Question
QUESTION 2 Advocate-For-Now is a partnership formed by Meriam, Mary, and Marley in early 2012. The partnership provides legal services to underprivileged individuals in Malaysia.
QUESTION 2
Advocate-For-Now is a partnership formed by Meriam, Mary, and Marley in early 2012. The partnership provides legal services to underprivileged individuals in Malaysia. Each partner shares the profits or losses on the ratio of 5:3:2, respectively. The following balances were extracted from the partnership books of account as at 30 November 2019.
| RM | RM |
Capital account, beginning balance |
|
|
Meriam |
| 100,000 |
Mary |
| 85,000 |
Marley |
| 70,000 |
Current account, beginning balance |
|
|
Meriam |
| 70,000 |
Mary |
| 50,000 |
Marley |
| 47,000 |
Building | 400,000 |
|
Motor vehicle | 180,000 |
|
Furniture and fittings | 100,000 |
|
Accumulated depreciation-building |
| 160,000 |
Accumulated depreciation-motor vehicle |
| 120,000 |
Accumulated depreciation-furniture and fittings |
| 80,000 |
Supplies | 72,500 |
|
Accounts receivable (net) | 35,000 |
|
Cash and bank | 80,000 |
|
Accounts payable |
| 8,000 |
Net profit for the year |
| 77,500 |
| 867,500 | 867,500 |
Additional information:
- The salary for Mary is RM1,000 per month.
- The partners are entitled to a 10% interest per annum on capital account balances.
- Marley withdrew RM1,000 cash in the partnership.
- Mary resigned and retired from the partnership on 1 June 2019. Upon her retirement, the building and motor vehicle were revalued at RM30,000 and RM4,000 above their carrying amounts, respectively.
- Due to her retirement, Mary's current account is to be transferred to her capital account. The partnership agreed to pay the amount due to Mary, except for RM40,000, which remains as a loan to the partnership.
- Goodwill was valued at three years' purchase of the average profit for the last four years. The profit for the previous four years was as follows:
| RM |
30 November 2018 | 62,000 |
30 November 2017 | 68,000 |
30 November 2016 | 58,000 |
30 November 2015 | 50,000 |
- Following Mary's retirement, Meriam and Marley decided to continue with the same partnership with two member-partners. While Meriam agreed to pay RM100,000 into the partnership as an additional capital contribution, Marley consented to invest an additional RM50,000. Each of them decided to pay for the goodwill based on the new profit-sharing ratio. The entry was not recorded in books upon the formation of the new partnership.
- The new partnership profit-sharing ratio is 2:1.
- The net profit for the year is deemed to have been earned evenly throughout the year.
REQUIRED:
- Compute the goodwill for Advocate-for-Now and prepare the goodwill account.
- Prepare the partner's capital and current account as of 1 June 2019 in a columnar form.
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