QUESTION 3 (25 MARKS) Adam & Hisham Tax Services is a partnership formed by Adam and Hisham in 2010. The partnership provides accounting and tax services to clients in the northern states of Malaysia. The partners agree to share profits and losses on the ratio of 2:1 respectively. On 1 January 2020 the partners have agreed to admit Rahim in the partnership. The following is the summarised statement of financial position of the partnership as at 31 December 2019. Statement of Financial Position As at 31 December 2019 RM RM ASSETS Non-Current Assets Building 160,000 Equipment 60,000 Vehicles 40,000 260,000 Current Assets Debtors 60,000 Bank 120,000 180,000 TOTAL ASSETS 440,000 LIABILITIES & OWNERS EQUITY Non-Current Liabilities Loan from Adam 10,000 Loan from Finance Company 50,000 60,000 Current Liabilities Creditors 30,000 30,000 Owners Equity Capital Accounts Adam 210,000 Hisham 90,000 300,000 BKAR3033 FINANCIAL ACCOUNTING AND REPORTING III 5 Current Accounts Adam 30,000 Hisham 20,000 50,000 TOTAL LIABILITIES & OWNERS EQUITY 440,000 Additional information: 1. The agreement for the new partnership on 1 January 2020 is as follows: Sharing profit and losses at ratio 4:3:3 between Adam, Hisham and Rahim. Salary for Rahim is RM1,000 per month. 10% interest on capital per annum. 6% interest on drawing. 2. On the admission of Rahim in the partnership, the following assets are revalued: RM Building 268,000 Equipment 40,000 Vehicles 30,000 Debtor 54,000 3. For the purpose of Rahims admission, goodwill was valued at three years purchase of the average annual profits of the last four years. The annual profits for the last four years are as follows: RM 2018 75,000 2017 60,000 2016 55,000 2015 50,000 When Rahim joined the partnership, he contributed RM80,000 cash as capital. All partners agree to pay for goodwill based on the new profit-sharing ratio. 4. During the year 2020, drawings by partners were RM15,000 (Adam), RM10,000 (Hisham) and RM12,000 (Rahim). 5. The net profit for the year ended 31 December 2020 is RM80,000. The net profits have considered the interest on loan by Adam. BKAR3033 FINANCIAL ACCOUNTING AND REPORTING III 6 REQUIRED: (a) Prepare the revaluation account, and partners capital account on the admission of Rahim in the partnership. Show all the workings. (11 Marks) (b) Prepare profit appropriation account and current account as at 31 December 2020. Show all the workings. (11 Marks) (c) Assume partners agree to the dissolution of the partnership on 1 January 2021. Referring to the Partnership Act 1961, explain how the dissolution will be settled. (3 Marks)