Question

7. Ade and Bola are in partnership sharing profits and losses in the ratio 3:2 respectively. Their balance sheet as at 30th June, 2010 is as follows:
Balance sheet as at 30th June, 2010
Capital: Ade Le120,000; Bola Le80,000
Current Account: Ade Le5,000; Bola Le9,000
Loan: Bola Le20,000; Interest accrued Le4,000
Equipment Le100,000; Fixtures Le40,000
Stock Le21,000; Debtors Le43,000; Cash Le34,000
They decided to admit Caro into the partnership on the following terms: (i) Caro shall contribute ₦50,000 as capital and be entitled to one-fifth of future profits. (ii) Ade and Bola shall henceforth share profits and losses equally. (iii) Bola shall have her loan converted to capital but the accrued interest must be paid immediately. (iv) Assets are to be revalued as follows: Equipment Le90,000; Fixtures Le52,000; Stock Le21,000; Debtors Le46,400.
You are required to prepare:
(a) Revaluation Account;
(b) Partners Current Accounts in columnar form;
(c) Opening Balance Sheet for Ade, Bola and Caro partnership (15 marks)

Accepted Answer

(a) REVALUATION ACCOUNT
Dr: Equipment (loss) Le10,000; Fixtures (gain) —
Cr: Fixtures (gain) Le12,000; Stock —; Debtors (gain) Le3,400
Net gain on revaluation shared between Ade and Bola in old ratio 3:2: Ade Le3,240 (3/5 of Le5,400 net gain); Bola Le2,160 (2/5 of Le5,400 net gain) — figures per the detailed source workings.

(b) PARTNERS' CURRENT ACCOUNTS (columnar form)
Balances brought forward: Ade Le5,000; Bola Le9,000, adjusted for share of revaluation profit, interest on Bola's loan paid, and loan-to-capital conversion for Bola, giving updated current account balances carried down for each partner.

(c) OPENING BALANCE SHEET (Ade, Bola and Caro)
Capital: Ade Le120,000; Bola Le100,000 (Le80,000 + Le20,000 loan converted); Caro Le50,000 = Le270,000
Current accounts: Ade and Bola as adjusted in (b) above; Caro Le0 (new partner)
Fixed assets (revalued): Equipment Le90,000; Fixtures Le52,000 = Le142,000
Current assets: Stock Le21,000; Debtors Le46,400; Cash (after adjustments for capital introduced and interest paid) = balancing figure
Total assets = Total capital and liabilities (balanced).

WAEC Accounting 2013 Theory — Question 7

Sign up free to unlock