Prepare the Statement of Financial Position of the new firm.

  1. Billy and Erica are partners sharing profits and losses in the ratio of 3:2 respectively. Their Statement of financial position as at March 31, 2016 was as follows:

Billy and Erica

Statement of Financial Position as at 31 March 2016

 

$ $
Non-current assets
Buildings 65 000
Furniture 15 000
Machinery 13 000
93 000
Inventory 30 000
Accounts receivable 19 000
Cash at bank 23 000
Cash in hand 3 000
75 000
Less; Current liabilities
Accounts payable 28 000
47 000
140 000
Financed by:
Capitals:
Billy 70 000
Erica 70 000
140 000

On that date, they admit Devon into the partnership for 1/3 share of the profits on the following terms:

  1. Furniture and inventory are to decrease by 10%.
  2. Building is appreciated by $20 000.
  3. 5% provision is to be created for doubtful debts.
  4. Devon is to bring in $50 000 as his capital and $30 000 as goodwill.

Prepare:

  1. the revaluation account (7 marks)
  1. the partners’ capital account (10 marks)
  1. the Statement of Financial Position of the new firm. (8 marks)

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