60555063-Lone-Pine-Cafe - Lone Pine Café QUESTION Part A(3...

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Unformatted text preview: Lone Pine Café QUESTION Part A (3) Disregarding the marital complications, do you suppose that the partners would have been able to receive their proportional share of the equity determined in Question 2 if the partnership was dissolved on March 30, 2006? Why? WHAT IS ACCOUNTING PERIOD CONCEPT? When accountants prepare financial statements, they assume that the life of the business can be divided into time periods. This is called the accounting period concept. Using this concept, accountants must determine in which period to report the revenues and expenses of the business. Accounting Period Conceptcovers the period for which the income has been measured. It is the time between the preparation and presentation of two successive statements of financial position by an organization. The income statement presents the changes in owners equity due to operations and other events between one balance sheet and the next. In India the accounting period for taxation purpose is considered from 1st April to 31st March of every year, where as in UK and US it is considered from 1st January to 31st December every year i.e. calendar year. In current case of Lone Pine Café, since the partnership started its operations from 2nd November 2005 and the again balance sheet is prepared on 30th March 2006, the accounting period as per accounting period concept is from 2nd November 2005 to 30th November 2006. While dissolution, matters which arise directly out of dissolution, such as settlement of accounts, payment of amounts found due on such settlement, closing down or continuation of business collection of outstanding and payment of liabilities should be considered. The acceptance of this concept therefore necessitates the accruals and deferrals of revenue and expense items such as unpaid salaries, uncollected Revenues, Depreciation Expense, Prepaid Expenses etc. to be recorded. Therefore in current case, even if partnership is dissolved the proportional share of equity determined for the partners should be paid to all the partners in the equity sharing ratio i.e. 1/3. But while arriving at the share of Mr. Henry Antoine and Mrs. Sandra Landers, the value of cash register i.e. $1,337 (Refer Working 1) and actual cash available in cash register ($311) should be deducted as it is presumed to be taken by them. Their total share of equity comes to $37,416 (Refer Working 2) which needs to be divided amongst the three. Therefore the $12,382 would be the share of either and combined payable to Mr. Henry Antoine and Mrs. Sandra Landers would be $23,116 (Refer Working 3). The above value is arrived at presuming that Mrs. Henry Antoine takes over the business along with existing assets and liabilities. Thus $870 which is shown as Account Receivable while preparing balance sheet is considered as good since it is recovered later. In case the $870 is received while preparing the Balance sheet then the loss figure will be inflated by $870 resulting into the loss of $11,724 (Refer working 4) and accordingly share of each partner would be $12,092 and thus combined payable to Mr. Henry Antoine and Mrs. Sandra Landers will then be $22,536. DETAILED WORKING OF EACH VALUE Value of Cash Register Cost Equipment Depreciation Net value ($) 53,200 2,382 50,818 1,400 63 1,337 54,600 Cash register 2,445 52,155 Total share of equity as on March 30, 2006 Particulars Amount ($) Initial Capital Investment 48,000 Less : Loss for the period 10,854 37,146 Combined payable to Mr. Henry Antoine and Mrs. Sandra Landers in case $870 is shown as Account Receivable in Balance Sheet as on March 30, 2006 Particulars Amount ($) Share of Mr. Henry Antoine 12,382 Share of Mrs. Sandra Landers 12,382 Total of Both 24,764 Less : Value of Cash Register Less : Cash in Cash register Total Payable 1,337 311 23,116 Total share of equity as on March 30, 2006 Particulars Loss as calculated Add : Already recovered Total Loss Amount ($) 10,854 870 11,724 Combined payable to Mr. Henry Antoine and Mrs. Sandra Landers in case $870 is considered as already received while preparing Balance sheet as on March 30, 2006. Particulars Amount ($) Initial Capital Investment 48,000 Less : Loss for the period 11,724 Total Equity 36,276 Share of Mr. Henry Antoine (1/3rd) 12,092 Share of Mrs. Sandra Landers (1/3rd) 12,092 Total of Both Less : Value of Cash Register Less : Cash in Cash register Total Payable 24,184 1,337 311 22,536 ...
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This note was uploaded on 12/07/2011 for the course MBA 0001 taught by Professor Akshat during the Spring '09 term at Institute of Management Technology.

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