FAC1601 Assignment 2 Semester 1 2023/2024 Update
FAC1601 Assignment 2 Semester 1 2023/2024 Update
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...
FAC1601 Assignment 2 Semester 1 2023/2024
Update
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.
Question 5
When applying the loss-absorption method, the following must be recorded in
the books of the partnership:
1. Subtract any budget/contingent expenses from the balances of the
partners’ capital accounts according to their profit-sharing ratio.
2. Record the interim repayments.
3. Subtract all unsold assets from the balances of the capital accounts of the
partners according to the profit-sharing ratio.
4. Record the subtraction of any anticipated capital account deficits from the
balance of those accounts with anticipated favorable balances.
5. All of the above
Explanation: The loss-absorption method is a method of sharing losses in a
partnership where the partners agree to absorb the losses in a predetermined
manner. When applying this method, the interim repayments made by the
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