Question
Wida, Wardina, and Wardah are partners of trading business which focus on selling childrens book. The partnership agreement contains the following provisions: i. Interest at
Wida, Wardina, and Wardah are partners of trading business which focus on selling childrens book. The partnership agreement contains the following provisions:
i. Interest at 15% per annum is to be allowed on the opening balance of capital account.
ii. The partners will be charged interest on any cash drawings made during the year at a rate of 8% per annum.
iii. Any profit is to be shared among Wida, Wardina and Wardah in the ratio 3:2:1 respectively.
iii. Wardina is entitled to receive annual salary of RM8,400 for running the business.
As at 30 June 2018, the partners capital and current account balances were as follows:
| Capital (RM) | Current Account (RM) |
Wida | 195,000 | (35,000) |
Wardina | 155,000 | 46,000 |
Wardah | 115,000 | 24,000 |
On 30 April 2019, Wida retired from the partnership due to disagreement between the partners. It was agreed that RM70,000 will be paid immediately and the remaining is to be paid in 2 installments due on 30 September 2019 and December 2019 with no interest charge.
On 1 May 2019, the remaining partners agreed to admit Darwish in tthe partnership, and Darwish would contribute cash of RM95,000 as capital . Goodwill is valued at RM 43,200. Goodwill account is not to be maintained in the books.
The new partnership agreement provides the following details:
i. Profit and losses are to be shared equally.
ii. No interest on drawing will be charged and no salary paid to partners.
iii. Interest on capital will be allowed at 10% per annum on opening capital balances.
Additional Information:
1. The following are the balances of asset before revaluation:
| RM |
Office Equipment | 43,250 |
Motor Vehicle | 32,000 |
Inventories | 19,200 |
Freehold land and buiding | 100,000 |
2. The value of freehold land and building is to be increased to RM275,000 as determined by a professional valuer.
3. The values of office equipment and MV decreased to RM25,250 and RM20,000 respectively.
4. The inventories reduce by RM 570
5. Drawing made by partners during the year were as follows:
| RM |
Wida | 8,000 (31/12/2018) |
Wardina | 5,000 (05/02/2019 |
Wardah | 115,000(30/10/2018) |
7. Net profit for the year ended 30 June 2019 amounted to RM85,414 excluding depreciation of RM2,600.
Required:
a. Prepare:
i. Revaluation account
ii. The appropriation account in incorporating the pre and post period for the year ended 30 June 2019.
iii. Partners capital and current account
( 22 marks)
b. Discuss the advantages and disadvantages of partnership.
(3 marks)
(Total : 25 marks)
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