Practice Activity 11.13 Presenting the statement of financial position after the amalgamation of two sole proprietors’ businesses to create a partnership
Chukwuemeka and Adaeze, agreed to combine their individual businesses to form a partnership named Chukwuemeka, Adaeze & Co., with effect from 1 January 2019 and their statements of financial position are presented, respectively:
See the continuation of their respective statements of financial position as at 31 December 2018 as follows.
Additional information: 1. The assets and liabilities of the two parties were revalued during the amalgamation and the following figures were agreed: Chukwuemeka Adaeze ₦ ₦ Premises 42,000 53,000 Equipment 7,000 9,200 Fixtures and fittings 7,900 8,900 Inventory 5,100 8,200 Trade Receivables 800 1,200
2. Adaeze settled the bank overdraft from her personal resources. The partnership will not take responsibility for the bank overdraft.
3. Adaeze decided to pay trade payables amounting to ₦900 out of the cash resources of her business.
4. The partnership agreed to settle the obligation due to Akachukwu.
5. The partnership took over the cash balances.
6. Trade payables were taken over by the partnership except for the ₦900 which Adaeze settled.
7. It was agreed that the capital of Chukwuemeka, Adaeze & Co. should be subscribed by Chukwuemeka - 3/5 and Adaeze - 2/5.
Required: Using the opening Statement of Financial Position of Chukwuemeka, Adaeze & Co. subsequent to the combination of the two sole proprietors, calculate the amount of capital contributed by Chukwuemeka and Adaeze in the newly formed partnership.
Notes: 1. Premises ₦
Chukwuemeka 42,000
Adaeze 53,000
Total 95,000
2. Equipment: ₦
Chukwuemeka 7,000
Adaeze 9,200
Total 16,200
3. Fixtures and fittings: ₦
Chukwuemeka 7,900
Adaeze 8,900
Total 16,800
4. Inventory: ₦
Chukwuemeka 5,100
Adaeze 8,200
Total 13,300 5. Trade receivables: ₦
Chukwuemeka 800
Adaeze 1,200
Total 2,000
6. Cash: ₦ ₦
Chukwuemeka 2,500
Adaeze 3,800
Trade payables (900) 2,900
Total 5,400
7. Trade payables: ₦ ₦
Chukwuemeka 2,900
Adaeze 4,800
Less: Payment from cash
resources of Adaeze (900)
3,900
Total 6,800 8. Capital contribution by Chukwuemeka and Adaeze: Total Assets = Total Capital + Total Liabilities ₦148,700 = Total capital + ₦12,800 148,700 - 12,800 = Total capital Total capital = ₦135,900 Capital contribution by Chukwuemeka and Adaeze are: i. 3/5 of ₦135,900 = ₦81,540 ii.2/5 of ₦135,900 = ₦54,360 The ledger entries in the books of Chukwuemeka are as follows: The Books of Chukwuemeka Premises account
Date | Particulars | ₦ | Date | Particulars | ₦ |
January 2019 | | | January 2019 | | |
1 | Balance b/d | 35,000 | 1 | Chukwuemeka, Adaeze & Co. | 42,000 |
1 | Revaluation | 7,000 | | | |
| | 42,000 | | | 42,000 |
| | | | | |
The ledger entries in the books of Adaeze are as follows:
The Books of Adaeze
The ledger entries in the books of Chukwuemeka, Adaeze & Co. are as follows:
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