How often Changes in partnership ownership and liquidation is asked

Where it was asked

• May/Jun 201420 marks
• Oct/Nov 201318 marks
• May/Jun 201314 marks

The questions

1. May/Jun 2014, Q220 marks

   Douglas and Moses were partners trading as DMOSS Traders, sharing profits and losses in the ratio 5:3 respectively, and they decided to admit Phill to the partnership. The balances as at 30 September 2013, the end of the financial year, were as follows: capital – Douglas R177 000; capital – Moses R160 000; current account (credit) – Douglas R21 125; current account (credit) – Moses R21 175; long-term loan R37 000; land and buildings R283 000; inventories R54 300; debtors control R42 000; creditors control R16 000; and bank (favourable) R53 000. In preparing for the change in the ownership structure of DMOSS Traders, Douglas and Moses obtained the following appraisals on 30 September 2013: a physical inventory count revealed an inventory shortage of R5 000, and part of the remaining inventory was deemed overvalued by R5 300; land and buildings were valued by a sworn appraiser at R300 000. On 1 October 2013, Phill paid R60 000 for a 20% interest in the net assets of the partnership. The new partnership will trade as DMP Traders, with Douglas, Moses and Phill agreeing on a new profit-sharing ratio of 5:3:2 respectively. Goodwill was correctly calculated as R55 500. Prepare the journal entries in the general journal of DMOSS Traders on 30 September 2013 to record the admission of Phill as a partner. Apply the accounting procedure which is based on the legal perspective. Journal entries to record the dissolution of the partnership are NOT required. All calculations must be shown.

2. Oct/Nov 2013, Q2.113 marks

   Baker Street Traders is a partnership between Holmes and Watson who share profits and losses in a 3:2 ratio. Tiger Lily, the firm's accountant, has been tasked with preparing the liquidation accounts but is unsure how to proceed with the liquidation account and has asked for assistance. The general ledger of Baker Street Traders as at 30 September 2013 shows a (incorrectly prepared) liquidation account with the following debit entries: land and buildings at cost R520 000; vehicle at cost R90 000; loss on sale of vehicle R10 000; inventory R50 000; bank (long-term loan) R100 000; debtors control R55 000; goodwill R10 000; and current account Holmes R12 500 (total R847 500). The credit entries shown are: profit on sale of land and buildings R80 000; accumulated depreciation on the vehicle R60 000; creditors control R35 000; long-term loan R100 000; asset replacement reserve R45 000; current account Watson R2 500; and a balance carried down of R525 000 (total R847 500). The following matters still need to be accounted for: firstly, the partnership had agreed with its debtors that a 20% discount would be granted if the outstanding amount was settled before 30 September 2013; on 30 September 2013, 95% of the debtors paid their outstanding amounts, and Holmes and Watson decided to write off the remaining 5% as non-recoverable. Secondly, the partnership had agreed with its creditors to obtain a 5% discount if it settled its outstanding amount on or before 30 September 2013, and the creditors were in fact paid on 30 September 2013. Thirdly, on 29 September 2013 the storage facility was damaged by a storm, destroying inventory with a cost price of R30 000; the partners agreed that Holmes would take the remaining inventory for personal use. Fourthly, the partnership hosted a farewell function for staff to mark the closure of the business, attended by musicians and other sports stars, at a total cost of R25 000; Tinker Bell, a local rock star and long-standing customer of the business, agreed to contribute 20% towards the cost of this function. Additional information: the closing balances of the capital accounts of Holmes and Watson are R300 000 and R200 000 respectively; Holmes has always maintained a debit balance in his current account while Watson has always maintained a credit balance; and the partnership does not make use of drawings accounts. Prepare the correct liquidation account in the general ledger of Baker Street Traders as at 30 September 2013, incorporating all the transactions and adjustments described, and showing all calculations. The account must be properly closed off (balanced).

3. Oct/Nov 2013, Q2.25 marks

   Baker Street Traders is a partnership between Holmes and Watson who share profits and losses in a 3:2 ratio. Tiger Lily, the firm's accountant, has been tasked with preparing the liquidation accounts but is unsure how to proceed with the liquidation account and has asked for assistance. The general ledger of Baker Street Traders as at 30 September 2013 shows a (incorrectly prepared) liquidation account with the following debit entries: land and buildings at cost R520 000; vehicle at cost R90 000; loss on sale of vehicle R10 000; inventory R50 000; bank (long-term loan) R100 000; debtors control R55 000; goodwill R10 000; and current account Holmes R12 500 (total R847 500). The credit entries shown are: profit on sale of land and buildings R80 000; accumulated depreciation on the vehicle R60 000; creditors control R35 000; long-term loan R100 000; asset replacement reserve R45 000; current account Watson R2 500; and a balance carried down of R525 000 (total R847 500). The following matters still need to be accounted for: firstly, the partnership had agreed with its debtors that a 20% discount would be granted if the outstanding amount was settled before 30 September 2013; on 30 September 2013, 95% of the debtors paid their outstanding amounts, and Holmes and Watson decided to write off the remaining 5% as non-recoverable. Secondly, the partnership had agreed with its creditors to obtain a 5% discount if it settled its outstanding amount on or before 30 September 2013, and the creditors were in fact paid on 30 September 2013. Thirdly, on 29 September 2013 the storage facility was damaged by a storm, destroying inventory with a cost price of R30 000; the partners agreed that Holmes would take the remaining inventory for personal use. Fourthly, the partnership hosted a farewell function for staff to mark the closure of the business, attended by musicians and other sports stars, at a total cost of R25 000; Tinker Bell, a local rock star and long-standing customer of the business, agreed to contribute 20% towards the cost of this function. Additional information: the closing balances of the capital accounts of Holmes and Watson are R300 000 and R200 000 respectively; Holmes has always maintained a debit balance in his current account while Watson has always maintained a credit balance; and the partnership does not make use of drawings accounts. Prepare the capital account of Holmes in the general ledger of Baker Street Traders as at 30 September 2013, showing all calculations, given that the closing balance of Holmes's capital account is R300 000, that Holmes has always maintained a debit balance in his current account, and that the partnership does not make use of drawings accounts. The account must be properly closed off (balanced).

4. May/Jun 2013, Q5.15 marks

   Salom and Papiki trade in partnership as SAPA Traders, sharing profits and losses equally. On 30 July 2012 the equity of SAPA Traders consisted of capital of R84 000 (Salom R42 000; Papiki R42 000) and an asset replacement reserve of R20 000. Salom and Papiki decided to admit Dineo as a new partner with effect from 1 August 2012. Dineo will contribute R25 000 in cash together with a vehicle worth R43 000 in order to acquire a third of the net asset share of the partnership. Salom and Papiki agreed to relinquish one-fifth of their share in profits or losses to Dineo, in the ratio 3:1 respectively. The partnership's assets were revalued for the purpose of admitting Dineo, and a valuation loss of R14 000 was correctly calculated. Calculate the new profit-sharing ratio of Salom, Papiki and Dineo.

5. May/Jun 2013, Q5.29 marks

   Using the same facts about SAPA Traders - Salom and Papiki admitting Dineo from 1 August 2012, Dineo contributing R25 000 cash and a vehicle worth R43 000 for a third of the net asset share, Salom and Papiki relinquishing one-fifth of their profit share to Dineo in the ratio 3:1, and a correctly calculated valuation loss of R14 000 arising from the revaluation of assets - calculate the goodwill arising on Dineo's admission to the partnership.