QUESTION:
Thato and Mdeva were in partnership and traded as LEPARA Traders and shared profits/losses in the ratio of 5:3 respectively. Thato and Mdeva decided to admit Lenyora to the partnership. The following information is presented to you at 30 September 2015, the end of the financial year:
BALANCES AS AT 30 SEPTEMBER 2015
|
|
R
|
|
|
Capital: Thato.........................................................................................................
|
170
|
000
|
|
Capital: Mdeva.......................................................................................................
|
160
|
000
|
|
Current account (Cr): Thato..................................................................................
|
21
|
125
|
|
Current account (Cr): Mdeva................................................................................
|
21
|
175
|
|
Long term loan.......................................................................................................
|
37
|
000
|
|
Land and buildings (at cost).................................................................................
|
300
|
000
|
|
Equipment (at cost)...............................................................................................
|
83
|
000
|
|
Accumulated depreciation: Equipment (1 October 2014).................................
|
7
|
000
|
|
Inventories..............................................................................................................
|
54
|
300
|
|
Debtors control......................................................................................................
|
42
|
000
|
|
Creditors control....................................................................................................
|
16
|
000
|
|
Bank (favourable)..................................................................................................
|
53
|
000
|
On 1 October 2015, Lenyora paid R120 000 for a 20% interest in the net assets of the partnership.
In preparation of the change in the ownership structure of LEPARA Traders, Thato and Mdeva obtained the following appraisals on 30 September 2015:
1. On 29 September 2015 inventory to the value of R5 000 was destroyed by fire and this incident was not accounted for in the books of the partnership. Part of the remaining inventory was deemed overvalued by R5 300.
2. Depreciation on equipment is accounted for at 20% per annum according to the diminishing balance method.
3. Land and buildings were valued by a sworn appraiser at R300 000.
4. Due to an oversight of certain information on the debtors invoices the accountant recorded the debtors balance 16% net of a settlement discount. It is not known if the debtors will take up the offer of a settlement discount.
5. A joint life policy on the lives of Thato and Mdeva must be accounted for in the books of the partnership. The surrender value of this policy is R34 000.
REQUIRED:
Prepare the journal entries on 30 September 2015 in the general journal of LEPARA Traders to prepare for the admission of Lenyora as a partner, and to record the dissolution of LEPARA Traders. Apply the accounting procedure which is based on the legal perspective.