SFX GREENHERALD INTL SCHOOL

AS LEVEL ACCOUNTING (9706)

CLASS TEST 3
Full marks: 25 Time: 30 Minutes

Lara, Tendulkar and Inzammam were in partnership sharing profit and losses: Lara one-
half, Tendulkar one-third and Inzammam one-sixth.

The firms Statement of Financial Position as on 31 March 2005 was as follows:

Non-Current Assets:
Freehold land and buildings 16000
Plant and machinery 6000
Motor car 2400
24400
Current Assets:
Balance at bank 9600
Inventories 11200
Receivables 12000
Provision for bad debts (1200)
10800
31600
Current Liabilities:
Payables (8000)
23600
Net Assets 48000
Capital:
Lara 24000
Tendulkar 12000
Inzammam 8000
40000
Loan: Lara 4000

44000

Lara retired on 31 March 2005 to commence business on his own account and
Tendulkar and Inzammam continued in partnership, sharing profits in the ratio of 2:1.

1
It was agreed that Lara should take over certain plant and machinery valued at 1500
and one of the firms cars at its book value of 1000.
In accordance with the terms of the partnership agreement, the total value of goodwill
on 31 March 2005 was agreed at 30,000. Since Lara intended to retain certain of the
customers it was agreed that the value of the proportion of the goodwill to be
purchased by him was 6000. Tendulkar and Inzammam decided that goodwill should
not appear in the books of the new partnership as an asset, the necessary adjustments
being made through the partners Capital Accounts. Pending the introduction of further
cash capital by the continuing partners, the amount owing to Lara was agreed to be left
on loan account.

Required:

(a) The Partners Capital Accounts in columnar form of the old and new firm, recording
these transactions. (10 marks)

2
(b) The updated financial position of the new firm after the change of partnership.
(10 marks)

3
(c) What is the reasoning behind the adjustments made for goodwill? (5 marks)