Chapter 11 Partnership Dissolution
QUESTION 1
Cherry, Grape and Lemon were partners, sharing profits and losses in the ratio of 1 : 2 : 2 respectively. The balance sheet as at 31 December 2010 is shown below:
$ / $ / $Accumulated / Net book
Non-current assets / Cost / depreciation / value
Building / 250,000 / 100,000 / 150,000
Furniture and fittings / 186,000 / 55,800 / 130,200
Vans / 200,000 / 80,000 / 120,000
636,000 / 235,800 / 400,200
Current assets
Inventory / 37,060Accounts receivable / 29,500
Cash at bank / 8,200
74,760
Less Current liabilities
Accounts payable / (27,800) / 46,960
447,160
Financed by:
Capital accounts
Cherry / 36,000Grape / 200,000
Lemon / 189,000 / 425,000
Loan from Grape / 22,160
447,160
On 31 December 2010, the partnership was dissolved on the following terms:
(i) 10% cash at bank was used to pay for the dissolution expenses.
(ii) A credit purchase of $500 had been omitted from the books.
(iii) A trade debtor owed the partnership $11,500, which proved uncollectible. This balance was written off.
(iv) Lemon took over the remaining accounts receivable and accounts payable at agreed values of $18,000 and $28,300, respectively.
(v) The remaining assets were sold for the following amounts:
Building $121,000
Furniture and fittings $73,000
Vans (except the van mentioned in (vi)) $86,000
(vi) One of the vans was taken over by Cherry at an agreed value of $10,000.
Cherry was unable to bring in further capital. It was agreed that any amount which Cherry was unable to contribute should be debited against Grape’s capital account.
Required:
For the partnership of Cherry, Grape and Lemon, prepare the following as at 31 December 2010:
(a) Realisation account (7.5 marks)
(b) Bank account (3.5 marks)
(c) Partners’ capital accounts in columnar form (7 marks)
Answer:
(a)
Realisation
/2010 / $ / 2010 / $ / $
Dec 31 / Building / 150,000 / Dec 31 / Capital: Lemon — / 0.5
" 31 / Furniture and fittings / 130,200 / Accounts receivable taken over / 18,000 / 0.5 0.5
" 31 / Vans / 120,000 / " 31 / Capital: Cherry — / 0.5
" 31 / Inventory / 37,060 / Van taken over / 10,000 / 0.5 0.5
" 31 / Accounts receivable / 29,500 / " 31 / Bank — Building / 121,000 / 0.5 0.5
" 31 / Bank — Dissolution expenses / 820 / Furniture and fittings / 73,000 / 0.5 0.5
" 31 / Accounts payable omitted / 500 / Vans / 86,000 / 0.5 0.5
" 31 / Loss on realisation —
Capital: Cherry ( ) / 32,016 / 0.5
Capital: Grape ( ) / 64,032 / 0.5
Capital: Lemon ( ) / 64,032 / 160,080 / 0.5
468,080 / 468,080
(b)
Bank
/2010 / $ / 2010 / $
Dec 31 / Balance b/f / 8,200 / Dec 31 / Realisation — / 0.5
" 31 / Realisation — / Dissolution expenses / 820 / 0.5
Building / 121,000 / " 31 / Capital — Final settlement / 0.5
Furniture and fittings / 73,000 / Grape / 152,112 / 0.5 0.5
Vans / 86,000 / Lemon / 135,268 / 0.5 0.5
288,200 / 288,200
(c)
Capital
/Cherry / Grape / Lemon / Cherry / Grape /
Lemon
/2010 / $ / $ / $ / 2010 / $ / $ / $
Dec 31 / Realisation — / Dec 31 / Balances b/f / 36,000 / 200,000 / 189,000 / 0.5 each
Van / 10,000 / — / — / " 31 / Loan / — / 22,160 / — / 0.5 0.5
Accounts receivable / — / — / 18,000 / " 31 / Accounts payable / — / — / 28,300 / 0.5 0.5
" 31 / Realisation — / " 31 / Transfer to Grape / 6,016 / — / — / 0.5
Share of loss / 32,016 / 64,032 / 64,032 / 0.5 each
" 31 / Transfer from Cherry / — / 6,016 / — / 0.5
" 31 / Bank —
Final settlement / — / 152,112 / 135,268 / 0.5 0.5
42,016 / 222,160 / 217,300 / 42,016 / 222,160 / 217,300
QUESTION 2
Alvin, Bob and Cathy were in partnership, sharing profits and losses in the ratio of 2 : 1 : 1. They decided to dissolve their partnership on 30 September 2011. The draft balance sheet of the partnership on that date is as follows:
Alvin, Bob and CathyBalance Sheet as at 30 September 2011
$ / $
Non-current assets
Furniture / 120,000
Motor vehicles / 200,000
320,000
Current assets
Inventory / 37,000
Account receivable / 40,000
Bank / 25,000
102,000
Less / Current liabilities
Accounts payable / (22,000)
Net current assets / 80,000
400,000
Capital accounts
Alvin / 140,000
Bob / 120,000
Cathy / 120,000
380,000
Current accounts
Alvin / 8,000
Bob / 7,000
Cathy / 5,000 / 20,000
400,000
The partnership was dissolved on the following terms:
(i) Furniture and inventory were sold for $108,000 and $38,000, respectively.
(ii) Motor vehicles were taken over by Alvin and Cathy for $90,000 and $80,000, respectively.
(iii) A total of $38,700 was received from trade debtors, the balance being discounts allowed to them on settlement.
(iv) Trade creditors were paid in full by the partnership.
(v) Realisation expenses amounted to $12,500.
Required to prepare:
(a) the realisation account; (6.5 marks)
(b) the bank account; and (4.5 marks)
(c) the partners’ capital accounts in columnar form, showing the final settlement among them. (7 marks)
Answer:
(a)
Realisation$ / $ / $
Furniture / 120,000 / Capital: / 0.5
Motor vehicles / 200,000 / Alvin — Motor vehicles taken over / 90,000 / 0.5 0.5
Inventory / 37,000 / Cathy — Motor vehicles taken over / 80,000 / 0.5 0.5
Accounts receivable / 40,000 / Bank — / Furniture / 108,000 / 0.5 0.5
Bank — Realisation expenses / 12,500 / Inventory / 38,000 / 0.5 0.5
Accounts receivable / 38,700 / 0.5
Loss on realisation —
Capital: / Alvin ( ) / 27,400 / 0.5
Bob ( ) / 13,700 / 0.5
Cathy ( ) / 13,700 / 54,800 / 0.5
409,500 / 409,500
(b)
Bank$ / $ / $
Balance b/f / 25,000 / Accounts payable / 22,000 / 0.5 0.5
Realisation — Furniture / 108,000 / Realisation — Realisation expenses / 12,500 / 0.5 0.5
Inventory / 38,000 / Capital — Final settlement / 0.5
Accounts receivable / 38,700 / Alvin / 30,600 / 0.5 0.5
Bob / 113,300 / 0.5
Cathy / 31,300 / 175,200 / 0.5
209,700 / 209,700
(c)
CapitalAlvin / Bob / Cathy / Alvin / Bob / Cathy
$ / $ / $ / $ / $ / $
Realisation — / Balances b/f / 140,000 / 120,000 / 120,000 / 0.5 each
Motor vehicles / 90,000 / — / 80,000 / Current / 8,000 / 7,000 / 5,000 / 0.5 each
Share of loss / 27,400 / 13,700 / 13,700 / 0.5 each
Bank —
Final settlement / 30,600 / 113,300 / 31,300 / 0.5 each
148,000 / 127,000 / 125,000 / 148,000 / 127,000 / 125,000
QUESTION 3
Alex and Billy were partners, sharing profits and losses in the ratio of 3 : 1.
The balance sheet as at 31 December 2010 is shown below:
Alex and BillyBalance Sheet as at 31 December 2010
$ / $ / $ / $
Non-current assets / Capital accounts
Office equipment, at net book value / 186,200 / Alex / 186,000
Motor vehicles, at net book value / 98,000 / Billy / 140,000 / 326,000
284,200
Current assets / Current liabilities
Inventory / 25,300 / Accounts payable / 13,500
Accounts receivable / 18,000
Bank / 12,000 / 55,300
339,500 / 339,500
On 31 December 2010, the partnership was dissolved on the following terms:
(i) The office equipment and the motor vehicles were sold for $200,000 and $80,000, respectively.
(ii) Inventory was disposed of for $18,000.
(iii) Accounts receivable were taken over by Billy for $16,000.
(iv) Accounts payable were settled in full.
(v) Dissolution costs amounted to $6,000.
Required:
Prepare the following accounts to record the above transactions:
(a) Realisation account (5.5 marks)
(b) Bank account (4 marks)
(c) Partners’ capital accounts in columnar form (3.5 marks)
Answer:
(a)
Realisation2010 / $ / 2010 / $ / $
Dec / 31 / Office equipment / 186,200 / Dec / 31 / Bank — Office equipment / 200,000 / 0.5 0.5
" / 31 / Motor vehicles / 98,000 / Motor vehicles / 80,000 / 0.5 0.5
" / 31 / Inventory / 25,300 / Inventory / 18,000 / 0.5 0.5
" / 31 / Accounts receivable / 18,000 / " / 31 / Capital: Billy —Accounts / 0.5
" / 31 / Bank — Dissolution costs / 6,000 / receivable taken over / 16,000 / 0.5 0.5
" / 31 / Loss on realisation —
Capital: Alex ( ) / 14,625 / 0.5
Capital: Billy ( ) / 4,875 / 19,500 / 0.5
333,500 / 333,500
(b)
2010 / $ / 2010 / $
Dec / 31 / Balance b/f / 12,000 / Dec / 31 / Realisation — Dissolution costs / 6,000 / 0.5 0.5
" / 31 / Realisation — Office equipment / 200,000 / " / 31 / Accounts payable / 13,500 / 0.5 0.5
Motor vehicles / 80,000 / " / 31 / Capital — Final settlement / 0.5
Inventory / 18,000 / Alex / 171,375 / 0.5 0.5
Billy / 119,125 / 0.5
310,000 / 310,000
(c)
CapitalAlex / Billy / Alex / Billy
2010 / $ / $ / 2010 / $ / $
Dec / 31 / Realisation — / Dec / 31 / Balances b/f / 186,000 / 140,000 / 0.5 0.5
Accounts receivable / — / 16,000 / 0.5
" / 31 / Share of loss / 14,625 / 4,875 / 0.5 0.5
" / 31 / Bank —
Final settlement / 171,375 / 119,125 / 0.5 0.5
186,000 / 140,000 / 186,000 / 140,000
QUESTION 4
Cinda, Paul and Aaron were partners, sharing profits and losses equally. Their balance sheet as at 31 March 2010 is as follows:
$ / $ / $Non-current assets
Plant and machinery / 193,000
Less Accumulated depreciation / (72,000) / 121,000
Furniture / 57,000
Less Accumulated depreciation / (20,000) / 37,000
Motor vehicles / 86,000
Less Accumulated depreciation / (43,000) / 43,000
201,000
Current assets
Inventory / 33,200
Accounts receivable / 26,000
Less Allowance for doubtful accounts / (2,000) / 24,000
Bank / 46,200
103,400
Less Current liabilities
Accounts payable / (43,000)
Net current assets / 60,400
261,400
Less Non-current liabilities
Loan from Cinda / (20,000)
241,400
Financed by:
Capital account: Cinda / 98,000
Paul / 52,000
Aaron / 75,000 / 225,000
Current account: Cinda / 4,400
Paul / 6,700
Aaron / 5,300 / 16,400
241,400
The partnership was dissolved on 31 March 2010. Upon the winding up of the business, the following amounts were received:
$
Plant and machinery (part) 72,000
Furniture 40,000
Motor vehicles 38,000
Inventory 33,000
Accounts receivable 25,000
Paul took over the remaining plant and machinery for $48,000. He was also personally responsible for paying half of the accounts payable. The balance was settled by the partnership with a discount of 5%. Dissolution costs were $5,771.
You are required to prepare:
(a) the realisation account; (8.5 marks)
(b) the bank account; and (6 marks)
(c) the partners’ capital accounts in columnar form. (6.5 marks)
Answer:
(a)
Realisation2010 / $ / $ / 2010 / $
Mar / 31 / Plant and machinery / 121,000 / Mar / 31 / Bank — / 0.5
" / 31 / Furniture / 37,000 / Plant and machinery / 72,000 / 0.5 0.5
" / 31 / Motor vehicles / 43,000 / Furniture / 40,000 / 0.5 0.5
" / 31 / Inventory / 33,200 / Motor vehicles / 38,000 / 0.5 0.5
" / 31 / Accounts receivable / 24,000 / Inventory / 33,000 / 0.5 0.5
" / 31 / Bank — Dissolution costs / 5,771 / Accounts receivable / 25,000 / 0.5 0.5
" / 31 / Profit on realisation — / " / 31 / Capital: Paul —
Capital: Cinda ( ) / 4,868 / Plant and machinery taken over / 48,000 / 0.5 0.5
Capital: Paul ( ) / 4,868 / " / 31 / Accounts payable ($43,000 ´ 50%) / 21,500 / 0.5 0.5
Capital: Aaron ( ) / 4,868 / 14,604 / " / 31 / Accounts payable — / 0.5
Discounts received ($21,500 ´ 5%) / 1,075 / 0.5
278,575 / 278,575
(b)
Bank2010 / $ / 2010 / $
Mar / 31 / Balance b/f / 46,200 / Mar / 31 / Realisation — Dissolution costs / 5,771 / 0.5 0.5
" / 31 / Realisation — / " / 31 / Loan from Cinda / 20,000 / 0.5
Plant and machinery / 72,000 / " / 31 / Accounts payable ($21,500 - $1,075) / 20,425 / 0.5 0.5
Furniture / 40,000 / " / 31 / Capital — Final settlement / 0.5
Motor vehicles / 38,000 / Cinda / 107,268 / 0.5 0.5
Inventory / 33,000 / Paul / 15,568 / 0.5 0.5
Accounts receivable / 25,000 / Aaron / 85,168 / 0.5 0.5
254,200 / 254,200
(c)
CapitalCinda / Paul / Araon / Cinda / Paul / Araon
2010 / $ / $ / $ / 2010 / $ / $ / $
Mar / 31 / Realisation — / Mar / 31 / Balances b/f / 98,000 / 52,000 / 75,000 / 0.5 each
Plant & machinery / — / 48,000 / — / " / 31 / Current / 4,400 / 6,700 / 5,300 / 0.5 each
" / 31 / Bank — / " / 31 / Realisation —
Final settlement / 107,268 / 15,568 / 85,168 / Share of profit / 4,868 / 4,868 / 4,868 / 0.5 each
107,268 / 63,568 / 85,168 / 107,268 / 63,568 / 85,168
QUESTION 5
Gloria, Heather and Ivan were partners, sharing profits and losses in the ratio of 2 : 2 : 1. The balance sheet of their partnership as at 31 December 2010 is as follows:
Gloria, Heather and IvanBalance Sheet as at 31 December 2010
$ / $
Non-current assets
Premises / 470,000
Office equipment / 150,000
Motor vehicles / 180,000
800,000
Goodwill / 150,000
950,000
Current assets
Inventory / 75,000
Accounts receivable / 64,000
Bank / 60,000
199,000
Less / Current liabilities
Accounts payable / (49,000)
Net current assets / 150,000
1,100,000
Less / Non-current liabilities
Loan from Jason Cheung / (100,000)
1,000,000
Financed by:
Capital accounts
Gloria / 550,000
Heather / 420,000
Ivan / 25,000
995,000
Current accounts
Gloria / 15,000
Heather / 10,000
Ivan / (20,000) / 5,000
1,000,000
On 1 January 2011, the partners decided to dissolve the partnership on the following terms: