Question 3 (20 marks: 36 minutes) Fourie and Fouche are in partnership, which op

Question

Question 3 (20 marks: 36 minutes) Fourie and Fouche are in partnership, which operates as a general dealer and their profit sharing ratio 3:2. The fo llowing statement of financial position appears in their books on 30 June 20.4: Capital Fourie Fouche Assets Land and building at cost Furniture at Goodwill Invent Debtors (after allowance for credit losses of R 1000 Bank Liabilities (creditors 3 000 18 000 12 000 30 000 10 000 2 000 2 000 1 400 3 000 1 000 2 000 value It was agreed on 30 June 20.4 to admit Van Romburg as partner on the following conditions: a) The goodwill that is currently shown in the partnership must be written off. b) The allowance for credit losses must be increased to R 2000 c) Land and building must be re-valued to the market value of R90 000. d) Van Romburg will receive 1/5 of the future profits, which will be surrendered in equal parts by the current partners. e) Van Romburg must bring in R120 000 in cash of which R26 750 is for capital and the rest for goodwill. f) Goodwill must be shown in the books of the new partnership. g) Fourie and Fouche have to pay in or withdraw cash so that their capital contribution are in comparison with Van Romburg in the ratio 5/10 and 2/10 respectively Required 1. 2. Show the capital accounts of the partners to carry out the above mentioned. (15 marks) Show what the realization account would look like in the ledger, should the partnership be liquidated prior to Van Romburg's joining. (5 marks) Assume that the asset would realize as follows; Land and buildings, R90 000 Other assets, R10 000.

Explanation / Answer

1.

Existing Profit Share

Fourie

3/5

Fouche

2/5

New Partner Van Romburg is to be admitted for 1/5th share

The share is equally surrendered by both the partners

Share to be surrendered by each partner is 0.5/5

New Profit Sharing Ratio

Fourie

2.5/5

or

5/10

Fouche

1.5/5

or

3/10

Van Romburg

1/5

or

2/10

Share forgone by each partner

Fourie

1/10

Fouche

1/10

Revaluation Account

Explanation

Particular

Dr Amount

Particular

Cr Amount

Increase in Allowance of Credit losses

Allowance for credit losses

1000

Revaluation of Land & Building

Land & Building

80000

Shared among old partners in old profit sharing ratio

Fourie's Capital Account

47400

Fouche's Capital Account

31600

80000

80000

Fourie's Capital Account

Explanation

Particular

Dr Amount

Particular

Cr Amount

Opening Balance

Opening Balance

18000

Writing off goodwill as per old profit sharing ratio

Goodwill written off

1200

New Goodwill shared among the old partner's for the

lost share in losing Share Ratio

Van Romburg's Capital Account

46625

Revaluation share

Revaluation

47400

Withdrawing Cash to match the Ratio of 5/10

with new partner's Capital

2650

Closing Balance

Balance Carried Forward

13375

64625

64625

Fouche's Capital Account

Explanation

Particular

Dr Amount

Particular

Cr Amount

Opening Balance

Opening Balance

12000

Writing off goodwill as per old profit sharing ratio

Goodwill written off

800

New Goodwill shared among the old partner's for the

lost share in losing Share Ratio

Van Romburg's Capital Account

46625

Revaluation share

Revaluation

31600

Withdrawing Cash to match the Ratio of 5/10 with

new partner's Capital

20875

Closing Balance

Balance Carried Forward

5350

58625

58625

Van Romburg's Capital Account

Explanation

Particular

Dr Amount

Particular

Cr Amount

Bringing in Cash

Bank

120000

New Goodwill shared among the old partner's for the lost share in losing Share Ratio

Fouche's Capital Account

46625

Fourie's Capital Account

46625

Closing Balance

Balance Carried Forward

26750

120000

120000

Existing Profit Share

Fourie

3/5

Fouche

2/5

New Partner Van Romburg is to be admitted for 1/5th share

The share is equally surrendered by both the partners

Share to be surrendered by each partner is 0.5/5

New Profit Sharing Ratio

Fourie

2.5/5

or

5/10

Fouche

1.5/5

or

3/10

Van Romburg

1/5

or

2/10

Share forgone by each partner

Fourie

1/10

Fouche

1/10

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