FAC1601 Assignment 2 Semester 1 2023.

Question 1 Which of the following statements is correct: 1. When revaluing an asset or liability in terms of a change in ownership structure, the current account is used. The current account is then closed off to the accounts of theexisting partners according to their existing profit- sharing ratio. 2. The selling price of a partnership is determined by the cost price of the partnership. 3. A personal transaction is a transaction that is made between an existing partner and the partnership of the business entity. 4. Goodwill is excluded in the calculation when determining the fair value of a partnership. 5. Past financial performance indicators such as total comprehensive income in respect of previous financial periods, are ordinarily used to determine goodwill. Explanation: Goodwill is an intangible asset in the statement of financial position that represents the future economic benefits arising from other assets that are not capable of being individually identified and separately recognised. Goodwill is included in the calculation when determining the fair value of a partnership, and past financial performance indicators such as total comprehensive income in respect of previous financial periods are often used to determine goodwill. Question 2 Vogel and Mazibuko are in a mining partnership with a profit-sharing ratio of 1:3 respectively. A new partnership was formed by admitting Malikane. A 1/6 share in the profits/loss ofthe new partnership was obtained by Malikane. Vogel and Mazibuko agreed to relinquish the 1/6 share according to their previous profit-sharing ratio of 1:3. The new profit-sharingratio is: 1. 3:13:2 2. 5:15:4 3. 8:16:5 4. 1:3:6 5. 7:18:6 Explanation: The total profit-sharing ratio before the admission of Malikane was 1+3=4 (Vogel:Mazibuko). After Malikane was admitted, the new profit-sharing ratio is 1:3:1/6 = 6:18:1. The 1/6 share is then allocated between Vogel and Mazibuko according to their previous profit-sharing ratio of 1:3. Vogel gets 1/7 (1/6 x 1/4) and Mazibuko gets 3/7 (1/6 x 3/4). The new profit-sharing ratio is 6+1/7:18+3/7:1= 57/7:129/7:7/7 = 8:16:5. Question 3 Which of the following statements is incorrect: 1. Goodwill is a non-current tangible asset in the statement of financial position. 2. The change in the ownership structure of a partnership can be accomplished using two accounting procedures based on two distinct perspectives namely the legal and thegoing-concern perspective. 3. A transferal account is used to close off the accounting records of the existing partnership. 4. Goodwill is subsequently measured at cost less impairment. 5. Goodwill is an asset representing the future economic benefits arising from other assets that are not capable of being individually identified and separately recognised. Explanation: Goodwill is an intangible asset in the statement of financial position that represents the future economic benefits arising from other assets that are not capable of being individually identified and separately recognised. Goodwill is not a tangible asset. Question 4 Which of the following statement(s) is/are correct: 1. If a current account has a debit balance when closing, the journal entry would be to debit the current account and credit the capital account. 2. A retired or deceased partner does not receive a share of the revaluation surplus account according to the profit-sharing ratio. 3. When admitting a new partner, the accounts to be disclosed in the statement of financial position are closed off to a transferal account . 4. In the case of a retired/deceased partner, the capital account of the aforementioned partner is closed off to the transferal account. 5. All of the above statements are correct. Explanation: Statements 1, 2, 3, and 4 are all correct. If a current account has a debit balance when closing, the journal entry would be to debit the current account and credit the capital account. A retired or deceased partner does not receive a share of the revaluation surplus account according to the profit-sharing ratio. When admitting a new partner, the accounts to be disclosed in the statement of financial position are closed off to a transferal account. In the case of a retired/deceased partner, the capital account of the aforementioned partner is closed off to the transferal account.