Theory question 108
Partnership Admission, Retirement and Dissolution8. Pauline, Quincy and Rosaline trade under the name BEVERLY QUEENS and Co. On 31st December 2002, they decided to dissolve their partnership. They had always shared profits in the ratio 3:2:1 respectively.
Balance sheet as at 31st December, 2002
Capital Accounts: Pauline N60,000; Quincy N50,000; Rosaline N30,000 (N140,000)
Current Accounts: Pauline N2,000; Quincy N1,000; Rosaline N5,000 (N8,000)
Creditors N17,000; total N165,000
Fixed Assets: Premises N50,000; Machinery N30,000; Motor vehicles N25,000 (N105,000)
Current Assets: Stock N18,000; Debtors N30,000 less provision for bad debts N2,000 = N28,000; Bank N14,000 (N60,000); total N165,000
Additional information: (a) Machinery was sold for N18,000 (b) Stock was sold for N19,000 (c) There were three motor vehicles, and all were taken over by the partners at agreed values as follows: Pauline N8,000; Quincy N10,000; Rosaline N5,000 (d) The premises were taken over by Rosaline at an agreed value of N85,000 (e) The amount collected from debtors was N27,000 after bad debts and discounts had been deducted. (f) The creditors were discharged for N16,000; the difference being discounts received (g) The cost of dissolution amounted to N10,000.
You are required to prepare: (i) realization account; (ii) partners capital account; (iii) partners current account; (iv) bank account.
Show the model answer
(i) Realisation account: Dr premises 50,000; machinery 30,000; motor vehicles 25,000; stock 18,000; debtors 30,000; bank (costs) 10,000 = 163,000. Cr provision for bad debts 2,000; bank – machinery 18,000, stock 19,000, debtors 27,000; motor vehicles taken by partners 23,000; premises taken by Rosaline 85,000; discount on creditors 1,000 = 175,000. Profit 12,000 shared 3:2:1: Pauline 6,000, Quincy 4,000, Rosaline 2,000.
(iii) Current accounts closed to capital: Pauline 2,000, Quincy 1,000, Rosaline 5,000.
(ii) Capital accounts: Pauline 60,000 + 2,000 + 6,000 − car 8,000 = 60,000 paid out. Quincy 50,000 + 1,000 + 4,000 − 10,000 = 45,000 paid out. Rosaline 30,000 + 5,000 + 2,000 − car 5,000 − premises 85,000 = 53,000 debit, so she pays in 53,000.
(iv) Bank account: Dr balance 14,000; machinery 18,000; stock 19,000; debtors 27,000; Rosaline 53,000 = 131,000. Cr creditors 16,000; dissolution costs 10,000; Pauline 60,000; Quincy 45,000 = 131,000.
Assets taken by partners are debited to their capital accounts; a partner left with a debit balance must pay it in.