Question

Chia, Kiat and Poh were in partnership sharing profits and losses equally. On 31 December 1985, the credit balances on the partners' capital accounts (current accounts were not kept) were Chia $160 000, Kiat $120 000 and Poh $60 000. On 1 January 1986 Kiat retired from the partnership. To ascertain the total amount due to him, goodwill was valued at $30 000 and the fixed assets were valued at $18 000 more than the amount at which they appeared in the books. By agreement no goodwill account was raised and there was no alteration in the book amounts of the fixed assets. The total sum due to Kiat was paid over to him on 1 July 1986. Chia and Poh continued in partnership sharing profits equally. The trading profit for the year ended 31 December 1986 was $54 000 and the partners drawings during the year were Chia $6 000 and Poh $17 000. On 1 July 1987 Yeo was admitted as a partner and from that date onwards profits and losses were shared in the proportions Chia two-fifths, Poh two-fifth and Yeo one-fifth. Yeo introduced $40 000 as capital and $12 000 for his share of goodwill and unrecorded appreciation in the value of fixed assets. No goodwill account was raised and the book value of fixed assets was not changed, the partners making the appropriate adjusting entries in their capital accounts. The trading profit for 1987 was $65 000 which accrued evenly over the period. Drawings for the year were Chia $23 000, Poh $33000 and Yeo $5 000. On 2 January 1988 the partnership was dissolved, and the net assets were sold for $320 000 cash. On the same day the partners accounts were closed, and they withdrew the sums due to them. REQUIRED Partners' capital accounts for the period from 31 December 1985 to 2 January 1988 showing clearly the balances carried down on 31 December of each year.

Answer 1

1) On 01/01/1986 Goodwill is calculated under Sacrifiying Ratio.

Cr. Partner's Capital Accounts Yeo Date Date Particulars Chia Kiat Poah Particulars Chia Kiat Poah Yeo $160,000.00 $ 60,000.00 $ $ 5,000.00 3,000.00 12/31/1985 Opening Balance 1/1/1986 Chia (Goodwill) 1/1/1986 Poah (Goodwill) 1/1/1986 Poah (Capital Reserves) 12/31/1986 Profit $120,000.00 $ 5,000.00 $ 5,000.00 $ 6,000.00 $31,413.00 Kiat (Goodwill) $ 5,000.00 $31,413.00 Kiat (Capital Reserves $ 3,000.00 $31,594.00 Bank (Exit) $31,777.00 Drawings $ 6,000.00 $31,777.00 Closing Capital $ 173,000.00 $ 136,000.00 $ 17,000.00 $ 62,000.00 $ 27,000.00 $ 27,000.00 $ 187,000.00 $ 136,000.00 $ 87,000.00 $ - $ 187,000.00 $ 136,000.00 $ 87,000.00 $ $173,000.00 $ - $ 62,000.00 1/1/1987 Opening Capital 1/1/1987 Bank (Capital) 1/1/1987 Bank (Goodwill) 1/1/1987 Yeo(Goodwill) 12/31/1987 Profit $ - $ 40,000.00 $ 12,000.00 $31,778.00 Chia (Goodwill). $31,778.00 Poah (Goodwill) $32,142.00 Drawing $32,142.00 Closing Capital $ 6,000.00 $ 6,000.00 $ 33,000.00 $ 5,000.00 $ 61,000.00 $ 48,000.00 $ 23,000.00 $ 182,000.00 $ 6,000.00 $ 26,000.00 $ 6,000.00 $ 26,000.00 $ 13,000.00 $ 205,000.00 $ - $ 94,000.00 $ 65,000.00 $ 205,000.00 $ - $ 94,000.00 $ 65,000.00 $ . 1/1/1988 Opening Capital 1/2/1988 Realization A/C $182,000.00 $ 128,000.00 $ 61,000.00 $ 128,000.00 $ 48,000.00 $ 64,000.00 $32,144.00 Realization A/C $32,144.00 Bank (Exit) $ 182,000.00 $ 128,000.00 $ 61,000.00 $ 128,000.00 $ 48,000.00 $ 64,000.00 $310,000.00 $ - $ 189,000.00 $ 112,000.00 $ 310,000.00 $ $ 189,000.00 $ 112,000.00

12000/2=6000 Each Gaining Partner's

2) On 01/01/1987 Goodwill is calculated under Gaining Ratio.

10000/2=5000 Each Gaining Partner's