Question

8. Loly and Willy were in partnership sharing profits and losses in the ratio of 3:2 respectively. From their Balance Sheet as at 31/12/2019, Joe was admitted on the following terms: (i) plant and machinery revalued at Le300,000; (ii) furniture and fittings revalued at Le60,000; (iii) stock reduced by Le10,000; (iv) provision for doubtful debts increased to Le7,000; (v) Loly took over one motor vehicle for Le10,000; (vi) Joe contributed Le100,000 as capital and paid Le75,000 for goodwill, shared among the old partners. You are required to prepare: (a) Revaluation Account; (b) Capital Account; (c) Balance Sheet after the admission of Joe.

Accepted Answer

(a) Revaluation Account: Increases — Plant and Machinery Le60,000 (credit); Decreases — Furniture and fittings Le20,000, Stock Le10,000, Provision for doubtful debts Le2,000 (debit). Net surplus on revaluation Le28,000 shared between Loly and Willy in the old ratio 3:2 — Loly Le16,800, Willy Le11,200.
(b) Capital Account: Opening balances Loly Le200,000, Willy Le150,000, Joe Le100,000 (new capital). Add: share of revaluation surplus (Loly 16,800, Willy 11,200) and goodwill (Loly 27,000, Willy 18,000 from Joe's Le75,000, split 3:2). Deduct: motor vehicle taken by Loly Le10,000. Closing balances: Loly Le251,800, Willy Le191,200, Joe Le100,000.
(c) Balance Sheet after admission of Joe: Capital — Loly Le251,800, Willy Le191,200, Joe Le100,000, Loan Le100,000, Creditors Le90,000, total Le733,000, matched by Fixed Assets (Plant and Machinery Le300,000, Furniture and fittings Le60,000, Motor vehicles Le20,000) plus Goodwill Le75,000 and Current Assets (Stock Le50,000, Debtors less provision Le53,000, Cash Le185,000).

WAEC Accounting 2021 Theory — Question 8

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