Snow and Ice are in partnership sharing profits and losses in the ratio of 3:2. Their balance sheet as at 31 October 20X7 included the following:
Capital accounts
Current accounts
Snow
€122,700
€ 12,000 CE
Ice
€79,100
€ 1000 Cr
It was agreed to admit Frost to the partnership on 1st November 20X7 on the following conditions:
1. The new profit sharing ratio is to be 5:3:2
2. Goodwill is to be valued at €160,000
3. Frost is to introduce €100,000 into the partnership. This sum is to include the premium payable
for goodwill
4. No goodwill is to be left in the partnership's books
5. The following assets were to be revalued on the admission of Frost:
Premises increased by €20,000
Machinery decreased by €10,000
Inventory decreased by €1.200
6. On 1" November 20X7, Snow lends the partnership €40,000 in cash. This loan is to be repaid
on 31 October 20X9. Interest on the loan is to be charged annually at a rate of 5%.