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

CAPITAL ACCOUNTS OF PARTNERS

          PARTICULARS             FOURIE     FOUCHE    PARTICULARS             FOURIE     FOUCHE

   To Goodwill                       1200               800           By O/B                         18000         12000

To allowance                          600              400            By Land and Build.         48000        32000

To C/B                                 66875          40125           By Cash                        2675            2675

New ratio after partner admission is :5 : 3 :2

Since new partner capital is 26750 ,capital of fourie and fouche should be 66875 and 40125 , so they have to brought 2675 each.

(2) No need to liquiadte partnership - New partner can be admitted without liquidation

Realization -       land and building      90000

                         Other assets           10000

                         Bank                      126350   (1000+2675+2675+120000)

                    Total                            226350

Less - liabilities                                  2000

Total                                               224350

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