Theory question 107
Partnership Admission, Retirement and Dissolution7. Taiwo and Kehinde had been in partnership for several years sharing profits and losses in the ratio of capitals. On 31st December, 2003, they decided to dissolve their partnership on which date their Balance Sheet was as follows:
Capital: Taiwo N60,000; Kehinde N40,000
Current: Taiwo N8,000; Kehinde (N3,000)
Trade creditors N15,000
Bank overdraft N30,000
Fixtures and Fittings N40,000; Stock N58,000; Debtors N45,000; Cash N7,000
Additional information: (a) Fixtures and Fittings were sold for N36,000 (b) Taiwo took over part of the stock at an agreed value of N25,000 while the rest sold for N32,000 (c) Debtors realised N43,600 (d) Trade creditors were settled for N12,800 (e) Cash and proceeds from realisation were banked to liquidate the overdraft. (f) Dissolution expenses amounted to N1,800.
You are required to prepare: (i) Realisation Account; (ii) Bank Account, and (iii) Partner's Capital and Current Accounts.
Show the model answer
Profit-sharing ratio = capitals 60 : 40 = 3 : 2.
(i) Realisation account: Dr fixtures 40,000; stock 58,000; debtors 45,000; bank (expenses) 1,800 = 144,800. Cr bank – fixtures 36,000, stock 32,000, debtors 43,600; Taiwo (stock taken) 25,000; discount on creditors 2,200; loss 6,000 (Taiwo 3,600, Kehinde 2,400).
(ii) Bank account: Dr cash 7,000; fixtures 36,000; stock 32,000; debtors 43,600 = 118,600. Cr balance b/d (overdraft) 30,000; creditors 12,800; expenses 1,800; Taiwo 39,400; Kehinde 34,600 = 118,600.
(iii) Current accounts closed to capital: Taiwo 8,000 Cr; Kehinde 3,000 Dr. Capital accounts: Taiwo 60,000 + 8,000 − loss 3,600 − stock 25,000 = 39,400 paid; Kehinde 40,000 − 3,000 − 2,400 = 34,600 paid.
Assets taken by a partner are credited to realisation and debited to that partner's capital.