BKAR3033 FINANCIAL ACCOUNTING & REPORTING III A231

MINI CASE 5 PARTNERSHIP

DUE DATE: 11/1/2024

QUESTION 1
Melur, Mawar and Melati have been in a partnership since 2018. They shared profits and
losses in the ratio 2:1:1. The following balances were extracted from the partnership books of
account as at 30 June 2023.

Debit Credit
(RM) (RM)
Land 272,000
Building 176,000
Accumulated depreciation - building 120,000
Vehicles 160,000
Accumulated depreciation - vehicles 40,000
Equipment 88,000
Accumulated depreciation - equipment 48,000
Inventories 52,000
Accounts receivable (net) 102,400
Bank 125,600
Accounts payable 88,000
Long-term loan 196,800
Capital account as at 30 June 2023:
Melur 121,600
Mawar 108,800
Melati 102,400
Current account as at 30 June 2023:
Melur 48,000
Mawar 56,000
Melati 46,400
976,000 976,000

Additional information:
1. Mawar retired on 4 July 2023. Upon her retirement:
i) The land and building were revalued at RM20,000 and RM10,000 above their
carrying amounts, respectively.
ii) The vehicles and equipment were revalued at 5% lower from its cost.
iii) Melur took over the inventory at a value of RM47,000.
iv) Due to her retirement, Mawar’s current account is to be transferred to her capital
account. The partnership agreed to pay the amount due to Mawar, except for
RM100,000 which remain as a loan to the partnership.

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2. After Mawar’s retirement from the partnership, Melur and Melati invited Melisa to join
the partnership on 4 July 2023. Melisa agreed to pay RM100,000 into the new
partnership as her capital contribution and RM50,000 for her share of goodwill. This
entry has not been recorded in the books upon admission of Melisa. The new
partnership profit sharing ratio for Melur, Melati and Melisa is maintained at 2:1:1.

3. Goodwill was valued at two year’s purchase of the average annual profit of the last four
years. The profit for the previous four years were as follows:

Financial Year Ended: RM

30 June 2019 110,000
30 June 2020 100,500
30 June 2021 113,600
30 June 2022 119,500

4. The net profit for the year is deemed to have been earned evenly throughout the year.
REQUIRED:
(Round your answers to the nearest RM)

(a) Compute the goodwill for the partnership and prepare the goodwill account to record
allocation of goodwill among partners on 4 July 2023.
(b) Prepare the revaluation account upon retirement of Mawar and admission of Melisa to
the partnership.
(c) Prepare the partner’s capital account as at 4 July 2023 in a columnar form.
(d) Explain the determination of goodwill based on super profits.

QUESTION 2
Atan, Neeta and Yoga (ANY & Partners) have been in partnership business in publication
services for 5 years. The following balances were extracted from the partnership books of
account as at 30 November 2022:

Account Debit (RM) Credit (RM)

Capital account 1 Dec 2021
Atan 142,500
Neeta 127,500
Yoga 120,000
Current account 1 Dec 2021
Atan 45,000
Neeta 52,500
Yoga 43,500
Land 255,000
Motor vehicles 150,000
Accumulated depreciation- motor vehicles 37,500
Building 165,000
Accumulated depreciation-building 112,500

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 Fixtures and fittings 82,500
Accumulated depreciation-fixtures and 45,000
fittings
Inventories 48,750
Accounts receivable (net) 96,000
Bank 117,750
Accounts payable 82,500
Net profit for the year 106,500
Total 915,000 915,000

Additional information:
1. The partnership profit sharing ratio for Atan, Neeta and Yoga is 4:3:2.
5. The partners will be entitled to 12% interest per annum on capital account balances.
6. Annual salary for partners was paid based on partners’ commitment. Atan, Neeta and
Yoga received RM27,000, RM9,000 and RM9,000, respectively as their salary for
2021.
7. Atan retired on 7 December 2022. Upon his retirement:
i. Land was revalued at 20% higher than its cost.
ii. Building was revalued at RM2,500 below its carrying amount.
iii. Neeta took over the inventories at a value of RM44,000.
iv. On his retirement, Atan’s current account is to be transferred to his capital
account. The partnership agreed to pay the amount due to Atan, except for
RM40,000 which remain as a loan to the partnership.
v. Atan also agreed to take over the fixtures and fittings at 10% below its book
value.
8. Following Atan’s decision to retire, Neeta and Yoga invited Aliya to join the
partnership on 7 December 2022. Aliya agreed to pay RM80,000 into the new
partnership as her capital contribution and RM7,500 for her share of goodwill. This
entry has not been recorded in the books upon admission of Aliya. The new
partnership profit sharing ratio for Neeta, Yoga and Aliya is 3:2:1.
9. Goodwill was valued at three year’s purchase of the annual super profit.
10. The net profit for the year is deemed to have been earned evenly throughout the year.

REQUIRED:
(Round up your answers to the nearest RM)

(a) Compute and prepare the goodwill account to record the allocation of goodwill among
partners on 7 December 2022.
(b) Prepare the revaluation account upon admission of Aliya and retirement of Atan from
partnership on 7 December 2022.
(c) Prepare the partner’s capital account as at 7 December 2022 in a columnar format.

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(d) Assume the partners agreed for dissolution of the partnership on 7 December 2022.
Referring to the Partnership Act 1961, explain how the dissolution will be settled.
QUESTION 3

Salihan Architecture is a partnership formed by Maniam, Amin and Daud in 2010. Its main
business is providing engineering consultation works. They shared profits and losses in the
ratio of 5:3:2 respectively. In early December 2022, Maniam decided to retire as he is in poor
health. Therefore, all the partners agreed to dissolve the partnership on 31 December 2022.
On this date, the statement of financial position of the business was as follow:

Statement of Financial Position

As at 31 December 2022
RM RM
ASSETS
Non-Current Assets
Building 180,000
Equipment 75,000
Vehicles 45,000 300,000
Current Assets
Debtors 75,000
Bank 168,000 243,000
TOTAL ASSETS 543,000

LIABILITIES & OWNERS EQUITY

Non-Current Liabilities
Loan from Maniam 12,000
Loan from Finance Company 30,000 42,000
Current Liabilities
Creditors 63,000
Bank Overdraft 48,000 111,000
Owners Equity
Capital Accounts
Maniam 240,000
Amin 90,000
Daud 30,000 360,000
Current Accounts
Maniam 15,000
Amin 6,000
Daud 9,000 30,000
TOTAL LIABILITIES & OWNERS EQUITY 543,000

Upon dissolution, the following transactions took place:

1. Building was sold for RM226,500. The proceeds were then used to settle the bank
overdraft.
2. Equipment was realised at a loss of RM15,000.

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3. Maniam agreed to take over the vehicles at 20% below book value. The loan from
Maniam to the partnership was used as part of the settlement for the vehicles and the
balance was paid by cheque.
4. All debtors paid their debts in full except for an amount of RM1,500 which was
unrecoverable and was therefore written off as bad debt.
5. The amounts owing to the creditors were paid in full at a discount of RM3,000.
6. Dissolution expenses amounting to RM2,250 were fully paid.
7. All payments and receipts were made through the bank account.

REQUIRED:

(a) Prepare the following account to close the books of the partnership on 31 December
2022:
(i) Realisation account
(ii) Bank account
(iii) Partners’ capital account

(b) Assume Amin and Daud agreed with Maniam’s decision to retire from the partnership
and decided to continue the business with the following arrangement:

(i) Maniam agreed to take over the vehicles at 20% below book value.
(ii) The building and the equipment were revalued to RM226,500 and RM60,000
respectively.
(iii) Maniam’s capital and current account balances will be settled by RM100,000 in
cash and remaining balance as a loan to the partnership.
Prepare the journal entries to record the retirement of Maniam on 31 December 2022.