Dissolution of partnership

1Henry and Iris

Dr Realisation Account Cr
$ $
Non-current assets 146 249 Capital Henry 20 000
(vehicle)
Inventory 22 960 Capital Iris (Vehicle) 16 000
Trade receivables 20 450 Bank (NCA) 95 872
Bank (Dissolution costs) 2 900 Bank (Inventory) 25 650
Bank (T.Receivables) 20 041
(20 450 – 409)
Loss on realisation 11 247
Capital: Henry
3/4 x 14 996
Loss on realisation 3 749
Capital: Iris
1/4 x 14 996
192 559 192 559

DR Capital Accounts Cr
Henry Iris ($) Henry Iris ($)
($) ($)
Realisation 20 000 16 000 Balance b/d 114 000 38 000
( Vehicle)
Loss on 11 247 3 749 Current account 18 816 -
realisation
Current - 10 968
account
Bank 101 569 7 283
132 816 38 000 132 816 38 000

DR Bank Account CR
$ $
Realisation (NCA) 95 872 Balance b/d 14 643
Realisation 25 650 Trade payables 15 168
(Inventory)
Realisation (Trade 20 041 Realisation (Dissolution costs) 2 900
receivables)
(20 450 – 409)
Capital: Henry 101 569
Iris 7 283
141 563 141 563
2 Marios and Tamsin
Dr Realisation Account Cr
$ $
Property 75 000 Capital Marios 7 500
(vehicle)
Vehicles 18 000 Bank (T.Receivables) 11 000
Inventory 8 500 Trade payables 1 200
(Discount received)
Trade receivables 11 500 Bank (All remaining 140 000
assets)
Bank (Dissolution 1 250
cost)
Capital: Marios 27 270
3/5 x 45 450
Capital: Tasmin 18 180
2/5 x 45 450
159 700 159 700

DR Capital Accounts Cr
Marios Tamsin Marios Tamsin
($) ($) ($) ($)
Realisation 7 500 Balance b/d 32 000 25 000
(vehicle)
Profit on 27 270 18 180
realisation
Current account 3 000 1 000
Bank 84 770 44 180 Loan 30 000 -
92 270 44 180 92 270 44 180

DR Bank Account CR
$ $
Balance b/d 1 000 Trade payables 21 800
(23 000 -1 200)
Realisation 11 000 Realisation ( Dissolution 1 250
(T.Receivables) cost)
Realisation (All 140 000 Capital Marios 84 770
remaining assets)
Capital Tamsin 44 180
152 000 152 000
3 Martina and Naju
Reason for dissolution of partnerships
1. Disagreement between partners leading to closure of business
2. Death of a partner in case of partnership having only two partners
3. Business is not profitable, losses are being continuously incurred.
4. Obligation to close as a result of debt holders putting the partnership into receivership.

b) NO salary is paid to partners

Dr Realisation Account Cr
$ $
Property 60 000 Bank (Property) 65 000
M.Vehicles 14 000 Capital : Martina 4 500
F.Fittings 9 400 Capital: Naju 7 000
Inventory 18 700 Bank (F.Fittings & 21 000
inventory)
T.Receivables 12 400 Bank (T.Receivables) 11 700
[12 400 – 400] x 97.5
%
Bank (dissolution exp) 2 700 T.payables (Discount 200
received)
[2 % x 10 000)
Capital Martina 5 200
2/3 x 7 800
Capital Naju 2 600
1/3 x 7 800
117 200 117 200

DR Capital Accounts Cr
Martina Naju Martina Naju
Realisation 4 500 7 000 Balance b/d 50 000 40 000
(vehicle)
Loss on 5 200 2 600 Current account 4 400
realisation
Current account 1 400
Bank 44 700 29 000
54 400 40 000 54 400 40 000
DR Bank Account CR
$ $
Realisation (Property) 65 000 Balance b/d 400
Realistion (F.Fittings & 21 000 Expenses 1 100
inventory)
Realisation 11 700 T.Payables (98 % x 10 000) 9 800
(T.Receivables)
[12 400 – 400] x 97.5 %
Loan 10 000
Realisation (dissolution 2 700
expense)
Capital Martina 44 700
Capital Naju 29 000
97 700 97 700
4 Emily and James
Dr Realisation Account Cr
$ $
Machinery 72 000 Jenkins Ltd (sale of 40 000
machinery)
Motor vehicles 56 000 Capital James 18 000
(Vehicle taken)
Inventory 860 Bank (vehicle sold) 30 000
Trade receivables 2 500 Bank (inventory 760
sold)
Bank (dissolution 4 970 Bank (T.Receivables) 2 300
cost)
Capital Emily 30 180
2/3 x 45 270
Capital James 15 090
1/3 x 45 270
136 330 136 330

DR Capital Accounts Cr
Emily ($) James ($) Emily ($) James ($)
Investment in 20 000 20 000 Balance b/d 102 638 30 376
ordinary shares
Realisation 18 000
Loss on 30 180 15 090
realization
Bank 52 458 Bank 22 714
102 638 53 090 102 638 53 090

DR Bank Account CR
$ $
Bal b/d 2 334 Trade payables 680
Realisation (vehicle) 30 000 Realisation (dissolution 4 970
costs)
Realisation (inventory) 760 Capital Emily 52 458
Realisation (Trade 2 300
receivables)
Capital James 22 714
58 108 58 108
5 Angel and Eva
Dr Realisation Account Cr
$ $
Property 150 000 1 Capital Angel 268 000
(190 000 + 50 000 +
8 000 + 20 000)
Plant and machinery 65 000 2 Bank (vehicle) 6 000
Motor vehicles 18 000 3 Bank (trade 19 000
receivables)
Inventory 60 000 4 Trade payables 1 200
(Discount received)
Trade receivables 20 000 Bank (inventory) 57 000
95 % x $60 000
Bank (Auction Fee) 1 500
Bank (Dissolution 4 000
expenses)
Capital Angel 13 080
(2/5 x 32 700)
Capital Eva 19 620
(3/5 x 32 700)
351 200 351 200

DR Capital Accounts Cr
Angel Eva ($) Angel Eva ($)
($) ($)
Realisation 268 000 - Balance b/d 160 000 115 000
Current 2 000 Current account 5 000 -
account
Profit on 13 080 19 620
realization
Bank 132 620 Bank 89 920
268 000 134 620 268 000 134 620

DR Bank Account CR
$ $
Realisation (Vehicle) 6 000 Balance b/d 7 000
Realisation 19 000 Trade payables (28 000 – 26 800
(T.Receivables) 1 200)
Realisation 57 000 Realisation ( Auction fee) 1 500
(inventory)
95 % x $60 000
Capital Angel 89 920 Realisation ( Dissolution 4 000
expenses)
Capital Eva 132 620
171 920 171 920
6 Dilip, Ephram and Fonzie (nov 2013 p 41 N2)
Dr Realisation Account Cr
$ $
Land and buildings 195 000 Bank ( L& Buildings) 214 500
(110 % x 195 000)
M.Vehicles 43 750 Bank (F & fittings) 26 116
(80 % x 32 645)
F and Fittings 32 645 Capital Ephram 10 000
Inventories 29 875 Capital Fonzie 7 500
T.Receivables 19 765 Bank (vehicle) 18 500
Bank (dissolution 3 450 Bank (inventory) 21 000
cost)
Bank (T.receivables) 15 750
Trade payables 2 150
(discount received)
(14 650 – 12 500)
Loss: Capital Dilip 4 484
(3/6)
Capital Ephram (2/6) 2 990
Capital Fonzie (1/6) 1 495
324 485 324 485

Capital Account

D E F D E F
Realisation ( 10 000 7 500 Bal b/d 60 000 50 000 40 000
vehicle)
Loss on 4 484 2 990 1 495 Current 33 865 24 910 -
realisation account
Current - - 1 875
account
Bank 89 381 61 920 29 130
93 865 74 910 40 000 93 865 74 910 40 000
 Bank Account CR
$ $
Balance b/d 6 850 Realisation (dissolution 3 450
cost)
Realisation ( L& buildings) 214 500 Trade payables 12 500
110 % x 195 000
Realisation (F & fittings) 26 116 Loan 100 000
( 80 % x 32 645)
Realisation (vehicle) 18 500 Bank interest 6 335
Realisation (inventory) 21 000 Capital Dilip 89 381
Realisation (T.receivables) 15 750 Capital Ephram 61 920
Capital Fonzie 29 130
302 716 302 716

Reason for dissolution of partnerships

1. Disagreement between partners leading to closure of business
2. Death of a partner in case of partnership having only two partners
3. Business is not profitable, losses are being continuously incurred.
4. Obligation to close as a result of debt holders putting the partnership into receivership.

7 Nursultan Katia and Avtandil

 (a) A debit balance on a current account arises when a partner has withdrawn more money than
he is entitled to and is therefore in debt to the partnership.
(b) A partnership may be dissolved
– as the partners are constantly in disagreement and can no longer work together.
– as the partnership is no longer liquid and further trading would increase the debt.
– as the partnership is no longer profitable
– as a partner wishes to set up on his own, or a partner dies or retires.

Realisation Account Cr
$ $
Property 90 000 1 Capital Avtandil 36 120
(17 000 + 19 120
M.Vehicle 19 000 2 Bank (property) 80 000
Inventories 20 000 3 Bank (Trade 15 960
receivables)95 % x
16 800
T.Receivables 16 800 4 Trade payables – 1 460
Discount received
(10 % x 14 600)
Capital Nursultan 8 940
(3/6 x 17 880)
5 Bank (cost of 5 620 Capital Katia (2/6 x 5 960
dissolution) 17 880)
Capital Avtandil (1/6 2 980
x 17 880)
151 420 151 420

DR Bank Account CR
$ $
Realisation (property) 80 000 Bal b/d 21 200
Realisation (TR) 15 960 Trade payables 13 140
(95 % x 16 800) (90 % x 14 600)
Capital Nursultan 4 290 Realisation (Cost of 5 620
dissolution)
Capital Katia 20 290
Capital Avtandil 40 000
100 250 100 250

Partner’s Capital Account

 N K A N K A
Current account 5 350 - - Balance b\d 10 000 20 000 58 000
Realisation - - 36 120 Current account - 6 250 21 100
(Vehicle and
inventories)
Loss on 8 940 5 960 2 980
Realisation
Bank - 20 290 40 000 Bank 4 290 - -
14 290 26 250 79 100 14 290 26 250 79 100

d) Capital brought by Avtandil = 17 000 + 19120 = 36 120

Capital brought by Damir = 36120 ÷ 3 x 2 = 24 080
Number of shares Avtandil = $36 120 ÷ $0.5 = 72 240
Number of shares Damir = $24 080 ÷ $0.5 = 48 160

8 Angela, Beena and Cai

a)
Dr Realisation Account Cr
$ $
Land and buildings 150 000 Bank – L& Buildings 200 000
Vehicles 40 000 Bank – Machinery 55 150
Machinery 60 000 Bank – Inventory 33 750
Inventory 35 000 Capital Angela 20 000
Trade receivables 45 000 Capital Beena 13 000
Bank – Dissolution costs 2 300 Bank – Trade 40 500
receivables
Capital Angela 15 800 Trade payables – 1 500
(4/8 x 31 600) Discount received
(26 500 – 25 000)
Capital Beena 11 850
(3/8 x 31 600)
Capital Cai (1/8 x 31 3 950
600)
363 900 363 900

b)
DR Capital Accounts - Beena Cr
($) ($)
Realisation 13 000 Balance b/d 75 000
Current account 4 000
Loan 100 000
Bank 177 850 Profit on realisation 11 850
190 850 190 850

Amount payable to Beena = $177 850

c)
Amount of capital contributed by each partner.
Profit share for each partner.
Duties of each partner.
Interest on capital.
Interest on drawings.
Partners’ salaries
Drawings limitations

d)
Partners may want separate capital accounts to:
Show the permanent investment
Show the impact of any changes in capital (e.g. goodwill, capital introduced, revaluations)
Facilitate the calculation of interest on capital

Partners may want separate current accounts to:

Show the ongoing transactions between the partners and the partnership
Show the amount of drawings compared with the share of profit
To act as a watchdog against excessive drawings

9 Amit and Binu

Dr Realisation Account Cr
$ $
Premises 40 000 Bank (T.receivables) 12 600
Machinery 32 000 Bank (Inventory) 15 000
Vehicles 18 000 Bank (machinery) 35 000
Inventory 18 600 Capital Amit (premises) 30 000
Trade receivables 13 100 Capital Binu (Vehicle) 6 500
Bank (Dissolution costs) 6 300 Bank (vehicle) 12 000
Loss on realisation Capital: 10 140
Amit 3/5 x 16 900
Loss on realisation Capital: 6 760
Binu 2/5 x 16 900
128 000 128 000
b)
Statement showing amount owing to Binu
$
Capital 20 000
Current account 18 400
Less loss on realization (6 760)
Less vehicle taken over (6 500)
Amount owing to Binu 25 140

c) Reasons for dissolution

1. Bankruptcy of the business
2. Disagreement between partners
3. Death or retire of a partner

d)

A debit balance on a partner’s capital account means that the partner owes the business money and has
to contribute that sum from his private funds to settle his debt and enable the business to pay its debts to
close the books of the partnership.
10 Aston Brutus and Cesar
Realisation account
$ $

Land and buildings 210 000 Bank ( L& B) 217 000

Machinery 27 950 Bank (machinery) 25 000

Vehicles 11 352 Capital – Aston 4 000

Inventory 17 632 Capital – Brutus 4 000

Trade receivables 9 340 Bank – vehicle 5 000

Bank (dissolution 2 250 Bank – inventory 18 478

costs)
Aston (2/5 x 4 230) 1 692 Bank (trade receivables) 8 134

Brutus (2/5 x 4 230) 1 692 Trade payables (discount 1 142

received 5 % x 22 840)
Cesar (1/5 x 4 230) 846

282 754 282 754

Capital A/c
A B Cesar A B Cesar

Current A/c - - 2 628 Bal b/d 80 000 60 000 20 000

Realisattion 4 000 4 000 - Current A/c 12 735 10 873 -
(vehicle)
Bank 90 427 68 565 18 218 Realisation profit 1 692 1 692 846
94 427 72 565 20 846 94 427 72 565 20 846

Bank A/c
$ $

Bal b/d 2 546 Trade payables 21 698

(95 % x 22 840)
Realisation (L & B) 217 000 Loan 75 000

Realisation (machinery) 25 000 Capital Aston 90 427

Realisation (vehicle) 5 000 Capital Brutus 68 565

Realisation (inventory) 18 478 Capital Cesar 18 218

Realisation (net amount 8 134 Dissolution cost 2 250

collected from customers
 (9 340 – 590 – 450) x 98
%
276 158 276 158

(d) Example of Revenue Reserves – Retained earnings, general reserve.

Examples of Capital Reserve – Share premium, capital redemption reserve, revaluation reserve.

(e) (i) A provision is a liability of uncertain timing and amount.

(ii) A contingent liability is a possible liability from a past event whose existence will be confirmed by
the occurrence or non-occurrence of an uncertain event, or a present obligation where payment is not
probable or the amount cannot be reliably estimated.

(iii) A contingent asset is a possible asset from a past event whose existence will be confirmed by the
occurrence or non-occurrence of an uncertain event.

11 Adam and Eve

Realisation A/C
$ $
Land and buildings 125 000 1 Capital Adam 254 000
Plant and machinery 67 000 2 Bank (car) 4 700
Motor vehicles 16 700 3 Bank trade 31 050
receivables(90 % x
34 500)
Inventory 55 500 4 Trade payables 900
(Discount received)
Trade receivables 34 500 5 Bank (inventory) 52 725
95 % x 55 500

5 Bank (Auction related Expenses 1 200

)
6 Bank (dissolution expenses) 3 900

Capital Eve 39 575

343 375 343 375
 DR Capital Accounts Cr
Adam Eve Adam Eve
Current 5 000 Bal b/d 190 000 75 000
account
1 Realisation 254 000 Current account 4 000 -
(155 000 + 60
000 + 9 000 +
30 000)
Profit on 39 575
realisation
Bank 109 575 Bank 60 000
254 000 114 575 254 000 114 575

Bank A/c
$ $

2 Realisation (car) 4 700 Bal c/d 7 600

3 Realisation (90 % x 34 31 050 4 Trade payables 26 200
500)
5 Realisation (inventory) 52 725 5 Realisation(Auction 1 200
95 % x 55 500
related Expenses )
6 Realisation (dissolution 3 900
expenses)
Capital Adam 60 000 Capital Eve 109 575
148 475 148 475

Reasons preparing partnership deed

1. To set the rules and regulations for governing the partnership to avoid disagreement and conflicts
2. To know whether any salary should be paid to any partner and the amount
3. To specify if interest is payable on capital
4. To make partners aware of any interest to be charged on drawings
5. To state the profit and loss sharing ratio
12 Akram Bhupesh and Chuck
Realisation A/C

$ $
Buildings (310 000 – 105 000 – 6 200) 198 800 Trade payables 18 000
Machinery 100 300 Selling price (EDC ltd) 600 000
(170 000 + 17 000 – 68 000 – 18 700)
Vehicles (120 000 -77 000 – 17 200) 25 800
Inventory 37 000
Trade receivables 23 500
Bank (Dissolution expenses) 20 200
Capital A (3/6 x 212 400) 106 200
Capital B (2/6 x 212 400) 70 800
Capital C (1/6 x 212 400) 35 400
618 000 618 000

Alternaively profit on realization can be calculated as follows

Capital Akram 160 000

Capital Bhupesh 110 000
Capital Chuck 80 000
Current account Akram (Dr) (9 720)
Current account Bhupesh (Dr) (680)
Current account Chuck (Cr) 14 000
Net Assets 353 600
Adjustment to exclude Bank overdraft 13 800
(add) since EDC Ltd did not take over
bank balance
Net assets taken over by EDC Ltd 367 400

Profit on realization = selling price – 600 000 – 367 400 – 20 200

net assets taken over by EDC Ltd- = 212 400
dissolution cost
 Partner’s Capital Account
A B C A B C
Current account 9 720 680 Bal b/d 160 000 110 000 80 000
Investment in 50 000 50 000 50 000 Current account 14 000
debentures
($150 000 ÷ 3)
Investment in 210 000 140 000 70 000 Profit on 106 200 70 800 35 400
shares realisation
Bank - - 9 400 Bank 3 520 9 880 -
269 720 190 680 129 400 269 720 190 680 129 400

Calculation of Value of investment in shares

$
Selling price 600 000
Less Cash (30 000)
Less value of debentures (150 000 x $1) (150 000)
Market value of shares 420 000
Shares between the partners using profit sharing ratio
A 3/6 x 420 000 = 210 000
B 2/6 x 420 000 = 140 000
C 1/6 x 420 000 = 70 000

Bank A/C

$ $
EDC Ltd 30 000 Bal b/d 13 800
Capital A 3 520 Realisation (Dissolution expenses) 20 200
Capital B 9 880 Capital C 9 400
43 400 43 400
13 Gruber and Gupta
Average profit = (55 000 + 49 000 + 42 000 + 25 000 + 19 000) ÷ 5 = 38 000
Purchases price /selling price = $38 000 x 3 = $114 000

$
Selling price 114 000
Less Value of investment in debentures ($25 000 + $25 000) (50 000)
Market value of investment in shares 64 000
Total number of shares issued by GWG = 24 000 + 24 000 = 48 000
Market value of investment in shares received by:
Gruber = 24 000/48 000 x $64 000 = $32 000
Gupta = 24 000/48 000 x $64 000 = $32 000

Realisation A/C
$ $
Property 50 000 GWG Ltd 114 000
Equipment 30 000 Bank (customers) 10 000
Inventory 15 000
Trade receivables 11 000
Bank (cost of dissolution) 2 100
Capital: Gruber (1/2 x 15 900 7 950
Capital : Gupta (1/2 x 15 900) 7 950
124 000 124 000

Bank A/C

$ $
Realisation (customers) 10 000 Bal b/d 5 000
Capital Gruber 8 550 Trade payables 2 000
Realisation (dissolution cost) 2 100
Capital Gupta 9 450
18 550 18 550
 DR Capital Accounts Cr
Gruber Gupta Gruber Gupta
Current account 1 500 Bal b/d 40 000 60 000
Investment in 25 000 25 000 Current account 500
debentures
Investment in 32 000 32 000 Profit on 7 950 7 950
shares realisation
Bank 9 450 Bank 8 550
57 000 67 950 57 000 67 950

14 Paul and Vicky

Issued price of 1 share = Nominal value + premium per share

= $1 + $0.7 = $1.7
Number share of share to be issued by the company = 100 000 shares ($170 000 ÷ $1.7)

Realisation acccount

Property 52 000 Trade payables 6 750

Machinery 60 000 Selling price (ABB Ltd) 170 000
Fixtures 9 000 Capital Paul (vehicle) 10 000
M.Vehicles 22 000
Computer 13 000
Inventory 9 000
Trade receivables 12 000
Bank and cash 3 000
Capital Paul (3/5 x 6 750) 4 050
Capital Vicky (2/5 x 6 750) 2 700
186 750 186 750

Capital account
Paul Vicky Paul Vicky
Realisation 10 000 Bal b/d 102 000 67 000
(vehicle)
Investment in 99 450 66 300 Profit on 4 050 2 700
ordinary shares realisation
Capital Paul 3 400 Capital Vicky 3 400
109 450 69 700 109 450 69 700
Calculation of Investment in ordinary shares
Number shares received by Carl = 2.5 % x 100 000 = 2 500 shares
Value of shares = 2 500 shares x $1.7 = $4 250

Remaining number of shares = 97 500 100 000- 2 500

Number shares received by Paul = 58 500 (3/5 x 97 500)
Value of shares = $99 450 (58 500 x $1.7)

Number shares received by Vicky = 39 000 (2/5 x 97 500)

Value of shares = $66 300 (39 000 x $1.7)

15 Anjali and Bailey

(ai)
Realisation Account
$ $
Premises 115 000 Selling price 255 000
Machinery 40 000 Bank (customers) 3 900
Vehicles 78 000 Trade payables (discount received 400
7 500 – 7 100)
Inventory 15 000 Capital: Anjali (vehicles taken over) 15 000
Trade receivables 4 000 Bailey (vehicles taken over) 12 500
Bank (cost of dissolution) 3 800
Capital: Anjali (3/5 x 31 000) 18 600
Capital : Bailey (2/5 x 31 000) 12 400
286 800 286 800

(aii)

Calculation of market value of ordinary shares and apportionment

$
Seling price 255 000
Less Preference shares (60 000)
Market value of investment in ordinary shares 195 000

Apportionment of preference shares

Anjali: 3/5 x 60 000 = 36 000
Bailey: 2/5 x 60 000 = 24 000

Apportionment of ordinary shares

Anjali: 130/240 x 195 000 = 105 625
Bailey: 110/240 x 195 000 = 89 375
 DR Capital Accounts Cr
Anjali Bailey Anjali Bailey
Investment in 36 000 24 000 Bal b/d 130 000 110 000
Preference
shares
Investment in 105 625 89 375 Profit on 18 600 12 400
ordinary shares realisation
Realisation 15 000 12 500 Bank 8 025 3 475
(vehicles)
156 625 125 875 156 625 125 875

Bank A/C
$ $
Realisation (customers) 3 900 Bal b/d 4 500
Capital Anjali 8 025 Trade payables 7 100
Bailey 3 475 Realisation (dissolution cost) 3 800
15 400 15 400

aiii)
Market value of ordinary shares = $195 000
Issued price = $1 + $0.25 = $1.25
Number of shares issued = $195 000 / $1.25 = 156 000
Total premium payable = 156 000 shares x $0.25 = $39 000

b)
Apportionment of ordinary shares using profit ratio
Anjali: 3/5 x 195 000 = 117 000
Bailey: 2/5 x 195 000 = 78 000

Apportionment of Apportionment of
ordinary shares using ordinary shares using
capital balance profit ratio

Anjali 105 625 117 000 11 375 more

Bailey 89 375 78 000 11 375 less

If investment in ordinary shares is apportioned according to profit sharing ratio instead of capital account
balance, then Anjali would receive $11 375 more in terms of value of investment or 9100 ($11 375/ $1.25)
more shares

c)
The partnership had a poor liquidity position as the quick ratio was only 0.33:1 (4 000/12 000). There was
a high risk of bankruptcy with such a low liquid ratio. By forming a company which is an incorporated
business, Anjali and Bailey would have limited liability. On the other hand under the partnership they
would have unlimited liability and if the business would have become bankrupt, they could lose their
private property.
In addition by forming a company, their investment has become more liquid as they can dispose the
shares easily. They can even make capital gain on selling the shares. Furthermore greater capital can be
easily raised and they would receive dividend at a fixed rate on preference shares and a variable rate of
dividend on ordinary shares.

On the downturn however they may lose control of the company if a majority of shares are issued to
outsiders, they will not receive dividend in times of low profit and share price may fall.

Overall, we can observe that the benefits more than offset the shortcomings and hence we can conclude
that it was indeed a wise decision to convert the partnership into a company.

Answers MCQ

1 B
Dr Capital A/c Cr
Ravi Tania Ravi Tania
$ $ $ $
Loss on 5 000 5 000 Bal b/d 50 000 60 000
realisation
Current a/c 35 000 35 000
Bank 80 000 90 000
85 000 95 000 85 000 95 000

2 A Dr Realisation Account Cr
$ $
NCA 50 000 Bank (65 + 23) 88 000
Current assets 25 000 Discount 4 000
received (18 -14)
Cost of 1 000
realisation
Profit: A (1/2) 8 000
B (1/2) 8 000
92 000 92 000

3 B When there is no partnership deed, profit and losses are shared equally.

Share of loss on realisation

X = 1/2 x 18 000 = 9 000
Y = 1/2 x 18 000 = 9 000
14 Gate, Fence and Way
Profit and loss Appropriation account for the year ended 30 April 2004
$ $
Profit for the year 40 000
Add interest on drawings : Gate (5 % x 15000) 750
Fence (5 % x 14 900) 745
Way (5 % x 15 700) 785
42 280
Less Appropriations
Interest on capital : Gate (10 % x 50 000) 5 000
Fence (10 % x 15 000) 1 500
Way (10 % x 10 000) 1 000 (7 500)
Residual profits 34 780
Share of residual profits Gate (5/10 x 34 780) 17 390
Fence (3/10 x 34 780) 10 434
Way (2/10 x 34 780) 6 956 34 780

Realisation acccount

Property 21 500 Trade payables 7 100

 Plant and machinery 16 800 Roadways ltd (Selling 90 000
price)
Motor vehicles 4 000
Inventory 35 000
Trade receivables 9 800
Capital : Gate (5/10 x 10 000) 5 000
Fence (3/10 x 10 000) 3 000
Way (2/10 x 10 000) 2 000
97 100 97 100

Current account
Gate Fence Way Gate Fence Way
Drawings 15 000 14 900 15 700 Bal b/d 5 100 3 200 3 600
Interest on 750 745 785 Interest on 5 000 1 500 1 000
drawings capital
Capital a/c 11 740 - - Share of 17 390 10 434 6 956
profits
Capital a/c - 511 4 929
27 490 15 645 16 485 27 490 15 645 16 485

Capital account
Gate Fence Way Gate Fence Way
Current 511 4 929 Bal b/d 50 000 15 000 10 000
account
Preference 25 000 7 500 5 000 Profit on 5 000 3 000 2 000
shares realisation
Ordinary 26 250 15 750 10 500 Current 11 740
share account
Bank 15 490 Bank 5 761 8 429
66 740 23 761 20 429 66 740 23 761 20 429

Apportionment of Preference shares Apportionment of Ordinary shares

Gate 25 000 50 000/75 000 Gate 26 250 5/10 x $52 500

x $37 500
Fence 7 500 15 000/75 000 Fence 15 750 3/10 x $52 500
x $37 500
Way 5 000 10 000/75 000 Way 10 500 2/10 x $52 500
x $37 500
Market Value of Ordinary share
= $90 000 - $37 500
= $52 500