Question

Uruguay and Argentina, who were operating separate businesses, decided on 1 July 2018 to form a partnership by contributing cash, assets and liabilities of their respective businesses. At that date the fair value of the assets and liabilities were as set out below:

The profit for the year ended 30 June 2019 was $76,000. Uruguay and Argentina agreed to allocate the profits based on the ratio of their initial capital account balances at 1 July 2018. Assume that they use the capital accounts method (Method 1).
Required:
Prepare the required journal entries to record establishing the partnership and allocating the profit. Narrations are not required. Ignore GST. Show supporting calculations.

Uruguay   Argentina

	Carrying Amount	Fair Value	Carrying Amount	Fair Value
Cash at Bank	100000	100000	110000	110000
Accounts Receivable	15000	14000	9000	8500
Accounts Payable	9000	9000	6000	6000
Plant & Equipment	170000	150000	95000	80000

Answer 1

Assets and liabilities must be valued at carrying amount or fair value whichever is lower.

Journal entry to record capital introduction by Uruguay:

Ledger name and description	Debit	Credit
Cash at bank	100000
Accounts receivable	14000
Plant & Equipment	150000
Accounts payable		9000
Uruguay's capital		255000

Journal entry to record capital introduction by Argentina:

Ledger name and description	Debit	Credit
Cash at bank	110000
Accounts receivable	8500
Plant & Equipment	80000
Accounts payable		6000
Argentina's capital		192500

Ratio for division of profit = 255000:192500 or 102:77

Journal entry to record division of profit:

Ledger name and description	Debit	Credit
Profit and loss	76000
Uruguay's capital		43307
Argentina's capital		32693

Hope this helps :)