The capital introduced by a new partner may consist of several components

# The capital introduced by a new partner may consist

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The capital introduced by a new partner may consist of several components. Candidates should know that all amounts brought in by a new partner for use in the partnership, in whatever form and for whatever reason, should be treated as capital contributed by that partner.
Capital contributed by the new partner Learning Tips Example 3 (iii) Tim was required to repay 80% of the amount owed to the creditors and to bring in trading goods with an agreed value of \$33,000. He made a payment by cheque for his share of goodwill. (Extracted from HKCEE Principles of Accounts 2010, Section A Q4) In this question, the capital contributed by the new partner amounted to \$126,000, which consisted of \$48,000 (=\$60,000 × 80%) in payments to creditors, trading goods (i.e., stock) worth \$33,000 and a payment for his share of goodwill of \$45,000.
Effect of revaluation on depreciation charges After revaluation, depreciation should be charged on the revalued amount of a tangible non-current asset over its remaining useful life.
Exhibit 12.3 Depreciation on revalued non- current assets Suppose a car was purchased for \$100,000 on 1 January 2011. It was expected to have a useful life of 10 years and with no residual value. Depreciation was to be charged on the car on a straight-line basis. On 1 January 2015, the car was revalued at \$90,000. The annual depreciation charge on the car would be affected by the revaluation as follows: Before revaluation After revaluation Annual depreciation charge \$100,000 ÷ 10 = \$10,000 \$90,000 ÷ 6 = \$15,000 Four years had passed from 1 January 2011 to 1 January 2015, so there were only six years left in the useful life of the car. Four years had passed from 1 January 2011 to 1 January 2015, so there were only six years left in the useful life of the car. If the remaining useful life of the car was reviewed on revaluation and extended to 10 years, the annual depreciation charge on it after revaluation would be \$9,000 (= \$90,000 ÷ 10). If the remaining useful life of the car was reviewed on revaluation and extended to 10 years, the annual depreciation charge on it after revaluation would be \$9,000 (= \$90,000 ÷ 10).
Exhibit 12.4 A worked example Paul and Mary were partners, sharing profits and losses equally. The statement of financial position of their partnership as at 31 March 2015 is as follows:
Exhibit 12.4 A worked example Paul and Mary Statement of Financial Position as at 31 March 2015 Non-current assets \$ Cost \$ Accumulat ed depreciati on \$ Net book value Equipment Motor vehicles 478,000 265,000 743,000 125,000 87,000 212,000 353,000 178,000 531,000 Current assets Inventory Trade receivables Less Allowance for doubtful accounts 63,500 3,175 26,200 60,325 86,525 Less Current liabilities: Trade payables Bank overdraft Net current assets 22,540 8,795 31,335 55,190 586,190 Less Non-current liabilities: Loan from Paul 60,000 526,190
Exhibit 12.4 A worked example Paul and Mary Statement of Financial Position as at 31 March 2015 \$ \$ \$ Financed by: Capital accounts: Paul Mary 274,000 175,000 449,000 Current accounts: Paul Mary 94,490 (17,300) 77,190 526,190
Exhibit 12.4 A worked example On 1 April 2015, Paul retired and Jane was admitted to the partnership on the following terms: 1.Mary and Jane were to share profits and losses in the ratio of 2 : 1.

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• Spring '07
• Smith
• Balance Sheet, Generally Accepted Accounting Principles, partner, Financial Position

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