As of June 30, 2020, Kagura and Hayabusa decided to form a Partnership. Their balance sheet on this date is as follows: Account Kagura Hayabusa Cash 70,000 40,000 Accounts Receivable 20,000 30,000 Allowance for doubtful accounts - 2,000 Notes receivable 10,000 20,000 Merchandise Inventory 80,000 100,000 Machinery and equipment 120,000 - Furnitures and Fixtures - 110,000 Accumulated Depreciation 10,000 20,000 Accounts payable 30,000 20,000 Notes payable 20,000 5,000 The partners agreed to the following adjustments: Uncollectible accounts of P3,000 for Kagura is to be provided; and 10% of the account receivable for Hayabusa is uncollectible. Kagura’s inventory amounting to P5,000 is worthless, while Hayabusa’s inventory has a fair value of P140,000 and costs to sell of P10,000. An interest of 10% on notes receivable dated March 31, 2020 is to be accrued for both books. Accrued rent income of P3,000 for Kagura, and accrued salaries of P5,000 for Hayabusa should be recognized on their respective books. Machinery and equipment are over-depreciated by P5,000. Furniture and fixtures has a fair value of P120,000 and an agreed value of P110,000. Interest of 5% on notes payable dated January 1 should be accrued for both books. Question 1: Assume that the partnership agreement provides for profit and loss sharing of 40% to Kagura and 60% to Hayabusa, and that the new capital of the partnership is to be based on the adjusted capital of Kagura. How much additional cash must be invested by Hayabusa to bring the capital balances proportionate to the profit and loss ratio? Question 2: Assume that the partners agreed to receive an equal capital interest using the bonus approach, determine the amount of bonus.
Partnership Accounting
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings, admission of a new partner, etc.
Partner Admission and Withdrawal
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings of a partner, etc.
As of June 30, 2020, Kagura and Hayabusa decided to form a
|
Account |
Kagura |
Hayabusa |
|
Cash |
70,000 |
40,000 |
|
|
20,000 |
30,000 |
|
Allowance for doubtful accounts |
- |
2,000 |
|
Notes receivable |
10,000 |
20,000 |
|
Merchandise Inventory |
80,000 |
100,000 |
|
Machinery and equipment |
120,000 |
- |
|
Furnitures and Fixtures |
- |
110,000 |
|
|
10,000 |
20,000 |
|
Accounts payable |
30,000 |
20,000 |
|
Notes payable |
20,000 |
5,000 |
The partners agreed to the following adjustments:
- Uncollectible accounts of P3,000 for Kagura is to be provided; and 10% of the account receivable for Hayabusa is uncollectible.
- Kagura’s inventory amounting to P5,000 is worthless, while Hayabusa’s inventory has a fair value of P140,000 and costs to sell of P10,000.
- An interest of 10% on notes receivable dated March 31, 2020 is to be accrued for both books.
- Accrued rent income of P3,000 for Kagura, and accrued salaries of P5,000 for Hayabusa should be recognized on their respective books.
- Machinery and equipment are over-
depreciated by P5,000. - Furniture and fixtures has a fair value of P120,000 and an agreed value of P110,000.
- Interest of 5% on notes payable dated January 1 should be accrued for both books.
Question 1: Assume that the partnership agreement provides for
Question 2: Assume that the partners agreed to receive an equal capital interest using the bonus approach, determine the amount of bonus.
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