INTRODUCTION Harry Hill and Steven Sharp have lived in Blenheim for many years. They love the lifestyle and the close proximity to quality tramping tracks. Harry currently owns HH Living which is a retail store specialising in quality outdoor gear and clothing. However, Harry has always struggled with keeping on top of his finances and following the budgeting plans put in place by his accountant. He decides to approach his friend Steven, who has been a financial officer at a large firm in Nelson, to join him at HH Living and to help grow the business to a national scale which has always been Harry's dream. After several meetings with Steven, they both agree to form a partnership called Blenheim Outdoor Supplies. Their goal is to become a nationally recognised business that provides quality outdoor living supplies to New Zealand 'lovers' of the outdoors. TASK PART A: APPLICATION OF ACCOUNTING ELEMENTS FOR A PARTNERSHIP Using the information provided in Resources One and Two You are to process and report financial information for the formation of the partnership between Harry Hill and Steven Sharp and for the first year of trading for Blenheim Outdoor Supplies. PART B: JUSTIFYING THE APPLICATION OF THE ACCOUNTING ELEMENTS FOR A PARTNERSHIP Prepare a report for the newly formed partnership that discusses aspects of the ownership structure of Blenheim Outdoor Supplies. It should be written in the context of a report to Harry Hill. RESOURCE ONE On 1 April 2020, Harry Hill and Steven Sharp agree to form a partnership to take over Harry's sole proprietor business HH Living. The new partnership will be called Blenheim Outdoor Supplies. HH Living has the following assets and liabilities as at 1 April 2020: HH LIVING STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2020 Assets Bank 3 500 Accounts Receivable (Note 1) 12 000 Inventory 25 000 Property Plant and Equipment (Note 2) 180 000 Total Assets Liabilities Accounts Payable 6 500 GST 1800 Mortgage (6% due 2030) 110 000 Total Liabilities Equity Capital Notes to the Statement of Financial Position: Note 1: Accounts Receivable Accounts Receivable 15 000 Less: Allowance for Doubtful Debts 3 000 12 000 Note 2: Property, Plant, and Equipment Buildings Cost Accumulated Depreciation Closing Carrying Amount 150 000 10 000 140 000 Fittings and Equipment 65 000 25 000 40 000 220,500 118 300 102 200 Total 215 000 35 000 180 000 Harry and Steven agree to the following: The GST owing by HH Living will not be taken over by the new partnership the assets and other liabilities are to be taken over at their carrying amount except for the following agreed values: - Inventory $22 000 Buildings $160 000 Accounts receivable $10 500 - when you prepare the General Journal entry for the formation of the partnership you must use the full value of Accounts receivable (see Note 1) and recalculate the Allowance for Doubtful Debts. It is agreed that HH Living has a value of $150 000 as a going concern which will be Harry Hill's capital contribution. Steven Sharp will contribute a Motor Vehicle with an agreed value of $40 000 and sufficient cash to make his capital contribution 40% of the total capital of the partnership. RESOURCE TWO When Harry and Steven formed their new partnership, Blenheim Outdoor Supplies, they prepared a thorough partnership agreement to ensure each partner was rewarded equitably and that certain procedures could be followed when faced with strategic decisions. The following is an extract of that agreement stating the profit-sharing clauses: a. salaries: Harry $40 000 Steven $50 000 b. interest on closing capital balance is 5% c. interest on current is charged or credited at 5% p.a. on the closing balance d. interest on drawings is charged at 20% for any drawings above the agreed salaries e. residual profits are shared to Harry and Steven in the proportion of 3:2 respectively. Further information: On 30 June 2021, Steven contributed $15,000 cash. This is included in the trial balance as at 31 March 2022. BLENHEIM OUTDOOR SUPPLIES TRIAL BALANCE AS AT 31 MARCH 2022 Accounts receivable 24 500 Accounts payable 12 750 Bank 3 080 Allowance for doubtful debts 3 230 Buildings 160 000 1600 Accumulated depreciation - Buildings Fittings and Equipment 40 000 2 500 Accumulated depreciation - Fittings and Equipment Drawings - Harry Hill 53 000 12 000 Accumulated depreciation - Motor Vehicle Drawings - Steven Sharp 65 000 GST 4 000 Inventory 25 000 Capital - Harry Hill 150 000 Motor Vehicle 40 000 Capital - Steven Sharp 115 000 Goodwill 30 500 Current - Harry Hill 12 000 Land 200 000 Current - Steven Sharp 8 000 Mortgage (6% due 2030) 100 000 Income summary 220 000 $641 080 $6.41 080 PART A a. Prepare the general journal entries for the formation of the Blenheim Outdoor Supplies partnership between Harry Hill and Steven Sharp on 1 April 2020 using the information provided in Resource One. BLENHEIM OUTDOOR SUPPLIES GENERAL JOURNAL b. Prepare the Profit Distribution Statement for Blenheim Outdoor Supplies for the year ended 31 March 2022 using the information provided in Resource Two. BLENHEIM OUTDOOR SUPPLIES PROFIT DISTRIBUTION STATEMENT FOR THE YEAR ENDED 31ST MARCH 2022 c. Prepare the following general ledger accounts for the year ended 31 March 2022 using the information provided in Resource Two: Contributed Capital - Hill Contributed Capital - Sharp Current capital - Hill Current capital- Sharp CONTRIBUTED CAPITAL- HARRY HILL CONTRIBUTED CAPITAL- STEVEN SHARP CURRENT CAPITAL- HARRY HILL CURRENT CAPITAL- STEVEN SHARP d. Prepare the equity section of the Statement of Financial Position and accompanying equity note for Blenheim Outdoor Supplies as at 31 March 2022, using Resource Two and the general ledger accounts you have prepared in (c). BLENHEIM OUTDOOR SUPPLIES STATEMENT OF FINANCIAL POSITION (EXTRACT) AS AT 31 MARCH 2022 Equity $NZ $NZ $NZ Note to the Financial Statements 4. Equity Total Total INTRODUCTION Harry Hill and Steven Sharp have lived in Blenheim for many years. They love the lifestyle and the close proximity to quality tramping tracks. Harry currently owns HH Living which is a retail store specialising in quality outdoor gear and clothing. However, Harry has always struggled with keeping on top of his finances and following the budgeting plans put in place by his accountant. He decides to approach his friend Steven, who has been a financial officer at a large firm in Nelson, to join him at HH Living and to help grow the business to a national scale which has always been Harry's dream. After several meetings with Steven, they both agree to form a partnership called Blenheim Outdoor Supplies. Their goal is to become a nationally recognised business that provides quality outdoor living supplies to New Zealand 'lovers' of the outdoors. TASK PART A: APPLICATION OF ACCOUNTING ELEMENTS FOR A PARTNERSHIP Using the information provided in Resources One and Two You are to process and report financial information for the formation of the partnership between Harry Hill and Steven Sharp and for the first year of trading for Blenheim Outdoor Supplies. PART B: JUSTIFYING THE APPLICATION OF THE ACCOUNTING ELEMENTS FOR A PARTNERSHIP Prepare a report for the newly formed partnership that discusses aspects of the ownership structure of Blenheim Outdoor Supplies. It should be written in the context of a report to Harry Hill. RESOURCE ONE On 1 April 2020, Harry Hill and Steven Sharp agree to form a partnership to take over Harry's sole proprietor business HH Living. The new partnership will be called Blenheim Outdoor Supplies. HH Living has the following assets and liabilities as at 1 April 2020: HH LIVING STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2020 Assets Bank 3 500 Accounts Receivable (Note 1) 12 000 Inventory 25 000 Property Plant and Equipment (Note 2) 180 000 Total Assets Liabilities Accounts Payable 6 500 GST 1800 Mortgage (6% due 2030) 110 000 Total Liabilities Equity Capital Notes to the Statement of Financial Position: Note 1: Accounts Receivable Accounts Receivable 15 000 Less: Allowance for Doubtful Debts 3 000 12 000 Note 2: Property, Plant, and Equipment Buildings Cost Accumulated Depreciation Closing Carrying Amount 150 000 10 000 140 000 Fittings and Equipment 65 000 25 000 40 000 220,500 118 300 102 200 Total 215 000 35 000 180 000 Harry and Steven agree to the following: The GST owing by HH Living will not be taken over by the new partnership the assets and other liabilities are to be taken over at their carrying amount except for the following agreed values: - Inventory $22 000 Buildings $160 000 Accounts receivable $10 500 - when you prepare the General Journal entry for the formation of the partnership you must use the full value of Accounts receivable (see Note 1) and recalculate the Allowance for Doubtful Debts. It is agreed that HH Living has a value of $150 000 as a going concern which will be Harry Hill's capital contribution. Steven Sharp will contribute a Motor Vehicle with an agreed value of $40 000 and sufficient cash to make his capital contribution 40% of the total capital of the partnership. RESOURCE TWO When Harry and Steven formed their new partnership, Blenheim Outdoor Supplies, they prepared a thorough partnership agreement to ensure each partner was rewarded equitably and that certain procedures could be followed when faced with strategic decisions. The following is an extract of that agreement stating the profit-sharing clauses: a. salaries: Harry $40 000 Steven $50 000 b. interest on closing capital balance is 5% c. interest on current is charged or credited at 5% p.a. on the closing balance d. interest on drawings is charged at 20% for any drawings above the agreed salaries e. residual profits are shared to Harry and Steven in the proportion of 3:2 respectively. Further information: On 30 June 2021, Steven contributed $15,000 cash. This is included in the trial balance as at 31 March 2022. BLENHEIM OUTDOOR SUPPLIES TRIAL BALANCE AS AT 31 MARCH 2022 Accounts receivable 24 500 Accounts payable 12 750 Bank 3 080 Allowance for doubtful debts 3 230 Buildings 160 000 1600 Accumulated depreciation - Buildings Fittings and Equipment 40 000 2 500 Accumulated depreciation - Fittings and Equipment Drawings - Harry Hill 53 000 12 000 Accumulated depreciation - Motor Vehicle Drawings - Steven Sharp 65 000 GST 4 000 Inventory 25 000 Capital - Harry Hill 150 000 Motor Vehicle 40 000 Capital - Steven Sharp 115 000 Goodwill 30 500 Current - Harry Hill 12 000 Land 200 000 Current - Steven Sharp 8 000 Mortgage (6% due 2030) 100 000 Income summary 220 000 $641 080 $6.41 080 PART A a. Prepare the general journal entries for the formation of the Blenheim Outdoor Supplies partnership between Harry Hill and Steven Sharp on 1 April 2020 using the information provided in Resource One. BLENHEIM OUTDOOR SUPPLIES GENERAL JOURNAL b. Prepare the Profit Distribution Statement for Blenheim Outdoor Supplies for the year ended 31 March 2022 using the information provided in Resource Two. BLENHEIM OUTDOOR SUPPLIES PROFIT DISTRIBUTION STATEMENT FOR THE YEAR ENDED 31ST MARCH 2022 c. Prepare the following general ledger accounts for the year ended 31 March 2022 using the information provided in Resource Two: Contributed Capital - Hill Contributed Capital - Sharp Current capital - Hill Current capital- Sharp CONTRIBUTED CAPITAL- HARRY HILL CONTRIBUTED CAPITAL- STEVEN SHARP CURRENT CAPITAL- HARRY HILL CURRENT CAPITAL- STEVEN SHARP d. Prepare the equity section of the Statement of Financial Position and accompanying equity note for Blenheim Outdoor Supplies as at 31 March 2022, using Resource Two and the general ledger accounts you have prepared in (c). BLENHEIM OUTDOOR SUPPLIES STATEMENT OF FINANCIAL POSITION (EXTRACT) AS AT 31 MARCH 2022 Equity $NZ $NZ $NZ Note to the Financial Statements 4. Equity Total Total