a. The Capital balances of Partners Eliza and Sara are k20, 600 and K14, 400 respectively before

Ruth and Tatty are admitted to the Partnership. At admission Ruth purchased One third of Eliza's

interest for k8, 000 and one third of Sara's interest for k4, 200. Tatty was admitted to the

Partnership with an investment of K8, 000. For which she is to receive ownership title of K8, 000.

After one year of operations, the Partnership made an income of K7, 000 and the Partners participation in

net income was to be done under the following income ratios.BAF112/BAC212 FINAL EXAM MU 2019/20 II SBS MW. Page 3

Interest allowance of 30% annually on their capital balances, salary allowance of K1, 600, k4, 000,

K3,000 and K2, 000 to Eliza, Sara, Ruth and Tatty respectively. Furthermore, Eliza was entitled to a

bonus of 10% if the difference between her salary allowance and Net income is less than k5, 000 and the

residual should be shared on an equal basis

i. Journalize the entries for the admission of Ruth and Tatty. ( 5 Marks)

ii. Determine the Capital balances of Eliza and Sara after admission of Ruth and Tatty (10

Marks)

iii. Prepare the income sharing schedule and pass the necessary journal entry ( 5 Marks)

b. Mulungushi University freight line is a provider of transportation services to Muteteshi residents.

Included in its balance is land, Buildings and coach equipment. Depreciation is calculated

separately for each depreciable item. The following transaction was completed for Mulungushi

University in the year 2019.

Equipment with an accumulated depreciation of K80, 000 and a cost of K120, 000 was traded for

similar new equipment with a cash cost of K186, 000. A trade in allowance was received by

Mulungushi on the old equipment and paid the balance in cash.

Required: (show workings clearly)

i. Calculate the book value of the old asset on the date of the transaction ( 2 Marks)

ii. What is the Gain on Loss on the trade for the old asset( 2 Marks)

iii. What is the value to be recorded as the cost for the New Equipment? ( 6 Marks)