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Billy and Erica are partners sharing profits and losses in the ratio of 3:2 respectively. Their Statement of financial position as at March 31, 2016 was as follows:
Billy and Erica
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Statement of Financial Position as at 31 March 2016
Buildings 65 000
Furniture 15 000
Machinery 13 000
Inventory 30 000
Accounts receivable 19 000
Cash at bank 23 000
Cash in hand 3 000
Less; Current liabilities
Accounts payable 28 000
Billy 70 000
Erica 70 000
On that date, they admit Devon into the partnership for 1/3 share of the profits on the following terms:
Furniture and inventory are to decrease by 10%.
Building is appreciated by $20 000.
5% provision is to be created for doubtful debts.
Devon is to bring in $50 000 as his capital and $30 000 as goodwill.
the revaluation account (7 marks)
the partners’ capital account (10 marks)
the Statement of Financial Position of the new firm. (8 marks)