FAC1601 Assignment 2 (VERIFIED ANSWERS) Semester 2 2024

FAC1601 Assignment 2 (VERIFIED ANSWERS) Semester 2 2024 expalations Trading under the name Lehumo Bricks, Refentse and Boitshepo are partners in this brick manufacturing company. Over the years, Lehumo Bricks has established itself as a reputable supplier of high-quality bricks used in various construction projects, from residential homes to large commercial buildings. The business has been profi table, with Refentse and Boitshepo sharing profi ts and losses equally, refl ecting their initial capital investments and contributions to the partnership. However, after years of operating in the competitive construction materials industry, the partners decided to liquidate the business. Their decision was infl uenced by a combination of factors, including changes in market demand, increasing production costs, and their desire to pursue other ventures. Having carefully evaluated offers for key assets, particularly the land, the building, manufacturing equipment and inventory on hand, they decided to accept the most favourable ones for the sale of the land, inventory and equipment. With this decision in place, they planned to initiate the simultaneous liquidation of the partnership on 1 June 2024. Before any liquidation entries were recorded, they prepared a fi nal trial balance to summarise the fi nancial position of the business. EXTRACT OF TRIAL BALANCE AS AT 1 JUNE 2024 R Equipment at carrying amount R290,000 Long-term loan -R968,500 Land and building at carrying amount R792,000 Inventory R256,000 Capital – Refentse -R268,900 Capital – Boitshepo -R285,900 Current account – Refentse (dr) R41,600 Current account – Boitshepo (dr) R24,000 Bank R119,700 On 1 June 2024, a series of fi nancial transactions took place to fi nalise the sale of the business’s assets and settle its liabilities. Below is a summary of the key transactions that occurred during the liquidation: 1. The land and buildings, which had been integral to Lehumo Bricks' manufacturing operations, were sold for a cash amount of R855 000. 2. Boitshepo, one of the partners, took over certain brick-making equipment with a carrying amount of R87 600. While Boitshepo did not pay for the equipment immediately, the partners agreed on a cash value of R74 000 for this transaction. 3. The remaining brick-making equipment was sold to an external buyer at a carrying value in cash. 4. The costs associated with the liquidation process amounted to R54 000. These costs included legal fees, administrative expenses, and other charges incurred during the winding-up of the business. 5. The inventory of bricks and raw materials was sold for R210 000. The sale of these fi nished goods and materials added substantial cash to the liquidation process, ensuring that more of the partnership’s liabilities could be paid off. 6. Lehumo Bricks had an outstanding long-term loan, which was fully paid off during the liquidation process at a negotiated settlement amount of R800 000. Which one of the following alternatives represents the correct amount that must be allocated to Refentse on as liquidation profi t (loss) of Lehumo Bricks on 1 June 2024? Previous page Next page a. -R58,950 b. R63,700 c. R58,950 d. R43,700 e. R85,950 f. -R43,700 g. R58,750 Clear my choice Previ o us ac ti vi ty Assessment 1 Didi and Chomi are running a business, VaalPure Innovations, a company that specialises in developing cutting-edge water fi ltration systems for industrial use. VaalPure Innovations operates in the environmental technology sector, focusing on providing sustainable solutions to industries dealing with water scarcity and pollution. Didi and Chomi are in a partnership and share profi ts and losses in a ratio of 3:2 respectively. On 30 July 2024 the following information was extracted from the accounting records of the partnership: R Capital - Didi R183,800 Capital - Chomi R168,700 Current account - Didi (cr) R44,000 Current account - Chomi (cr) R33,000 Additional information: 1. On 1 August 2024, Didi and Chomi decided to admit Lebo to the business as a new partner. Lebo will contribute the following to acquire a fi fth of the net asset share of the partnership Cash…................................................... R 35 000 NP200 Bakkie worth…......................... R. Didi and Chomi agreed to relinquish 20% of their share in profi ts or losses to Lebo in the ratio of 3:1 respectively 3. All other assets were revalued before admitting Lebo to the partnership. 4. A valuation profi t was correctly calculated at R18 000. Correct balance which represents the correct amount of goodwill in the accounting records of VaalPure Innovations after the admission of Lebo? Instructions: 1. Round off to the nearest Rand (eg: 50.56 is 51) 2. Only show the amount, do not show the R (eg: 12000) Previous page Finish attempt ... Answer: 326500.00 Previ o us acti vi ty In a piecemeal liquidation, assets are sold over time, and the business continues to operate on a decreasing scale. True False .... In the liquidation of a partnership, the valuation account records the sale of assets and the settlement of liabilities. True False If a partner is insolvent during liquidation and cannot contribute to cover their capital defi cit, the loss is: a. Written off entirely b. Absorbed by the other partners according to their capital ratios c. Absorbed by the remaining solvent partners according to the profi t-sharing ratio d. Settled by selling the partner’s personal assets Didi and Chomi are running a business, VaalPure Innovations, a company that specialises in developing cutting-edge water fi ltration systems for industrial use. VaalPure Innovations operates in the environmental technology sector, focusing on providing sustainable solutions to industries dealing with water scarcity and pollution. Didi and Chomi are in a partnership and share profi ts and losses in a ratio of 3:2 respectively. On 30 July 2024 the following information was extracted from the accounting records of the partnership: R Capital - Didi R183,800 Capital - Chomi R168,700 Current account - Didi (dr) R44,000 Current account - Chomi (dr) R33,000 Additional information: 1. On 1 August 2024, Didi and Chomi decided to admit Lebo to the business as a new partner. Lebo will contribute the following to acquire a fi fth of the net asset share of the partnership Cash…................................................... R 35 000 NP200 Bakkie worth…......................... R. Didi and Chomi agreed to relinquish 20% of their share in profi ts or losses to Lebo in the ratio of 3:1 respectively 3. All other assets were revalued before admitting Lebo to the partnership. 4. A valuation profi t was correctly calculated at R18 000. Which one of the following alternatives represents the correct balance in the capital account of Didi after the valuation of assets and prior to the admission of Lebo? Instructions: 1. Round off to the nearest Rand (eg: 50.56 is 51) 2. Only show the amount, do not show the R (eg: 12000) Previous page Next page Answer: 150600.00 Previ o us acti vi ty Assessment 1 Goodwill is recorded as a non-current asset on the statement of fi nancial position. True False Which one of the following alternatives is correct? a. Since partnerships are not governed by a law requiring that IFRS be applied, it is not possible to introduce a standardised accounting procedure according to which changes in the ownership structure of partnerships ought to be recorded. b. Since a partnership is a legal entity, the ownership of a partnership is vested in the partners, and not in the partnership. c. When a change in the ownership structure of a partnership occurs, a new partnership agreement is entered into by the new partners which causes the existing partnership to continue with its business operations without any interruptions. d. The retirement of a partner from a partnership does not require the calculation of a new profi tsharing ratio but a simple reallocation of a retired partner’s share. e. From the legal perspective, the activities of a dissolved and a subsequent new partnership are not separately accounted for and reported on. When a new partner is admitted to a partnership, the old partnership automatically continues without any changes to the ownership structure. True False The capital defi cit of an insolvent partner is distributed to the remaining partners in proportion to their original capital contributions. True False What happens when a new partner is admitted by way of a personal transaction? a. The partnership is liquidated b. The new partner contributes cash to the partnership c. The new partner buys an interest from one of the existing partners d. The partnership revalues its assets MPHATHI STEEL, a small-scale welding and fabrication company specialising in custom metalworks and industrial repairs, operated successfully for several years. The business was structured as a partnership between three skilled tradespeople: Ndlebe, Sipho, and Thabo. However, due to changing market conditions, increased competition, and internal disagreements, the partners decided to dissolve the partnership and liquidate the company. As part of this process, the partners agreed to a simultaneous liquidation. MPHATHI STEEL had the following balances when they commenced a simultaneous liquidation of the partnership: R Trade payables R240,600 Trade receivables R183,500 Machinery (cost) R650,000 Machinery (accumulated depreciation) R244,000 Warehouse building R360,000 As part of the liquidation process of MPHATHI STEEL, several fi nancial transactions took place to wind up the partnership's affairs. The company needed to settle its debts, sell off assets, and distribute any remaining funds among the partners. The following key transactions occurred during the liquidation: 1. MPHATHI STEEL primary fi xed assets included specialised steel machinery and a warehouse building. These were sold as part of the liquidation to generate funds. The machinery and the building was sold for R485 000 and R320 000 respectively. 2. The company had outstanding invoices from clients for completed welding and fabrication projects. Fortunately, 95% of debtors settled their accounts in full. 3. Upon the settlement of MPHATHI STEEL outstanding debts, the creditors agreed to grant a settlement discount of 15%. This discount helped the partners preserve some of the company’s remaining assets for distribution among themselves. Correct balance which represents the correct profi t or (loss) made on the simultaneous liquidation of MPHATHI STEEL? Instructions: Previous page Next page 1. Round off to the nearest Rand (eg: 50.56 is 51) 2. Only show the amount, do not show the R (eg: 12000) 2. A negative amount must have a