Theory question 107
Partnership Admission, Retirement and Dissolution7. Michael and Mary had been in partnership for several years sharing profits and losses equally. They decided to dissolve the partnership on 31st December, 1998 on which date their Balance Sheet was as follows:
Balance Sheet as at 31st December, 1998
Capital Accounts: Michael N40,000; Mary N30,000 = N70,000
Current Accounts: Michael N7,935; Mary (N1,345) = N6,590
Creditors N13,110
Bank Overdraft N6,800
Total N96,500
Goodwill N10,000; Equipment N50,000 = N60,000
Stock N17,140
Debtors N18,960
Prepaid Expenses N400
Total N96,500
Additional information.
(a) Assets realised as follows: Equipment N62,000; Stock N14,500; Debtors N16,800
(b) Creditors were settled for N12,900 (c) Dissolution expenses amounted to N1,300. You are required to prepare: (i) Realisation Account (ii) Partners Capital Accounts; and (iii) Bank Account (showing how final settlement was made).
Show the model answer
(i) Realisation account: Dr goodwill 10,000; equipment 50,000; stock 17,140; debtors 18,960; prepaid expenses 400; bank (dissolution expenses) 1,300 = 97,800. Cr bank: equipment 62,000, stock 14,500, debtors 16,800 (93,300); discount on creditors 210 (13,110 − 12,900); loss 4,290 shared Michael 2,145, Mary 2,145.
(ii) Capital accounts: Michael 40,000 + current account 7,935 − loss 2,145 = 45,790 paid out. Mary 30,000 − current account debit 1,345 − loss 2,145 = 26,510 paid out.
(iii) Bank account: Dr realisation 93,300. Cr balance b/d (overdraft) 6,800; creditors 12,900; dissolution expenses 1,300; Michael 45,790; Mary 26,510. Totals 93,300 = 93,300.
Transfer all assets (except bank) to realisation, share the loss equally, and the bank account must close at nil after paying the partners.