Chapter 11 Partnership Dissolution

Name : _________________ Serial No: _____
Chapter 11 Partnership Dissolution (合夥解散)

11.2 Reasons for dissolution and actions required (合夥解散的原因及所需的行動)
Reasons (原因):
1 The partnership has been making substantial losses (合夥持續錄得重大虧損).
2 One of the partners is leaving due to ill health or has died (某合夥人因病退出合夥或去世).
3 There are serious conflicts among the partners (合夥人之間出現嚴重分歧).
4 The partnership is converted into a limited company (合夥改組為有限公司).
5 The partnership is taken over by another business (合夥被另一企業收購).
Actions (行動):
1 The assets are to be disposed of (變賣資產): they may be sold to external parties (企業以外的人士), or taken over (接收) by
existing partners (現有合夥人) at agreed values (按議定價值).
2 The liabilities (債務) are to be repaid (償還) to external parties.
3 The partners are to be repaid their loans (償還合夥人的貸款) and advances.
4 The partners are to be repaid the final balances in their capital accounts (歸還合夥人資本帳戶的餘額).
A profit or loss may arise in the disposal of assets and repayment of liabilities (變賣資產和償還債務可能會為合夥帶來損益),
and this should be shared by (攤分) all the partners in their agreed profit and loss sharing ratio (按協定的損益分配比率).
11.3 Accounting entries for dissolution (解散所需的會計分錄)

A realisation account (變產帳戶) would be opened to record the transactions arising on dissolution.
Example 1
Chan and Lee were partners, sharing profits and losses in the ratio of 2 : 1. The following is the balance sheet of the partnership as
at 31 December 2010:
Chan and Lee

Balance Sheet as at 31 December 2010
$ $ $
Accumulated
Non Current assets Cost depreciation Net book value
Office equipment 75,000 35,000 40,000
Motor vehicles 54,000 29,000 25,000
129,000 64,000 65,000
Current assets
Inventory 21,000
Accounts receivable 24,000
Less Allowance for doubtful accounts (1,600) 22,400
Bank 10,600
54,000
Less Current Liabilities
Accounts payable (23,000)
Net Current assets 31,000
96,000
Financed by:
Capital : Chan 30,000
Lee 20,000 50,000
Current: Chan 26,000
Lee 20,000 46,000
96,000
On 1 January 2011, Chan and Lee dissolved the partnership on the following terms:
1 The office equipment and inventory were sold for $48,000 and $27,000, respectively.
2 Receipts from debtors amounted to $20,400.
3 The motor vehicles were taken over by Lee at an agreed value of $22,000, without paying cash for them.
4 Payments to creditors amounted to $21,000 and the discount received is $2,000.
5 Dissolution costs (e.g., legal fees) amounted to $2,600
1
1 Transfer the net book value of all the assets (except bank and cash) to the realisation account (把所有資
產(銀行存款和現金除外)的帳面淨值轉到變產帳戶):
Dr Realisation account
Cr Asset account
Realisation
2011 $ 2011 $
Jan 1 Office equipment (1) 40,000
“ 1 Motor vehicles (1) 25,000
“ 1 Inventory (1) 21,000
“ 1 Accounts receivable (1) 22,400
Office equipment
2011 $ 2011 $
Jan 1 Balance b/f 40,000 Jan 1 Realisation Office equipment (1) 40,000
Motor vehicles
2011 $ 2011 $
Jan 1 Balance b/f 25,000 Jan 1 Realisation Motor vehicles (1) 25,000
Inventory
2011 $ 2011 $
Jan 1 Balance b/f 21,000 Jan 1 Realisation Inventory (1) 21,000
Accounts receivable
2011 $ 2011 $
Jan 1 Balance b/f 22,400 Jan 1 Realisation Accounts receivable (1) 22,400
2 Record the amounts received from the sale of assets or collected from account receivable (記錄出售資
產所得的款項或收回的應收帳款):
Dr Cash/Bank account
Cr Realisation account
Realisation
2011 $ 2011 $
Jan 1 Office equipment (1) 40,000 Jan 1 Bank  Office equipment (2) 48,000
“ 1 Motor vehicles (1) 25,000 “ 1 Bank  Inventory (2) 27,000
“ 1 Inventory (1) 21,000 “ 1 Bank  Accounts receivable (2) 20,400
“ 1 Accounts receivable (1) 22,400
Bank
2011 $ 2011 $
Jan 1 Balance b/f 10,600
“ 1 Realisation Office equipment (2) 48,000
“ 1 Realisation  Inventory (2) 27,000
“ 1 Realisation  Accounts receivable (2) 20,400
3 Record the value of assets taken over by partners without immediate payment (記錄由合夥人接收的資
產的議定價值(不用即時付款)):
Dr Partners’ capital accounts
Cr Realisation account
Realisation
2011 $ 2011 $
Jan 1 Office equipment (1) 40,000 Jan 1 Bank  Office equipment (2) 48,000
“ 1 Motor vehicles (1) 25,000 “ 1 Bank  Inventory (2) 27,000
“ 1 Accounts receivable (1) 22,400 “ 1 Capital: Lee - Motor vehicles taken over (3) 22,000
Capital: Lee
2011 $ 2011 $
Jan 1 Realisation Motor vehicles taken over (3) 22,000 Jan 1 Balance b/f 20,000
2
4 Record the amounts paid to creditors with discounts received (if any) (記錄償還給債權人的金額及購貨
折扣(如適用)):
Dr Creditors’ accounts
Cr Cash/Bank account (with the amount of payment)
Cr Realisation account (with the amount of discounts received, if any)
Usually, the creditors will be settled by the company’s bank account and the double entries should be:
Realisation
2011 Creditors
$ 2011 $
Jan 1 Office equipment (1) $ Jan 1 Bank  Office equipment (2)
40,000 $ 48,000
“ Bank
1 Motor vehicles (1) 25,000Balance
10,000 Bank  Inventory (2)
“ 1b/f 12,000 27,000
“ Discounts received
1 Accounts receivable (1) 2,000
22,400 “ 1 Capital: Lee - Motor vehicles taken over (3) 22,000
“ 1 Accounts payable – Discounts received (4) 2,000
Bank payable
Accounts
2011 $ $ 2011 $ $
Jan 1 Realisation Discounts received (4) 2,000Creditors
Jan 1 Balance b/f 10,000 23,000
“ 1 Bank (4) 21,000
23,000 23,000
Sometime, one of partners may pay the creditors (whole Bank
of partly) by himself. In this case, some or all the amount of
2011 $ 2011 $
Jan 1 Balance
creditors paid byb/f
partners will be treated as discounts10,600 Jan (revenue).
received 1 Accounts payable (4) 21,000
“ 1 Realisation Office equipment (2) 48,000
Realisation
“ 1 Realisation  Accounts receivable (2) $
20,400 $
Accounts payable
5 Record the payment of dissolution costs (realisation –expense)
Taken over by Paul (21,000x1/2)
(記錄支付解散費用的金額): 10,500
Dr Realisation accounts
– Discounts received (21,000x1/2x10%) 1,050
Cr Cash/Bank account
Creditors
Realisation
2011 $ $ 2011 $ $
Jan Realisation
1 Office equipment (1) 40,000 Jan 1 Bank  Office equipment (2) 48,000
“ –1Taken
Motor vehicles
over (1) (21,000x1/2)
by Paul 25,000 “ 1 Bank  Inventory (2) 27,000
“ 1 Inventory (1) 10,500
21,000 “ 1 Bank  Accounts receivable (2) 20,400
“ –1Discounts
Accountsreceived
receivable(21,000x1/2x10%)
(1) 1,050
22,400 “ 1 Capital: Lee - Motor vehicles taken over (3) 22,000
“ 1 Bank – Dissolution costs (5) 2,600 “ 1 Accounts payable – Discounts received (4) 2,000
Bank
However, if the partner pays the creditors on behalf of $the
2011 company through his bank, We will first debit the creditors
2011 $
Jan 1 Balance b/f 10,600 Jan 1 Accounts payable (4) 21,000
account
“ 1 and credit Office
Realisation the capital account.
equipment (2) 48,000 “ 1 Realisation Dissolution costs (5) 2,600
Creditors
“ 1 Realisation  Accounts receivable (2) 20,400
$ $
Capital: Ko 6,000
6 Share the profit or loss on realization among the partners in the profit and loss sharing ratio (按損益分
配比率攤分變產損益給合夥人):
(i) When there is a profit on realisation
Capital
Dr Realisation accounts Lee Ko Ma Lee Ko Ma
Cr Partners’ capital accounts$ (with their
$ share of$the profit on realization) $ $ $
Accounts payable  6,000 
(ii)When there is a loss on realisation
Dr Partners’ capital accounts (with their share of the loss on realization)
We will firstCr Realisation
credit accounts
the capital account of the partner to compensate the amount of his paying.
Realisation
Then debit the realisatiion account to record the$payment $of2011
2011 creditors. $
Jan 1 Office
Finally needequipment (1) 40,000 Jan of 1 Bank  Office equipment (2) 48,000
“ 1 weMotor to credit
vehicles (1) the realization account with25,000
the amount“ 1 Bank  Inventory (2) 27,000
“ 1 Accounts receivable (1) 22,400 “ 1 Capital: Lee - Motor vehicles taken over (3) 22,000
“ 1 Bank – Dissolution costs (5) 2,600 “ 1 Accounts payable – Discounts received (4) 2,000
“ 1 Profit on realization – (6)
Capital: Chan (2/3) 5,600
Capital: Lee (1/3) 2,800 8,400
119,400 119,400
Capital: Chan
$ 2011 $
“ 1 Realisation Share of profit (6) 5,600
Capital: Lee
2011 $ 2011 $
“ 1 Realisation Share of profit (6) 2,800
3
7 Transfer the partners’ current account balances to their capital accounts (把合夥人的往來帳戶的餘額
轉到其資本帳戶):
(i) For credit balances in current accounts
Dr Partners’ current accounts
Cr Partners’ capital accounts (with the credit balances in current accounts)
(ii) For debit balances in current accounts

Dr Partners’ capital accounts (with the debit balances in current accounts)
Cr Partners’ current accounts
Current: Chan
2011 $ 2011 $
Jan 1 Capital: Chan (7) 26,000 Jan 1 Balance b/f 26,000
Capital: Chan
2011 $ 2011 $
“ 1 Current: Chan (7) 26,000
Current: Lee
2011 $ 2011 $
Jan 1 Capital: Lee (7) 20,000 Jan 1 Balance b/f 20,000
Capital: Lee
2011 $ 2011 $
“ 1 Realisation Share of profit (6) 2,800
“ 1 Current: Lee (7) 20,000
8 Settle the final balances in the partners’ capital accounts (結算合夥人的資本帳戶的最後餘額):

(i) For credit balances in capital accounts
Dr Partners’ capital accounts
Cr Cash/Bank account (with the credit balances in capital accounts)
(ii) For debit balances in capital accounts

Dr Cash/Bank account (with the debit balances in capital accounts)
Cr Partners’ capital accounts
Capital: Chan
2011 $ 2011 $
Jan 1 Bank – Final settlement (8) 61,600 Jan 1 Balance b/f 30,000
“ 1 Current: Chan (7) 26,000
61,600 61,600
Capital: Lee
2011 $ 2011 $
Jan 1 Bank – Final settlement (8) 20,800 “ 1 Realisation Share of profit (6) 2,800
“ 1 Current: Lee (7) 20,000
42,800 42,800
Bank
2011 $ 2011 $
Jan 1 Balance b/f 10,600 Jan 1 Accounts payable (4) 21,000
“ 1 Realisation Office equipment (2) 48,000 “ 1 Realisation Dissolution costs (5) 2,600
“ 1 Realisation  Inventory (2) 27,000 “ 1 Capital: Chan – Final settlement (8) 61,600
“ 1 Realisation  Accounts receivable (2) 20,400 “ 1 Capital: Lee – Final settlement (8) 20,800
106,000 106,000
4
Class work 1
1. Bai and Ng were partners, sharing profits and losses in the ratio of 2 : 1. They decided to dissolve their partnership on 31
December 2010. Their final balance sheet as at 31 December 2010 was as follows:
Bai and Ng
$
Fixtures (net) 124,000
Office equipment (net) 66,000
Inventory 98,500
Bank 5,000
318,000
Less Accounts payable (27,000)
291,000
Capital: Bai 173,000
Ng 118,000
291,000
The fixtures and the office equipment were sold for $196,000 and $59,000, respectively. Inventory was disposed of for $82,200
and receipts from accounts receivable amounted to0 $23,100. Accounts payable, net of discounts received of $600, were paid
off. The cost of dissolution were $6,500.
(a) Name two types of dissolution costs.
(b) Draw up the Realisation, Capital and Bank accounts.
(a) Legal fees

Accountants’ fees
Employee severance payments
(b)
Realisation
$ $ $
Fixtures 124,000 Bank —Fixtures 196,000
Office equipment 66,000 Office equipment 59,000
Inventory 98,500 Inventory 82,200
Accounts receivable 24,500 Accounts receivable 23,100
Bank — Dissolution expenses 6,500 Accounts payable — Discounts received 600
Profit on realization –
Capital: Bai (2/3) 27,600
Capital: Ng (1/3) 13,800 41,400
360,900 360,900
Capital
Bai Ng Bai Ng
$ $ $ $
Bank—Final settlement 200,600 131,800 Balances b/d 173,000 118,000
Realisation—Share of profit 27,600 13,800
200,600 131,800 200,600 131,800
Bank
$ $
Balance b/f 5,000 Accounts payable (27,000 – 600) 26,400
Realisation —Fixtures 196,000 Realisation—Dissolution expenses 6,500
Office equipment 59,000 Capital – Final settlement
Inventory 82,200 Bai 200,600
Accounts receivable 23,100 Ng 131,800
365,300 365,300
5
2. Kwan and Wong were partners, sharing profits and losses equally. They decided to dissolve their partnership on 31 March 2009.
Their final balance sheet as at that date was as follows:
Kwan and Wong

Balance Sheet as at 31 March 2009
$ $
Equipment (net) 80,000 Capital account: Kwan 200,000
Furniture and fixtures (net) 85,000 Wong 150,000
Accounts receivable 280,000 350,000
Cash 180,000 Accounts payable 275,000
625,000 625,000
The accounts receivable were realized for $270,000. The equipment and the furniture and fixtures were sold for $40,000 and
$95,000, respectively. The costs of dissolution were $10,000 and discounts totaling $20,000 were received on the settlement of
accounts payable.
(a) Suggest two possible reasons for the dissolution of a partnership.
(b) Prepare the Realisation, Capital and Cash accounts.
(a) The partnership has been making substantial losses

One of the partners is leaving due to ill health or has died.
(b)
Realisation
$ $ $ $
Equipment 80,000 Cash —Equipment 40,000
Furniture and fixtures 85,000 Furniture and fixtures 95,000
Cash — Dissolution costs 10,000 Accounts payable — Discounts received 20,000
Loss on realization –
Capital: Kwan (1/2) 15,000
Capital: Wong (1/2) 15,000 30,000
455,000 455,000
Capital
Kwan Wong Kwan Wong
$ $ $ $
Realisation—Share of loss 15,000 15,000 Balances b/d 200,000 150,000
Cash—Final settlement 185,000 135,000
200,000 150,000 200,000 150,000
Cash
$ $
Balance b/f 180,000 Accounts payable (275,000 – 20,000) 255,000
Realisation —Equipment 40,000 Realisation—Dissolution costs 10,000
Furniture and fixtures 95,000 Capital: Kwan (settlement) 185,000
Accounts receivable 270,000 Wong (settlement) 135,000
585,000 585,000
Test 3
6
3. Daisy, Ellen and Faye were in partnership. Their balance sheet as at 31 March 2009 was as follows:
Daisy, Ellen and Faye

$ $
Premises 240,000 Capital: Daisy 160,000
Furniture 26,240 Ellen 80,000
Inventory 64,000 Faye 80,000
Accounts receivable 16,960 320,000
Accounts payable 22,000
Bank overdraft 5,200
347,200 347,200
Daisy, Ellen and Faye shared profits and losses in proportion to their capital balances.
The partnership was dissolved on 31 March 2009.
Ellen took over the inventory at a valuation of $72,000, the furniture at $22,000 and the accounts receivable at $16,400.
Ellen also took over the premises for $420,000. She borrowed a mortgage loan of $320,000 and deposited a cheque for this
amount into the partnership bank account. Daisy reached an agreement with Ellen whereby Daisy would settle for Ellen the
balance she owed to the partnership. This payment was to be treated as a personal loan from Daisy.
The accounts payable of the partnership were paid in full.
Show the necessary entries in the Realisation, Capital and Cash accounts.
Answer:
Realisation
$ $ $ $
Premises 240,000 Capital: Ellen (assets taken over) —
Furniture 26,240 Furniture 22,000
Inventory 64,000 Inventory 72,000
Profit on realization – Premises 420,000
Capital: Daisy (1/2) 91,600
Ellen (1/4) 45,800
Faye (1/4) 45,800 183,200
530,400 530,400
Capital
Daisy Ellen Faye Daisy Ellen Faye
$ $ $ $ $ $
Realisation (assets taken over)  Balances b/d 160,000 80,000 80,000
Furniture — 22,000 — Bank (mortgage loan) — 320,000 —
Inventory — 72,000 — Realisation—Share of profit 91,600 45,800 45,800
Accounts receivable — 16,400 — Capital—Daisy (personal loan) — 84,600 —
Premises — 420,000 —
Capital—Ellen (personal loan) 84,600 — —
Bank—Final settlement 167,000 — 125,800
251,600 530,400 125,800 251,600 530,400 125,800
Bank
$ $
Capital: Ellen (mortgage loan) 320,000 Balance b/f 5,200
Capital: Daisy (settlement) 167,000
Faye (settlement) 125,800
320,000 320,000
7
4. Paul, Martin and Raymond were partners, sharing profit and losses in the ratio of 3 : 2 : 1. The following is the balance sheet of
the partnership as at 31 March 2010:
Paul, Martain and Raymond

$ $ $
Accumulated
Non Current assets Cost depreciation Net book value
Machinery 64,000 38,000 26,000
Office equipment 30,000 15,000 15,000
94,000 53,000 41,000
Goodwill 10,000
51,000
Current assets
Inventory 8,600
Less Allowance for doubtful accounts (1,400) 15,600
Cash 1,200
25,400
Bank overdraft 8,200 (29,200)
Net Current liabilities 3,800
47,200
Less Non-current liabilities
Loan from Raymond (10,000)
37,200
Financed by:
Capital : Paul 10,000
Martin 10,000
Raymond 10,000 30,000
Current: Paul 8,400
Martin (9,400)
Raymond 8,200 7,200
37,200
On 1 April 2010, Paul, Martin and Raymond dissolved the partnership on the following terms:
1 The machinery and office equipment were sold at 80% and 70% of their net book value, respectively.
2 Paul took over the inventory at 60% of its book value, but he was also personally responsible for paying off half of the accounts
payable. (As Paul was personally responsible for paying off these accounts payable, the amount paid should not be credited to
his capital account. Instead, it should be treated as a gain on realization and credited to the realization account.)
3 The remaining accounts payable were settled by the partnership and a discount of 10% was received.
4 Raymond was responsible for collecting the accounts receivable. He as entitled to a commission of 5% on all sums received.
Consequently, cash discounts of $1,200 were allowed and bad debts of $2,000 were incurred.
5 Dissolution costs amounted to $2,420.
Make the following entries in the realization account, bank account, current account and capital accounts (in columnar form).
Answer:
Realisation
$ $ $
Machinery 26,000 Bank
Office equipment 15,000 Machinery (26,000x80%) 20,800
Goodwill 10,000 Office equipment (15,000x70%) 10,500
Inventory 8,600 Debtors (17,000 – 1,200 – 2,000) 13,800
Accounts receivable 15,600 Capital: Paul
Capital: Raymond –Inventory taken over (8,600x60%) 5,160
– Commission ($17,800  $1,200  $2,000) x 5% 690 Accounts payable
Bank – Dissolution costs 2,420 – Taken over by Paul (21,000x1/2) 10,500
– Discounts received (21,000x1/2x10%) 1,050
Loss on realisation –
Capital: Paul (3/6) 8,250
Capital: Martin (2/6) 5,500
Capital: Raymond (1/6) 2,750 16,500
78,310 78,310
8
Current
Paul Martin Raymond Paul Martin Raymond
$ $ $ $ $ $
Balances b/d — 9,400 — Balances b/d 8,400 — 8,200
Capital: Paul 8,400 — — Capital : Martin — 9,400 —
Raymond — — 8,200
8,400 9,400 8,200 8,400 9,400 8,200
Capital
$ $ $ $ $ $
Realisation Inventory 5,160 — — Balances b/d 10,000 10,000 10,000
Realisation Share of loss 8,250 5,500 2,750 Realisation Commission — — 690
Current : Martin — 9,400 — Current: Paul 8,400 — —
Bank–Final settlement 4,990 — 26,140 Raymond — — 8,200
Loan: Raymond — — 10,000
Bank –Final settlement — 4,900 —
18,400 14,900 28,890 18,400 14,900 28,890
Bank
$ $
Cash 1,200 Balance b/f 8,200
Realisation Machinery 20,800 Accounts payable (21,000x1/2 – 1,050) 9,450
Office equipment 10,500 Realisation Dissolution costs 2,420
Debtors 13,800 Capital – Final settlement
Capital – Final settlement Paul 4,990
Martin 4,900 Raymond 26,140
51,140 51,140
9
HKCEE (2006, 6)
Ann, Ben and Joe were partners sharing profits and losses in the ratio of 2 : 2 : 3. The balance sheet as at 30 April 2006 was as
follows:
The liquidity of the partnership worsened during the past two years and so the partners decided to dissolve the partnership on 1
May 2006. The following information was provided:
(i) The office equipment was sold at a price of 30% below
(ii) Ann took over the motor vehicle to set off her loan to the partnership.
(iii) Most of the furniture was sold at an agreed value of $35,000. The remaining furniture was donated to a charitable
orgainisation and Ben paid $200 on behalf of the partnership for transporting the furniture.
(iv) Part of the stock was sold at 90% of its net realizable value of $100,000. The remaining stock was taken over by Ben at an
agreed value of $9,750.
(v) A debt of $2,000 was to be written off and a cash discount of 2% was allowed on the remaining debtors.
(vi) The creditors were settled and a discount of 5% was received on 50% of the creditors.
(vii) Realisation expenses amounted to $2,100.
You are required to prepare:
(a) the realization account;
(a)
Realisation
$ $ $
Office equipment 325,000 Bank  Office equipment (325,000 x 70%) 227,500
Furniture 72,900 Furniture 35,000
Motor vehicle 116,800 Stock (100,000 x 90%) 90,000
Stock 126,000 Debtors [(37,000  2,000) x 98%] 34,300
Debtors 37,000 Loan nn: motor vehicle 100,000
Capital  Ben: transportation expenses 200 Capital  Ben: Stock 9,750
Realisation expenses 2,100 Creditors – discounts received
(86,000 x 50% x 5%) 2,150
Share of loss:
Ann (2/7) 51,800
Ben (2/7) 51,800
Joe (3/7) 77,700 181,300
680,000 680,000
10
11.4 Capital deficiency of an insolvent partner (無償債能力的合夥人的資本虧絀)
When a partner ends up with a debit balance in his capital account, he is said to have a capital deficiency (資本虧絀). If the
partner is unable to pay (being insolvent (無力還債)), his capital deficiency would have to be shared by the solvent partners (有償
債能力的合夥人承擔). The sharing ratio of capital deficiency should be agreed by all the partners beforehand.
Example 2
The following is the capital account of the partnership as at 31 March 2010:
Capital
$ $ $ $ $ $
Bank–Final settlement 4,990 — 26,140 Raymond — — 8,200
Loan: Raymond — — 10,000
Bank –Final settlement — 4,900 —
18,400 14,900 28,890 18,400 14,900 28,890
The capital account is shown that there is a debit balance in a Martin’s capital account on final settlement (最終結算). Martin is
said has a capital deficiency (資本虧絀). This means that Martin owes (欠) the partnership money and is required to settle (償還)
the debt with the partnership. If Martin can settle (能償還) the amount owed (欠款), the capital account would be shown as
above.
However, if Martin is unable (無法) to settle (償還) the capital deficiency (資本虧絀), his capital deficiency would have to be
shared (分擔) by Paul and Raymond. If an agreement (協議) had been drawn up to share the capital deficiency of any insolvent
partner in the existing (現有) profit and loss sharing ratio (Paul 3 : Martin 2 : Raymond 1). If Martin was unable (無法) to pay the
final debt balance in the capital account ($4,900), it would have to be shared by Paul and Raymond in their profit and loss sharing
ratio of 3 : 1
Martin’s capital deficiency shared by Paul = $4,900x3/4 = $3,675

Martin’s capital deficiency shared by Raymond = $4,900x1/4 = $1,225
The required entries are:

Dr Paul’s capital account $3,675
Cr Martin’s capital account $3,675
Dr Raymond’s capital account $1,225

Cr Raymond’s capital account $1,225
The capital accounts would be settled as follows:
Capital
$ $ $ $ $ $
Share of Martin’s deficiency (3 : 1) 3,675 — 1,225 Raymond — — 8,200
Bank–Final settlement 1,315 — 24,915 Loan: Raymond — — 10,000
Deficiency — 4,900 —
18,400 14,900 28,890 18,400 14,900 28,890
11
Class work 2
1. The following balances were extracted from the books of Yam, Fang and Au as at 31 December 2009:
$
Store buildings (net) 1,450,000
Vans (net) 123,700
Inventory 219,100
Cash 7,100
Capital: Yam 692,000
Fang 614,000
Au 269,300
Loan from Chow 160,000
The partners shared profits and losses in the ratio of Yam 5 : Fang 3 : Au 2. The partnership was dissolved on 31 December 2009.
Yam took over a van valued at $57,000 and Fang took another one valued at $29,000. Au took over part of the inventory for
$110,000. Yam also took over the store buildings for $1,950,000. The remaining vans were sold for $28,000, the fixtures for
$160,000 and the remaining inventory for $88,500. Accounts receivable were settled, less $1,800 cash discounts. Dissolution
expenses of $6,800 were paid. Accounts payable, net of discounts received $1,900, were settled. The loan from Chow was also
repaid. Any partner with a capital deficiency was required to settle the amount owed.
Draw up the following accounts:
(a) Realisation account
(b) Bank account
(c) Partners’ capital accounts
(a)
Realisation
$ $ $
Store buildings 1,450,000 Capital  Yam (van) 57,000
Fixtures 179,000 Capital  Fang (van) 29,000
Vans 123,700 Capital  Au (inventory) 110,000
Inventory 219,100 Capital  Yam (store buildings) 1,950,000
Accounts receivable 98,000 Bank  Fixtures 160,000
Bank – Dissolution expenses 6,800 – Vans 28,000
Profit on realization – – Inventory 88,500
Capital: Yam (5/10) 222,000 – Accounts receivable ($98,000 – $1,800) 96,200
Fang (3/10) 133,200 Discounts received 1,900
Au(2/10) 88,800 444,000
2,520,600 2,520,600
(b)
Bank
$ $
Cash 7,100 Balance b/f 217,700
Realisation — Vans 28,000 Accounts payable ($123,900 – $1,900) 122,000
—Fixtures 160,000 Loan from Chow 160,000
—Inventory 88,500 Realisation — Dissolution expenses 6,800
—Accounts receivable 96,200 Capital: Fang (final settlement) 718,200
Capital: Yam (final settlement) 1,093,000 Au (final settlement) 248,100
1,472,800 1,472,800
(c)
Capital
Yam Fang Au Yam Fang Au
$ $ $ $ $ $
Realisation Balances b/f 692,000 614,000 269,300
Vans taken over 57,000 29,000 — Realisation — Share of profit 222,000 133,200 88,800
Inventory taken over — — 110,000 Bank–Final settlement 1,093,000 — —
Store buildings taken over 1,950,000 — —
Bank–Final settlement — 718,200 248,100
2,007,000 747,200 358,100 2,007,000 747,200 358,100
12
2. Au, Mok and Kong were in partnership, sharing profit and losses in the ratio of 5 : 3 : 2. They decided to dissolve the
partnership on 31 December 2009. The balance sheet of the partnership as at that date was as follows:
Au, Mok and Kong
$ $ $
Non Current assets
Premises (net) 500,000
Furniture and fittings (net) 125,000
Vehicle (net) 68,000
693,000
Current assets
Inventory 54,000
Bank 21,000 128,000

Loan from bank (payable in 2010) 20,000 (68,000)
Net Current assets 60,000
753,000
Financed by:
Capital : Au 400,000
Mok 300,000
Kong 116,000 816,000
Current: Au 120,000
Mok 120,000
Kong (303,000) (63,000)
753,000
Additional information:
1 The premises were sold for $450,000. The inventory and the accounts receivable were realized for $46,000 and $50,000,
respectively.
2 The furniture and fittings were taken over by Mok at their book value.
3 The vehicle was taken over by Au at an agreed valuation of $50,000
4 The dissolution costs, amounting to $15,000, were paid.
5 The bank loan and accounts payable were paid in full.
6 Kong was insolvent and unable to pay in respect of any debit balance in his capital account. To resolve this, Au and Mok would
share Kong’s capital deficiency equally.
(a) Prepare the realisation account
(b) Prepare the bank account
(c) Prepare Partners’ capital accounts (in columnar form)
(a)
Realisation
$ $ $
Premises 500,000 Bank
Furniture and fittings 125,000 Premises 450,000
Vehicle 68,000 Inventory 46,000
Inventory 54,000 Accounts receivable 50,000
Accounts receivable 53,000 Capital:
Bank – Dissolution costs 15,000 Mok – Furniture and fittings 125,000
Au – Vehicle 50,000
Loss on realisation –
Capital: Au (5/10) 47,000
Capital: Mok (3/10) 28,200
Capital: Kong (2/10) 18,800 94,000
815,000 815,000
(b)
Bank
$ $
Balance b/f 21,000 Accounts payable 48,000
Realisation – Premises 450,000 Loan from bank 20,000
Inventory 46,000 Reali Dissolution costs 15,000
Accounts receivable 50,000 Capital – Au (final settlement) 320,100
Mok (final settlement) 163,900
567,000 567,000
13
(c)
Capital
Au Mok Kong Au Mok Kong
$ $ $ $ $ $
Current — — 303,000 Balances b/d 400,000 300,000 116,000
Realisation — Current: 120,000 120,000 —
Furniture and fittings — 125,000 — Deficiency — — 205,800
Vehicle 50,000 — —
Share of loss 47,000 28,200 18,800
Share of Kong’s deficiency (1 : 1) 102,900 102,900 —
Bank–Final settlement 320,100 163,900 —
520,000 420,000 321,800 520,000 420,000 321,800
Test 2
3. Lee, Ko and Ma had been in partnership for many years, sharing profits and losses in the ratio of 5 : 3 : 2. The trial balance as at 30
September 2009 was drafted as follows:
Dr Cr
$ $
Non-current assets, at cost 192,000
Accumulated depreciation 70,500
Inventory 27,200
Allowance for doubtful accounts 719
Gross profit for the year 116,300
Operating expenses 92,800
Partners’ capital accounts: Lee 90,000
Ko 40,000
Ma 20,000
Partners’ current accounts: Lee 42,000
Ko 31,000
Ma 15,150
Partners’ drawings: Lee 38,000
Ko 27,000
Ma 16,300
429,850 429,850
The
term following information
(iii) means is also
that Ko took relevant:
over the accounts payable (debts) for the partnership and the compensation for the taking will be
1 Inventory as at 30 September 2009 had been overvalued by $2,200.
2settle in the finalwas
Depreciation payment.
to be charged on the non-current assets at 15% per annum on a reducing-balance basis.
31 An
.
Weallowance
debit thefor doubtful
accounts accounts
payable andwas to be
credit themade at 4%.
capital: Ko (transfer the accounts payable amount to the capital: Ko account.)
4 An outstanding electricity bill of $2,400 was found underneath the accountant’s desk, and therefore had not been recorded.
52 AWhen we balancing
sales invoice off the
of $2,800 wascapital
recordedaccount
twicetoin make the journal.
the sales final settlement, the credit balance of Ko account would be increase
so the amount of Ko taking out for the final settlement would also be increased and the increased amount is the
Due to unfavourable economic conditions, they decided to dissolve the partnership on 1 October 2009 on the following terms:
(i) compensation
Lee took over for
halfthe Ko taking
of the over the
non-current accounts
assets payable and
for $30,000, (debts).
all the accounts receivable at a discount of 5%. Afterwards, Lee
collected all the debts, except for $1,200.
When
(ii) Ko we
tookcompare
over the this to thefor
inventory Classwork
$19,000. 1 Q4 “personally responsible”, the account payable will beome the revenue in
realisation.
(iii) Ko also So theover
took account payable
half of will be credited
the accounts payable in
at realisation
book value. account. However,
The balance was in this question
settled of term (iii) with
by the partnership we won’t make of
a discount
any 3%.entries in realization account because the amount for Ko to bear must compensate by the final settlement.
(iv) The remaining non-current assets were sold for $41,400.
(v) Other liabilities were paid in full.
(vi) Realisation expenses of $3,782 were paid.
(vii) Since Ma was insolvent, his capital deficiency were borne by the other partners according to their profit and loss sharing ratio.
(a) the income statement for the year ended 30 September 2009;
(b) the realisation account;
(c) the bank account; and
(d) the partners’ capital accounts in columnar form, showing the final settlement upon dissolution.
(Calculations to the nearest dollar)
14
(a)
Lee, Ko and Ma
Income Statement for the year ended 30 September 2009 (extract)
$ $
Gross profit 116,300
Less Closing inventory overvalued (2,200)
Sales overstated (2,800)
111,300
Less Operating expenses ($92,800 + $2,400) 95,200
Depreciation [($192,000 – $70,500) × 15%] 18,225
Increase in allowance for doubtful accounts {[($21,400 – $2,800) × 4%] – $719} 25 (113,450)
Net loss (2,150)
Shared by: Lee (5/10) 1,075
Ko (3/10) 645
Ma (2/10) 430 (2,150)
(b)
Realisation
$ $ $
Non-current assets ($192,000 – $70,500 – $18,225) 103,275 Capital: Lee (non-current assets) 30,000
Inventory ($27,200 – $2,200) 25,000 Capital: Lee (accounts receivable) 16,963
Accounts receivable [($21,400 – $2,800) × 96%] 17,856 Capital: Ko (inventory) 19,000
Bank — Realisation expenses 3,782 Accounts payable — Discounts received 180
Bank — Non-current assets 41,400
Loss on realisation —
Capital: Lee (5/10) 21,185
Capital: Ko (3/10) 12,711
Capital: Ma (2/10) 8,474 42,370
149,913 149,913
(c)
Bank
$ $
Realisation — Non-current assets 41,400 Balance b/f 7,331
Realisation — Realisation expenses 3,782
Accounts payable ($6,000 x 97%) 5,820
Accrued electricity 2,400
Capital: Lee 12,056
Ko 10,011
41,400 41,400
(d)
Capital
Lee Ko Ma Lee Ko Ma
$ $ $ $ $ $
Current   15,150 Balances b/f 90,000 40,000 20,000
Share of loss 1,075 645 430 Current 42,000 31,000 
Realisation —Non-current assets 30,000   Accounts payable  6,000 
Accounts receivable 16,963   Deficiency   20,354
Inventory  19,000 
Realisation — Share of loss 21,185 12,711 8,474
Drawings 38,000 27,000 16,300
Share of deficiency (5 : 3) 12,721 7,633 
Bank —Final settlement 12,056 10,011 
132,000 77,000 40,354 132,000 77,000 40,354
Test 3
15
HKCEE (2006, 6)
Ann, Ben and Joe were partners sharing profits and losses in the ratio of 2 : 2 : 3. The balance sheet as at 30 April 2006 was as
follows:
The liquidity of the partnership worsened during the past two years and so the partners decided to dissolve the partnership on 1
May 2006. The following information was provided:
(i) The office equipment was sold at a price of 30% below
(ii) Ann took over the motor vehicle to set off her loan to the partnership.
(iii) Most of the furniture was sold at an agreed value of $35,000. The remaining furniture was donated to a charitable
orgainisation and Ben paid $200 on behalf of the partnership for transporting the furniture.
(iv) Part of the stock was sold at 90% of its net realizable value of $100,000. The remaining stock was taken over by Ben at an
agreed value of $9,750.
(v) A debt of $2,000 was to be written off and a cash discount of 2% was allowed on the remaining debtors.
(vi) The creditors were settled and a discount of 5% was received on 50% of the creditors.
(vii) Realisation expenses amounted to $2,100.
(viii) Joe was unable to meet his liability to the partnership. His deficiency was to be borne by Ann and Ben in their profit and loss
sharing ratio.
You are required to prepare:
(a) the realization account;
(b) the bank account; and
(c) the partners’ capital accounts in columnar form, showing the final settlement among them.
(a)
Realisation
$ $ $
Office equipment 325,000 Bank  Office equipment (325,000 x 70%) 227,500
Furniture 72,900 Furniture 35,000
Motor vehicle 116,800 Stock (100,000 x 90%) 90,000
Stock 126,000 Debtors [(37,000  2,000) x 98%] 34,300
Debtors 37,000 Loan nn: motor vehicle 100,000
Capital  Ben: transportation expenses 200 Capital  Ben: Stock 9,750
Realisation expenses 2,100 Creditors – discounts received
(86,000 x 50% x 5%) 2,150
Share of loss:
Ann (2/7) 51,800
Ben (2/7) 51,800
Joe (3/7) 77,700 181,300
680,000 680,000
16
(b)
Bank
$ $
Realisation Office equipment 227,500 Balance b/f 120,400
Furniture 35,000 Creditors (86,000 – 2,150) 83,850
Stock (100,000 x 90%) 90,000 Realisation expenses 2,100
Debtors [(37,000  2,000) x 98%] 34,300 Capital: Ann 134,150
Ben 46,300
386,800 386,800
(c)
Capital
Ann Ben Joe Ann Ben Joe
$ $ $ $ $ $
Current account — — 16,000 Balances b/d 160,000 95,000 80,000
Realisation Stock — 9,750 — Current account 32,800 19,500 —
Share of loss: 51,800 51,800 77,700 Realisation transportation — 200 —
Share of Joe’s deficiency (1 : 1) 6,850 6,850 — Deficiency — — 13,700
Bank 134,150 46,300 —
192,800 114,700 93,700 192,800 114,700 93,700
HKCEE (2008, 6)
Dave and Eva were in partnership sharing profits and losses in the ratio of 2 : 1 respectively. Their balance sheet as at 31 December
2006 was as follows:
$ $ $ $
Fixed Assets Capital Accounts
Office equipment (net) 202,000 Dave 300,000
Motor vehicles (net) 156,000 Eva 63,000 363,000
358,000
Current Assets Current Accounts
Stock 41,600 Dave 26,600
Debtors 40,000 81,600 Eva (48,000) (21,400)
Current Liabilities
Bank Overdraft 36,000
Creditors 62,000 98,000
439,600 439,600
On 1 January 2007, Dave invited Fred, the manager, to join the partnership on the following terms:
(i) Fred’s initial capital was agreed at $100,000, although he would only bring in $25,000 cash as capital. The difference was
settled by a personal loan from Dave to Fred, through a transfer between the capital accounts.
(ii) Goodwill was estimated at $60,000. No goodwill account was to remain in the books of the partnership. Fred would bring in
additional cash for his share of goodwill.
(iii) Dave, Eva and Fred were to share profits and losses in the ratio of 2 : 1 : 1 respectively.
(iv) Fred was to receive a salary of $5,000 per month.
No current accounts were to be maintained for the partners in the new partnership. The existing balances were to be transferred
to the partners’ respective capital accounts.
REQUIRED:
(a) Prepare the capital account of Dave, Eva and Fred in columnar form to record Fred’s admission.
(a)
Capital
Dave Eva Fred Dave Eva Fred
$ $ $ $ $ $
Goodwill (2:1:1) 30,000 15,000 15,000 Balances b/d 300,000 63,000 —
Capital – Fred 75,000 — — Goodwill (2:1) 40,000 20,000 —
Current — 48,000 — Capital – Dave — — 75,000
Balances c/d 261,600 20,000 100,000 Cash ($25,000 + $15,000) — — 40,000
Current 26,600 — —
366,600 83,000 115,000 366,600 83,000 115,000
17
During the year ended 31 December 2007, the partnership made a net loss of $88,000 before appropriations. Depreciation of
$20,200 and $21,000 had been provided on office equipment and motor vehicles respectively. At 31 December 2007, Fred’s
salaries had not been paid for 8 months. The following balances were extracted from the books as at 31 December 2007:
$
Stock 42,000
Debtors 57,000
Creditors 18,000
On 31 December 2007, Eva was declared bankrupt and the partnership was dissolved as follows:
(i) The office equipment was sold for $200,000
(ii) Dave took over the motor vehicles at 90% of the net book value.
(iii) Fred was to take over the stock as a settlement of the salaries owed to him by the partnership.
(iv) All debtors settled their accounts and a cash discount of $200 was allowed.
(v) The creditors were settled by cash and a 5% discount was received.
(vi) Dave paid the realization expense of $2,600 on behalf of the partnership.
(vii) The deficiency in Eva’s account was to be shared by Dave and Fred in their profit and loss sharing ratio.
REQUIRED:
Prepare
(b) the realization account; and
(c) the capital accounts of Dave, Eva and Fred in columnar form for the year ended 31 December 2007, including the final
distribution to partners upon dissolution.
(b)
Realisation
$ $ $
Office equipment ($202,000  $20,200) 181,800 Bank  Office equipment 200,000
Motor vehicles ($156,000  $21,000) 135,000 debtors ($57,000  $200) 56,800
Stock 42,000 Capital  Dave ($135,000 x 90%) 121,500
Debtors 57,000  Fred ($5,000 x 8) 40,000
Capital  Dave (transportation expenses) 2,600 Creditors – discounts received ($18,000 x 5%) 900
Share of profit
Dave (2/4) 400
Eva (1/4) 200
Fred (1/4) 200 800
419,200 419,200
(c)
Capital
Dave Eva Fred Dave Eva Fred
$ $ $ $ $ $
P&L App – net loss 74,000 37,000 37,000 Balances b/d 261,600 20,000 100,000
Realisation – stock — — 40,000 P&L App–partner’s salaries — — 40,000
Realisation – motor vehicles 121,500 — — Realisation expense 2,600 — —
Share of deficiency (2 : 1) 11,200 — 5,600 Realisation profit 400 200 200
Bank 57,900 — 57,600 Deficiency — 16,800 —
264,600 37,000 140,200 264,600 37,000 140,200
Profit and Loss Appropriation

$ $
Profit and loss (net loss) 88,000 Share of loss – Dave (2/4) 74,000
Salary to partner – Capital: Fred ($5,000 x 8) 40,000 Eva (1/4) 37,000
Salary to partner – Bank ($5,000 x 4) 20,000 Fred (1/4) 37,000
148,000 148,000
18
4. The following balances were extracted from the books of Yam, Fang and Au as at 31 December 2009:
$
Store buildings (net) 1,450,000
Vans (net) 123,700
Inventory 219,100
Cash 7,100
Capital: Yam 692,000
Fang 614,000
Au 269,300
Loan from Chow 160,000
The partners shared profits and losses in the ratio of Yam 5 : Fang 3 : Au 2.
The partnership was dissolved on 31 December 2009.
Yam took over a van valued at $57,000 and Fang took another one valued at $29,000. Au took over part of the inventory for
$110,000. Yam also took over the store buildings for $1,950,000.
The remaining vans were sold for $28,000, the fixtures for $160,000 and the remaining inventory for $88,500. Accounts
receivable were settled, less $1,800 cash discounts. Dissolution expenses of $6,800 were paid.
Accounts payable, net of discounts received $1,900, were settled. The loan from Chow was also repaid. Any partner with a
capital deficiency was required to settle the amount owed.
19

Chapter 11 Partnership Dissolution

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Chapter 11 Partnership Dissolution

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Name : _____________ Serial No: _

Chapter 11 Partnership Dissolution (合夥解散)

11.3 Accounting entries for dissolution (解散所需的會計分錄)

Chan and Lee

(ii) For debit balances in current accounts

8 Settle the final balances in the partners’ capital accounts (結算合夥人的資本帳戶的最後餘額):

(ii) For debit balances in capital accounts

(a) Legal fees

Kwan and Wong

(a) The partnership has been making substantial losses

Daisy, Ellen and Faye

251,600 530,400 125,800 251,600 530,400 125,800

Paul, Martain and Raymond

Martin’s capital deficiency shared by Paul = $4,900x3/4 = $3,675

The required entries are:

Dr Raymond’s capital account $1,225

The capital accounts would be settled as follows:

Less Current Liabilities

Profit and Loss Appropriation

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