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Case 1 Q1

Jack and Paul were sole traders who decided to merge their businesses and form a partnership on July 1, 2018. Their individual statements of financial position are provided. The terms of the merger included valuing each business and adjusting some asset values. Goodwill arising from the merger was to be written off against each partner's capital account. Initial capital contributions were set and the profit sharing ratio was agreed to be 3:2 for Jack and Paul.

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24 views2 pages

Case 1 Q1

Jack and Paul were sole traders who decided to merge their businesses and form a partnership on July 1, 2018. Their individual statements of financial position are provided. The terms of the merger included valuing each business and adjusting some asset values. Goodwill arising from the merger was to be written off against each partner's capital account. Initial capital contributions were set and the profit sharing ratio was agreed to be 3:2 for Jack and Paul.

Uploaded by

Talha Sajad
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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6

Question 3

Source A3

Jack and Paul were two sole traders. They decided to merge their businesses and form a partnership
on 1 July 2018. Their statements of financial position at 30 June 2018 were as follows.

Jack Paul
$ $
Non-current assets
Plant and equipment 118 000 103 700

Current assets
Inventory 36 000 47 000
Trade receivables 31 500 29 500
Bank 6 200 3 400
73 700 79 900
Current liabilities
Trade payables 27 700 33 100

Net assets 164 000 150 500

Capital 1 July 2017 160 000 150 000


Profit for the year 44 000 20 500
Drawings (40 000) (20 000)
164 000 150 500

The following was agreed for the purpose of the merger.

1 The value of each business was: Jack $195 000; Paul $152 000.

2 Jack’s plant and equipment would be revalued at $128 000.

3 Paul’s inventory would be revalued at $40 000.

4 Paul’s trade receivables would be reduced by 2% for making allowance for doubtful debts.

All other assets and liabilities would be transferred at the book value.

Answer the following questions in the Question Paper. Questions are printed here for
reference only.

(a) Calculate the value of total goodwill arising from the terms of the merger. [3]

© UCLES 2019 9706/32/INSERT/O/N/19


7

Additional information

The following were the terms of the partnership.

1 Initial capital contributed by Jack and Paul would be $200 000 and $160 000 respectively, to
be settled by net assets transferred and cash.

2 The profit and loss sharing ratio between Jack and Paul will be 3 : 2.

3 Goodwill arising from the merger is to be written off against each partner’s capital account
immediately after the merger.

(b) Prepare the statement of financial position for the partnership at 1 July 2018. [10]

Additional information

The partners also agreed to the following terms of the partnership.

1 Partners’ salaries will be $24 000 each.

2 Each partner will take their salary and share of profit as drawings.

The profit for the year ended 30 June 2019, before appropriation, was $66 000.

(c) Prepare the current account for each partner for the year ended 30 June 2019. [5]

(d) Calculate, to two decimal places, the return on capital employed (ROCE) for the year ended
30 June 2019. [2]

(e) Evaluate whether or not Jack and Paul have benefited financially from merging their
businesses. Justify your answer. [5]

[Total: 25]

© UCLES 2019 9706/32/INSERT/O/N/19 [Turn over

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