- Billy and Erica are partners sharing profits and losses in the ratio of 3:2 respectively. Their Statement of financial position as at March 31, 2016 was as follows:
Billy and Erica
Statement of Financial Position as at 31 March 2016
| $ | $ | |
| Non-current assets | ||
| Buildings | 65 000 | |
| Furniture | 15 000 | |
| Machinery | 13 000 | |
| 93 000 | ||
| Inventory | 30 000 | |
| Accounts receivable | 19 000 | |
| Cash at bank | 23 000 | |
| Cash in hand | 3 000 | |
| 75 000 | ||
| Less; Current liabilities | ||
| Accounts payable | 28 000 | |
| 47 000 | ||
| 140 000 | ||
| Financed by: | ||
| Capitals: | ||
| Billy | 70 000 | |
| Erica | 70 000 | |
| 140 000 |
On that date, they admit Devon into the partnership for 1/3 share of the profits on the following terms:
- Furniture and inventory are to decrease by 10%.
- Building is appreciated by $20 000.
- 5% provision is to be created for doubtful debts.
- Devon is to bring in $50 000 as his capital and $30 000 as goodwill.
Prepare:
- the revaluation account (7 marks)
- the partners’ capital account (10 marks)
- the Statement of Financial Position of the new firm. (8 marks)
