*!all">B remaining profit is given at 1- to 4ave and 4on, respetivel". 3. Net loss is 100,000. he" agreed to provide for 1+@ interest on ending apital balanesB salar" to 4on of 100,000B 10@ bon!s based on net inome after salaries and interests =shared e*!all">B an" balane is distrib!ted in the ratio of beginning apital. -. Net inome is 12-,000. (onthl" salar" is 1,000 eah to the partnersB 10@ interest on beginning apital balanesB 1+@ bon!s based on inome after salaries and interests =shared e*!all">B an" balane is divided e*!all". +. aable inome is +-,000. a rate is 32@. Eon!s to 4ave is treated as part of operating epenses and al!lated at 20@ on net inome after bon!s b!t before taes. 5emaining profit is distrib!ted e*!all". 6. aable inome is -,000. a rate is 32@. Eon!s is treated as part of operating epenses and al!lated at 30@ on net inome after ded!tion for bon!s and taes =shared e*!all">. 5emaining profit is distrib!ted e*!all".
