10.3 Dawson, Cobb and Parker have been in partnership for several years sharing profits in the ratio 6:5:3. The balance sheet of the partnership as at 30 June 20X6 was as follows:

Fixed assets Goodwill Current assets:

Debtors Bank Less: Current liabilities Creditors Net current assets Capital accounts: Dawson Cobb Parker

£

367,500 52,250 419,750 338,000

£

112,000 64,750 81,750

£258,500 125,000 90,000 43,500

£258,500 On 30 June 20X6, Dawson retired from the partnership and it was agreed to admit Williams as a partner on the following terms:

1. Goodwill in the old partnership was to be revalued to two years’ purchase of the average profits over the last three years. The profits of the last three years have been £62,000, £68,000 and £70,025. Goodwill was to be written off in the new partnership.

2. Dawson is to take his car out of the partnership assets at an agreed value of £5,000. The car had been included in the accounts as at 30 June 20X6 at a net book value of £2,970.

3. Although work in progress had not been, and will not be, included in the partnership accounts, the new partners were to credit Dawson with his share based on an estimate that the work in progress was equivalent to 20 per cent of the debtors.

4. The new partnership of Cobb, Parker and Williams were to share profits in the ratio 5 : 3 : 2; the initial capital to be £125,000 subscribed in the profit-sharing ratios.

5. Cobb, Parker and Williams were each to pay Dawson the sum of £25,000 out of their personal resources in part-payment of his share of the partnership.

6. Dawson was to lend to Williams any amount required to make up his capital in the firm from the monies due to him, and any further balance due to Dawson was to be left in the new partnership as a loan, bearing interest at 9 per cent a year. Any adjustments required to the capital accounts of Cobb and Parker were to be paid into or withdrawn from the partnership bank accounts.

Required:

(a) Prepare the capital accounts, in columnar form, of the partners reflecting the adjust¬ ments required on the change in partnership.

(b) Prepare a balance sheet on completion.