Question 2: Partnerships 8 marks:

Chan Tatum, Arnie Shwarz and Sydney Hilton go into partnership, setting up Moviestars, a movie production facility. Arnie contributes $20,000 cash to the business, and a motor vehicle purchased for $50,000, with a current book value of $30,000 and market value of $40,000. Tatum contributes $50,000 cash and land purchased for $100,000, with a current book value of $80,000 and a market value of $70,000. Finally, Hilton contributes $10,000 cash and film-making equipment previously purchased for $45,000, with a current book value of $25,000 and a market value of $60,000. In the partnership deed, all three agree that profits will be split based on the capital contributions of each partner at the time of the profit distribution. These include any gains or losses on the sale of non-cash assets. Unfortunately, while all three were wonderful actors, their management skills were quite sub-standard, and Moviestars incurred a $40,000 loss in their first year of operation. Required:

1. Calculate and journalise the contributions of the partners into Moviestars.

2. Journalise the distribution of the first year loss to the capital accounts of each of the partners.