Practice Question 1A

Michelle, Martin and Taylor are in partnership and share profits in the ratio 3:2:1. On 30 April 2017 Michelle decides to withdraw from the partnership. At this stage the balance sheet of the partnership is as follows:

Michelle, Martin and Taylor Statement of Financial position as at 30 April 2017

Assets $

None-current assets

Land and buildings 42 000

Equipment 12 000

Goodwill 6 000

Current assets 158 000

total assets 216 000

Equity :

Capital and reserves

Capital :

Michelle 100 000

Martin 40 000

Taylor 60 000

General Reserves 18 000

total equity 216 000

For the purpose of Michelle's withdrawal, the following was decided:

1. Land and buildings are worth

$78 000.this valuation is only for the purpose of Michelle's withdrawal from

the partnership.

2. Goodwill is valued at $96

000 for the purpose of Michelle's withdrawal from the partnership but it must

be retained at $ 6 000 in the books of the new partnership.

3. The general reserve must

be retained in the books.

4. The new

profit-sharing ratio between Martin and Taylor will be 4:1

5. Michelle will, as a

repayment of his loan account, take equipment with a caring amount of $8 000 as

well as a cash amount of$40 000. The remaining balance will be taken over

by Martin and Taylor in their personal capacities and will be paid according to

the new profit-sharing ratio.

REQUIRED:

Prepare the capital accounts

of the partners in column format and balance the accounts properly.