F. 5 BAFS Partnership Revaluation wch1.

Revaluation of Assets:

Why assets have to be revalued?

 A partner is entitled to get a fair share of the net assets of the company.
 The assets have to be revalued to reflect their fair values.
 There may be unrealized holding gains or losses which have not been accounted for in the books.
 Through revaluation, partners’ capital accounts are credited with their respective share of gains (or debited with the
share of losses) using the old profit or loss sharing ratio.
 In the case of change in profits and loss sharing ratios and withdrawal of old partners, all partners will receive their full
entitlement to partnership profits up to the date of the change in the constitution.
 In the case of admission of new partners, the new partner will not bear any losses or benefit from any gains which may
have arisen during the period prior to the admission.

Assets increased in value:

Dr Asset
Cr Revaluation a/c (for the value increased)

Assets decreased in value:

Dr Revaluation a/c
Cr Asset (for the value decreased)

-The balance in the Revaluation a/c represents the profit or loss on revaluation of assets:

 Profit on revaluation:

Dr Revaluation a/c
Cr Partners' Capital a/cs (in old profit or loss sharing ratios)

 Loss on revaluation:

Dr Partners' Capital a/cs (in old profit or loss sharing ratios)

Cr Revaluation a/

N.B. 1. New value of assets should be compared with the net book value at the date of revaluation to determine the value
increased or decreased.

2. Increase in allowance for doubtful accounts = asset value decreases

i.e. Dr Revaluation
Cr Allowance for doubtful accounts

3. When a new partner is introduced, revaluation of assets only affects old partners' capital. New partner's capital is
not affected.

4. When a partner withdraws, revaluation of assets also affects the partner withdrawn and his capital must be adjusted
accordingly.

5. If goodwill a/c already exists, change of its value may be entered in the revaluation a/c together with other assets.
The goodwill account will remain in the books of the company. Alternatively, goodwill adjustments may pass
through partners' capital a/cs directly.

6. If new values of assets are not to be introduced in the books, old values of assets should be written back by
transferring the profit or loss on revaluation to new partners’ capital accounts in new profit or loss sharing ratios.

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F. 5 BAFS Partnership Goodwill wch2.1/2pp

Goodwill is an intangible asset representing the difference between the value of a business as a whole and the sum of the fair
values of its separable net assets. Purchased goodwill results from the purchase of a business and can be recognized. Inherent
goodwill is developed by the business internally and should not be recognized.
Intangible assets have no physical existence but represent the value of a right. They are non-current and represent future
benefits to be received. (e.g. goodwill, patents, copyrights, trademarks, tradenames)
Reasons for payment of goodwill:
 good reputation
 experienced and efficient employees
 loyal customers
 good relationship with suppliers
 good location, etc.

Characteristics of goodwill:
 Goodwill is incapable of realisation separately from the business as a whole (i.e. not separable).
 The value of goodwill has no reliable or predictable relationship to any costs which may have been incurred.
 Individual intangible factors which may contribute to goodwill cannot be valued.
 The value of goodwill may fluctuate widely over relatively short periods of time.
 The assessment of the value of goodwill is highly subjective.

Adjustment for Goodwill

 Partners own a share in the goodwill (which has been built up by them) in the same ratio in which they share profits.
 When there is any change in the constitution of the partnership (i.e. change in profit and loss sharing ratios of partners,
admission of new partners, withdrawal of old partners), the ownership of goodwill by partners also changes: some
partners may gain (i.e. get a larger share) and some may lose (i.e. get a smaller share) goodwill.
 To be fair to all partners, goodwill adjustment is need to compensate those partners who has lost goodwill by those who has
gained goodwill although goodwill is realised (e.g. in the form of cash) only when the whole business is sold.
 Most partnership business prefer not to maintain a goodwill account because:
- valuation may be subjective; estimated value may not be reliable
- goodwill is intangible in nature
- relationship with future economic benefit may not be easily identifiable or measurable

1. Change of profit and loss sharing ratios of existing partners.

(a) Goodwill a/c opened:
Dr Goodwill
Cr Partners' Capital a/cs in old ratios

(b) Goodwill a/c not opened:

 construct a table to compare the share of goodwill before and after the change
 to preserve the equities between the partners:
Gain Goodwill ==> Lose (Dr) Capital
Lose Goodwill ==> Gain (Cr) Capital
(c) Goodwill a/c opened and subsequently closed:
Dr Goodwill
Cr Partners' Capital a/cs in old ratios
Dr Partners' Capital a/cs in new ratios
Cr Goodwill
N.B.
 To OPEN Goodwill a/c, use OLD profit sharing ratios; To CLOSE Goodwill a/c, use NEW profit sharing ratios
 If goodwill a/c already exists, only the change in value of goodwill is recorded. No adjustment is required if the value of
goodwill remains unchanged.
 If goodwill adjustment is settled privately between partners in the form of cash payment, no adjustment is required.

1
F. 5 BAFS Partnership Goodwill wch2.1/2pp

2. Admission of New Partner.

(a) Goodwill a/c opened:
Dr Goodwill
Cr Old Partners' Capital a/cs in old ratios

(b) Goodwill a/c not opened:

 construct a table to compare the share of goodwill before and after the change
 to preserve the equities between the partners:
Gain Goodwill ==> Lose (Dr) Capital
Lose Goodwill ==> Gain (Cr) Capital

(c) Goodwill a/c opened and subsequently closed:

Dr Goodwill
Cr Old Partners' Capital a/cs in old ratios

Dr Old and New Partners' Capital a/cs in new ratios

Cr Goodwill

Introduction of capital by new partner:

Dr Cash/Bank/Other assets
Cr New Partner’s Capital a/c
N.B.
 In (b) and (c) above, the new partner may need to pay a premium for a share of goodwill. In this case, the entry is the
same as introduction of new capital above:
Dr Cash (=Premium)
Cr New Partner's Capital a/c
 If goodwill a/c already exists, only the change in value of goodwill is recorded. No adjustment is required if the value of
goodwill remains unchanged.
 If goodwill adjustment is settled privately between partners in the form of cash payment, no adjustment is required.

3. Retirement/Withdrawal of Old Partner.

(a) Goodwill a/c opened:
Dr Goodwill
Cr Old Partners' Capital a/cs in old ratios

(b) Goodwill a/c not opened:

 construct a table to compare the share of goodwill before and after the change
 to preserve the equities between the partners:
Gain Goodwill ==> Lose (Dr) Capital
Lose Goodwill ==> Gain (Cr) Capital

(c) Goodwill a/c opened and subsequently closed:

Dr Goodwill
Cr Old Partners' Capital a/cs in old ratios

Dr Remaining Partners' Capital a/cs in new ratios

Cr Goodwill

Repayment of capital to withdrawn partner:

Dr Outgoing Partner's Capital a/c (after transfer of current a/c balance to capital a/c)
Cr Cash/Loan
N.B.
 If goodwill a/c already exists, only the change in value of goodwill is recorded. No adjustment is required if the value of
goodwill remains unchanged.
 If goodwill adjustment is settled privately between partners in the form of cash payment, no adjustment is required.
 Withdrawals of cash in respect of a retiring partner’s capital and goodwill entitlement may leave the business short of cash.

2
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,鄧 (50 分）

全鯽試讑均須作答。

4 陳君和丁君經營合夥， 損益按 3 : 2 的比率分配 。 2012 年l月 1 日 ，陳君退夥而艾君加入成

爲新合夥人，合夥於退夥和入夥前的結餘如下：

借方 貸方
＄ ＄
資本帳， 2012 年 l 月 1 日—陳君 700 000
一丁君 650 000
往來帳， 2012 年l月l日 讛陳君 72 000
一丁君 247 000
物業，淨值 l 250 000
設備，凈值 600 000
應收貨款 550 000
應付貨款 275 000
銀行存款 100 000
銀行貸款 (2016 年 3 月 31 日到期償付） ． 700 000
2 572 000 2 572 000

陳君退夥和艾君入夥之際，合夥人協議如下：

(i) 艾君投入現金 $850 000 至合夥。

(ii) 退夥當日 ，陳君的往來帳結餘將會轉至其資本帳。

(iii) 物業重估為 $2 320 000, 而設備的帳面淨值減少 20% 。

(iv) 作出 4%呆帳撥備。

(v) 陳君退夥後會即時獲付 － 張 $230 000 的支票，而欠付餘讒則留給新合夥作為免息長

期貸款 。

(vi) 商譽計值為 $350 000 , 帳冊內不設商譽帳。

(vii) 資本利息每年計算 4%' 而丁君可享月薪 $5000 。

(viii) 丁君和艾君均分損益。

作業蔓求：

(a) 編製 2012 年 l 月1 日合夥人多欄式資本帳讚列示陳君退夥和艾君入夥。 (6 分）

(b) 編製 2012 年 l 月1 日陳君退夥和艾君入夥後的財務狀況表。 (6 分）

(c) 假若 2012 年的淨利為 $300 000 , 編製截至 2012 年 12 月 31 日止年度合夥人多欄式往來

帳。 (4 分）

(d) 指出合夥人退夥時需作資產重估的－個原因。 (2 分）
（總分： 18 分）

2013-DSE-BAFS 2A-4 20
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 乙鄒(36分徆

全鄒試彿均須作答。

5. 朱君與任君經營合夥多年，損益按3:2比率分配。2 015年12月31日，其財務狀況表草擬如
下：

物業，淨值 782 000

存貨 266 600
應收貨款 230 000
現金 41400
I 320 000

資本徐朱君 705 000

一任君 45 000
銀行貸款 15 000
應付貨款 555 000
I 320 000

2016年1月1日，麥君加人成為新合夥人，條款如下：

(i) 朱君、任君和麥君按3 :2: I比率分配損益·

(ii) 商譽計值為$150 000。帳冊內不設商譽帳徑

(iii)物業與存貨分別重估為$2 020 000及$133 200。

(iv)作出1%呆帳準備。

(v)以現金支付為資產重估的專業費用$26 200。

(vi)新合夥的最初資本為$1500 000• 由朱君、任君和麥君分別按40%、35%及25%提供，

任何超往或不足額由合夥人注人或取回現金作調整。

作鑛夏求：

(a) 編製下列帳戶：

(i) 麥君加人時的重估帳

(ii) 2016年1月1日合夥人多欄式資本帳徏列示麥君人夥 (8 分）

(b) 舉出兩項影響一間公司商譽值的因素。 (2分）

待總分： 10分）

2016-DSE-BFS 2A-4 18

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SECTION C (20 marks)
Answer ONE question in this section.

7. Ron, Ann and Ben had been in partnership for many years sharing profits and losses in the ratio of 2:2:1.
The account balances of the partnership as at 31 December 2018 are as follows:

$
Property, net 1 000 000
Equipment, net 360 000
Motor vans, net 574 000
Inventory 283 000
Trade receivables 240 000
Trade payables 88 000
Capital - Ron 1 160 000
Capital - Ann 798 000
Capital - Ben 698 000
Cash at bank 287 000

On 1 January 2019, Ron retired and Carol was admitted into the partnership with the following arrangements:

(i) The property was to be revalued upwards by $346 000 while the motor vans were to be revalued at
$390 000.

(ii) An allowance for doubtful debts of $42 000 was to be made. A bad debt recovery of $2 000 would be
collected in early 2019.

(iii) Goodwill was valued at $180 000 but it was not to be maintained in the books. Adjustments for goodwill
between partners were to be made in the capital accounts.

(iv) $900 000 of the amount due to Ron would be left as a half-year loan to the partnership, with an annual
interest of 10%. The balance was to be paid on his retirement date.

(v) Carol brought in a piece of equipment valued at $50 000 together with additional funds so that her
capital account would have a balance of $700 000.

(vi) The profit-sharing ratio of Ann, Ben and Carol is 3:2:1. Ben is entitled to an annual salary of $30 000
and Carol is guaranteed a share of profits of not less than $50 000 per quarter.

REQUIRED:

(a) Prepare the following to record the retirement of Ron and the admission of Carol:
(i) The revaluation account (3 marks)
(ii) The partners’ capital accounts in columnar form (6 marks)
(iii) The statement of financial position for the new partnership as at 1 January 2019 (6 marks)
2019-DSE-BAFS 2A-8
8
(b) Suppose the new partnership’s net profit before interest for the quarter ended 31 March (3 marks)
2019 was $270 000. Prepare the appropriation account for the partnership for the quarter
ended 31 March 2019.
(c) Give two reasons why a goodwill account is not maintained in the books of a partnership. (2 marks)

(Total: 20 marks)

2019-DSE-BAFS 2A-9
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