Exhibit 116 Refer to Exhibit 115 Suppose Joe took away half of his capital

Exhibit 116 refer to exhibit 115 suppose joe took

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Exhibit 11.6Refer to Exhibit 11.5. Suppose Joe took away half of his capital balance on withdrawal and left the other half with the new partnership as a loan.CapitalHarry Irene JoeHarry Irene Joe2016 $ $ $2016 $ $ $Jan 1 Goodwill225,000 225,000 Jan 1 Balance b/f500,000 500,000 400,0001 Bank275,0001 Loan from Joe1 Goodwill150,000 150,000 150,000
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Withdrawal of partnersThe withdrawing partner leaves a loan to the new partnershipExhibit 11.6Refer to Exhibit 11.5. Suppose Joe took away half of his capital balance on withdrawal and left the other half with the new partnership as a loan.CapitalHarry Irene JoeHarry Irene Joe2016 $ $ $2016 $ $ $Jan 1 Goodwill225,000 225,000 Jan 1 Balance b/f500,000 500,000 400,0001 Bank275,0001 Loan from Joe1 Goodwill150,000 150,000 150,000 The loan from Joe would be shown as a liability in the statement of financial position of the new partnership. Interest might be charged on this loan
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Goodwill revaluationLearning TipsIn public examination, partnership goodwill is usually included as a small part of a question on partnership revaluation.When partnership revaluation is needed, goodwill will also be revalued together with other tangible assets and even liabilities.Two alternative methods to account for goodwill: opening a goodwill account or not. Public examination questions always require not to open.
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Goodwill revaluationLearning TipsExample(vi)Goodwill was to be valued at $350,000. No goodwill accountwas to be maintained in the books.(Extracted from HKDSE BAFS 2013, Paper 2A Section B Q4)In this question, candidates must adjust partners’ capital balance according to the change in the profit and loss sharing ratio.
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Goodwill revaluationLearning TipsThere are two alternative methods to make the required entries in the capital accounts (both are acceptable in public examinations).Debiting a partner’s capital account with his gain in the share of goodwill, or crediting a partner’s capital account with his loss in the share of goodwillCrediting all concerned partners’ capital accounts with their respective shares of goodwill in the old profit and loss sharing ratio. Then debiting all concerned partners’ capital accounts with their respective shares of goodwill in the new profit and loss sharing ratioUsually adopted in suggested answers
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  • Spring '07
  • Smith
  • Generally Accepted Accounting Principles, partner, Dr Goodwill

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