Concept introduction
It is a form of a business in which a group of people shares all the profit and losses with each other which are often called as partners comes together and runs a partnership firm.
To prepare: A worksheet that shows the various partners’ capital balances from the December 31, 2015.
Answer to Problem 14.6P
The required worksheet to shows the various partners’ capital balances.
Explanation of Solution
Year | Transactions | M | R | H | P | Total |
2016 | Starting balance Profit allocation Distribution Balance at the year end | |||||
2017 | Starting balance Admission of Mr.H Allocation of profits Distribution Balance at the year end | |||||
2019 | Beginning balance Net asset adjustment Recognition of r goodwill Partnership interest sold by Mr.R | |||||
Subtotal | ||||||
Admission of Mr.P | ||||||
Balance in the end |
Allocation of profit for Mr.M and Mr.R in the year 2016:
Transactions | Mr.M | Mr.R | Total |
Salary | |||
Bonus | |||
Total | |||
Net income | |||
Balance available for sharing profit | |||
Profit and loss percentage | |||
Calculated profit | |||
Allocation of profit |
Allocation of profit for Mr.M, Mr.R and Mr.H in the year 2017:
Transactions | Mr.M | Mr.R | Mr.H | Total |
salary | ||||
Bonus | ||||
Total | ||||
Deduct: net income | ||||
Balance available for sharing profit | ||||
Profit and loss percentage | ||||
Calculated profit | ||||
Allocation of profit |
The capital share for existing partners at the time of admission of the new partner Mr.H.
The new partnership has a value of
So, the total available capital among the partners is
This additional required capital should be shared by Mr. M and Mr.R based on their profit and loss percentage that is
The starting balance of Mr. R and Mr.H is
Now the goodwill for MR.R:
Transactions | Amount |
Beginning balance of MR.R for 2019 | |
Deduct: decrease in the net asset | |
Capital balance after adjustment | |
Deduct: sales of interest by MR.R | |
Recognition of Mr.R’s goodwill |
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Chapter 14 Solutions
Advanced Accounting
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