College of Administrative and Financial Sciences

Assignment 2
Deadline: 20 /11/ 2024 @ 23:59

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 Assignment 02

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 Q.1 The Abdullah and Ahad partnership has the following plan for the distribution
of partnership net income (loss):

Particulars Abdullah Ahad

Salaries 80000 100000
Bonus on Net Income 6% 12%
Interest on average Capital Balance 7% 7%
Remainder (if Positive Balance) 60% 40%
Remainder (if Negative Balance) 50% 50%

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 Required:

Calculate the distribution of partnership net income (loss) for each independent
situation below (for each situation, assume the average capital balance of Abdullah
is $140,000 and of Ahad is $240,000).
1. Partnership net income is $360,000. (2 Marks)

Net Income 360,000

Less Salaries(80000+100000) 180,000

Less Bonus on Net Income (6% 21,600+43,200= 64,800

+12%)*360,000

Less Interest on 9,800 +16,800

Capital(7%*140,000+7%*240,000)

Net income distributable to partners 88,600

Share of Abdullah in case of 53,160

Profit(60%)

Share of Ahad in case of Profit(40%) 35,440

Total distribution 164,560

Abdullah(53,160+80,000+21,600+9,800)

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 Total distribution Ahad 195,440
(35,440+100,000+43,200+16,800)

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 2. Partnership net income is $240,000. (2 Marks)

Net Income 240,000

Less Salaries(80000+100000) 180,000

Less Bonus on Net Income (6% 14,400+28,800= 43,200

+12%)*240,000

Less Interest on 9,800 +16,800=26,600

Capital(7%*140,000+7%*240,000)

Net income distributable to partners -9,800

Share of Abdullah in case of Loss -4,900

(50%)

Share of Ahad in case of Loss(50%) -4,900

Total distribution 99,300

Abdullah(80,000+14,400+9,800-4,900)

Total distribution Ahad 140,700

(100,000+28,800+16,800-4,900)

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 3. Partnership net loss is $40,000. (2 Marks)

Based on Loss, nothing will be payable i.e. no Salaries, no bonus on profit and no
interest on capital. Loss will be divided on the basis of decided percentage i.e. 50-
50
Loss for Abdullah=40,000*50%=-20.000
Loss for Ahad =40,000*50%=-20,000

2. On Jan, 1 2014, Peter Corp. (a U.S. based company) formed a new

subsidiary in Saudi Arabia, Saeed Inc., with an initial investment of 30,000
SAR.

Assume Saeed Inc.

Purchases inventory evenly throughout 2014. The ending inventory is
purchased Nov. 30, 2014.
Uses straight-line depreciation on fixed assets.
Declares and pays dividends on Nov. 30, 2014.
Purchased the fixed assets on April 1, 2014.
Uses SAR as the functional currency.

Exchange Rates are given:

Jan 1, 2014 0.260
April 1, 2014 0.255
Nov. 30, 2014 0.240
Dec. 31, 2014 0.238
Saeed’s financial statements on Dec. 31, 2014
Accounts SAR
Cash 5000
Account Receivable 12000
Inventory 32000
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Note Receivables 5000
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 Cost of Goods sold 32000
Depreciation 2000
Other Expenses 18000
Dividends 16000
Total Debits 192000
ACC. OC – Translation Adjustment (Debit)

Adjusted Total Credit

Accumulated Depreciation 2000

Account Payable 12000
Bonds Payable 36000
Mortgage Payable 46000
Common Stock 30000
Sales 66000
Total Credits 192000

REQUIRED
Prepare a schedule to translate Saeed’s financial statements on Dec. 31, 2014
to U.S. dollars. (6 Marks)
First of all , calculate average exchange rate for translation of income
statement
Average exchange rate =(Opening+Closing/2
=(0.260+0.238)/2 =0.249
Saeed Inc.
Schedule to Translate Financial Stateemnts

Account SAR Conversion US$

rate
Cash 5000 .238 1,190
Account Receivable 12000 .238 2,856
Inventory 32000 .240 7,680
Note Receivables 5000 .238 1,190
Plant & Equipment 70000 .238 16,660
Cost of Goods sold 32000 .249 7,968
Depreciation 2000 .249 498
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 Dividends 16000 .240 3,840
Total Debits 192000 46,300
ACC. OC – Translation 804
Adjustment (Debit)
Adjusted Total Credit

Accumulated Depreciation 2000 .249 498

Account Payable 12000 .238 2,856
Bonds Payable 36000 .238 8,568
Mortgage Payable 46000 .238 10,948
Common Stock 30000 .260 7,800
Sales 66000 .249 16,434
Total Credits 192000 47,104

Q.3 Anwar and Bravo wish to form the A&B partnership. Anwar contributes land
with a book value of $ 175,000 (current value of $200,000) and a building with a
book value of $200,000 (current value of $300,000). Bravo will contribute cash. If
the partners plan to share profits and losses equally after the formation of the
partnership and assuming they have agreed to equal capital contributions, how
much cash will Bravo have to contribute to form the partnership? Pass Journal
entry to be recorded in A&B Firm. (3 Mark)

Since the fair value is different from Book value, and the capital should always be
recorded at fair values at the time of initial recognition so value of cash to be
contributed by Bravo should be equal to fair values of Land and Building
contributed by Anwar

Total Capital contributed by Anwar =200,000+300,000

=500,000

Res So Bravo have to contribute an amount of $ 500,000 in cash.

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 Date Description Dr. Cr.
1.1.20x Land 200,000
x
Building 300,000
Cash 500,000
Anwar Capital 500,000
Bravo Capital 500,000
Capital contributed by both
Partners.

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