A Little and B Sutton were two sole traders in the same line of business. On 1 June 2012 they decided to merge their businesses to form a partnership called Little Sutton. It was agreed that Little and Sutton will share profits in the ratio 2:1. Their Statements of financial position have been prepared as shown. Additional information:

(i) On 1 June 2012 the freehold property was valued at £120,000 and plant and equipment held until now by Sutton was valued at £55,000.

(ii) Goodwill agreed at £35,000 for Little and £25,000 for Sutton is not to be carried in partnership books.

(iii) All assets and liabilities of the separate businesses were taken over by the partnership.

Required: 

The Statement of financial position of the partnership as soon as it was formed, and identify the advantages and disadvantages of operating as a partnership.

Transcribed Image Text:

Statements of financial Position as at 31 May 2012 Non-current assets: Freehold property Plant and equipment Current assets: Inventory Trade receivables Bank and cash Capital Current liabilities: Trade payables Little £'000 110 25 15 10 15 175 £'000 160 15 175 Sutton £'000 20 70 12 8 8 98 £'000 79 19 98