Question

Financial Accounting

Section B Partnership Question No. 02 - Compulsory Land M are partners of LM Partnership and M and N are partners of MN Partnership sharing profits and losses in the ratio of 1:1 and 2:3 respectively. On 31.03.2019 they decided to amalgamate the two partnerships and form a new firm. LMN Partnership where the L. M and N will share the profits and losses in the ratio of 3: 2: 1 respectively. The Statement of Financial Positions of the two firms are as follows as at 31.03.2019 were as follows. LM MN Partnership Partnership LM Partnership MN Partnership Non - current Capital Assets 175,000 250,000 105,000 160,000 55,000 85,000 Building 120,000 Office Furniture 175,000 100,000 Current Assets Inventory Debtor Reserves 125,000 95.000 75,000 87,000 110,000 15,000 Due from MN 15,000 Liabilities Due to LM Partnership Creditors Accrued Expenses 70,000 10,000 80,000 19,000 60.000 55,000 95,000 Cash in Bank 6,000 Cash in Hand 511,000 560,000 511,000 560,000

Answer 1

LNM Partnership
Statement of Financial Position
as at 31.03.2019
Capital		Non-Current Assets
L	469,330.00	Building	360,000.00
M	312,887.00	Office Furniture	155,000.00
N	156,443.00
		Partners' Current Account
Partners' Current Account		M	17,897.00
L	26,845.00	N	8,948.00
		Current Assets
Liabilities		Inventory	205,660.00
Creditors	165,000.00	Debtors	185,000.00
Accrued Expenses	16,000.00	Cash in Bank	140,000.00
		Cash in Hand	74,000.00
	1,146,505.00		1,146,505.00
Working Notes
Computation of Purchase Consideration
LM Partnership	MN Partnership
Building	120,000.00	Building	240,000.00
Office Furniture	85,000.00	Office Furniture	70,000.00
Inventory	107,350.00	Inventory	98,310.00
Debtors	90,000.00	Debtors	110,000.00
Goodwill	156,000.00	Goodwill	90,000.00
Cash in Bank	60,000.00	Cash in Bank	80,000.00
Cash in Hand	55,000.00	Cash in Hand	19,000.00
Total Assets	673,350.00	Total Assets	707,310.00
Creditors	70,000.00	Creditors	110,000.00
Accrued Expenses	10,000.00	Accrued Expenses	6,000.00
Total Liabilities	80,000.00		116,000.00
Purchase Consideration	593,350.00		591,310.00
Note - Amount due from MN Partnership will be included in Debtors of LN Partnership
and amount due to LM Partnership would be included in Creditors of MN Partnership
However,this amount will be eliminated while preparing the financial statements of
LMN Partnership.
Since, Goodwill is not be recorded in the books of LNM Partnership it would not be
paid by the partnership firm but by the individual partners of the LNM Partnership
to the partners of LM Partnership and MN Partnership
Total Purchase Consideration	593,350.00	591,310.00
Payable by LNM Partnership	437,350.00	501,310.00
Payable by the individual partners	156,000.00	90,000.00
Total Consideration payable by LNM Partnership	938,660.00
Contribution of L in the ratio 3/6	469,330.00
Contribution of M in the ratio 2/6	312,887.00
Contribution of N in the ratio 1/6	156,443.00
Total Amount payable against Goodwill by individual partners	246,000.00
Contribution of L in the ratio 3/6	123,000.00
Contribution of M in the ratio 2/6	82,000.00
Contribution of N in the ratio 1/6	41,000.00
2.
Computation of Revaluation Account for LM Partnership
Building	55,000.00	Inventory	12,350.00
		L Capital Account	21,325.00
		M Capital Account	21,325.00
	55,000.00		55,000.00
Capital Account	L	M
Beginning Balance	250,000.00	105,000.00
Reserves	62,500.00	62,500.00
Revaluation Reserve	(21,325.00)	(21,325.00)
	291,175.00	146,175.00
Goodwill receivable by LM Partnership	156,000.00
Share of L	78,000.00
Share of M	78,000.00
Computation of Revaluation Account for MN Partnership
M Capital Account	42,524.00	Building	80,000.00
N Capital Account	63,786.00	Office Furniture	15,000.00
		Inventory	11,310.00
	106,310.00		106,310.00
Capital Account	M	N
Beginning Balance	120,000.00	175,000.00
Reserves	40,000.00	60,000.00
Revaluation Reserve	42,524.00	63,786.00
	202,524.00	298,786.00
Goodwill receivable by MN Partnership	90,000.00
Share of M	36,000.00
Share of N	54,000.00
Capital in LM Partnership
L	291,175.00
M	146,175.00	437,350.00
Capital in MN Partnership	-
M	202,524.00
N	298,786.00	501,310.00
Total		938,660.00
Paid by
LNM Partnership	938,660.00
Total		938,660.00
Goodwill in LM Partnership
L	78,000.00
M	78,000.00	156,000.00
Goodwill in MN Partnership	-
M	36,000.00
N	54,000.00	90,000.00
Total		246,000.00
Paid by
LNM Partnership	938,660.00
Total		938,660.00
Capital
	L	M	N
Receivable	291,175.00	348,699.00	298,786.00
Payable	469,330.00	312,887.00	156,443.00
Net Receivable/(Payable)	(178,155.00)	35,812.00	142,343.00
Goodwill
	L	M	N
Receivable	78,000.00	114,000.00	54,000.00
Payable	123,000.00	82,000.00	41,000.00
Net Receivable/(Payable)	(45,000.00)	32,000.00	13,000.00
Total Receivable/(Payable)	(223,155.00)	67,812.00	155,343.00
Net amount payable by L after adjustment of accounts is 223,155.He has paid
250,000 which is an excess of 26,845 which when adjusted will be recovered from
M and N