Exhibit 114 Refer to Exhibit 113 Suppose Freda contributed 400000 as her

Exhibit 114 refer to exhibit 113 suppose freda

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Exhibit 11.4Refer to Exhibit 11.3. Suppose Freda contributed $400,000 as her capital and an additional sum for her share of goodwill (i.e., $240,000). Both payments were made by cheque.CapitalDenise Eddy FredaDenise Eddy Freda2016 $ $ $2016 $ $ $Jan 1 Goodwill 120,000 240,000 240,000Jan 1 Bank (Workings) 640,000 1 Goodwill 300,000 300,000 $400,000 + $240,000Freda’s capital balance= $640,000 – $240,000 = $400,000= The amount of capital contributed
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Admission of partnersNew partner pays old partners privately for his share of goodwillSometimes, the new partner may choose to pay the old partners privately for his share of goodwill (which equals the old partners’ losses in share of goodwill) instead of making a payment to the partnership.For example, in Exhibit 11.3, Freda paid $180,000 and $60,000 directly to Denise and Eddy, respectively. The two payments totalled $240,000, which was equivalent to her share of goodwill in the partnership.
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Admission of partnersNew partner pays old partners privately for his share of goodwillAs the payments were private transactions between the partners, no entries would be required in the partnership’s books. Moreover, no adjustments would be requiredfor goodwill in the partners’ capital accounts.
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Admission of partnersNew partner pays old partners privately for his share of goodwill
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Withdrawal of partnersWhenever a partner withdraws from a partnership, adjusting entries are required in the partners’ capital accounts.Goodwill adjustment on the withdrawal of partnersExhibit 11.5Harry, Irene and Joe were partners, sharing profits and losses equally. Joe planned to leave on 1 January 2016, the first day of the new financial year. The remaining partners would continue to share profits and losses equally.
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Withdrawal of partnersGoodwill adjustment on the withdrawal of partnersExhibit 11.5On the date of Joe’s withdrawal, the capital balances of the partners were:Harry $500,000Irene$500,000Joe$400,000The goodwill of the partnership was valued for the first time at $450,000. The partners’ capital balances were adjusted.
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Withdrawal of partners(a)A goodwill account is openedExhibit 11.5Goodwill2016 $Jan 1 Capital: Harry 150,000Irene 150,000Joe 150,000CapitalHarryIreneJoe2016$$$Jan 1 Balance b/f500,000 500,000 400,0001 Goodwill (Workings)150,000 150,000 150,000
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Withdrawal of partners(b)A goodwill account is not openedExhibit 11.5CapitalHarry Irene JoeHarry Irene Joe2016 $ $ $2016 $ $ $Jan 1 Goodwill (Workings) 225,000 225,000 Jan 1 Balance b/f500,000 500,000 400,0001 Goodwill150,000 150,000 150,000
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Withdrawal of partners(b)A goodwill account is not openedExhibit 11.5After adjustments, Joe’s capital balance amounted to $550,000. This balance is the same whether a goodwill account is opened or not. Joe should be paid $550,000 on his withdrawal. The required double entry for this is:DrJoe’s capital account $550,000CrCash/Bank account $550,000
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Withdrawal of partners(b)A goodwill account is not openedExhibit 11.5After adjustments, Joe’s capital balance amounted to $550,000. This balance is the same whether a goodwill account is opened or not. Joe should be paid $550,000 on his withdrawal. The required double entry for this is:DrJoe’s capital account $550,000CrCash/Bank account $550,000Note that the withdrawing partner may leave part of the balance(s) with the new partnership as a loan. This is illustrated in Exhibit 11.6.
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Withdrawal of partnersThe withdrawing partner leaves a loan to the new partnership
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  • Spring '07
  • Smith
  • Generally Accepted Accounting Principles, partner, Dr Goodwill

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