C hapter 8: Partnership dissolution

Contents of chapter
This chapter covers the accounting entries needed when a partnership is dissolved.

Notes for teachers

All asset accounts are transferred to the realisation account:
1
Debit Realisation
Credit Assets (net of provisions)

All cash received from the sale of assets is credited to the realisation account:
2
Debit Bank
Credit Realisation

Assets taken over by partners at valuation:

3
Debit Partners’ capitals
Credit Realisation

Liabilities settled in cash:

4
Debit Liabilities
Credit Bank

Dissolution expenses paid:

5
Debit Realisation
Credit Bank

If there is a profit on realisation:

6
Debit Realisation
Credit Each partner’s capital account with share of profit on realisation

If there is a loss on realisation:

Debit Each partner’s capital account with share of loss on realisation
Credit Realisation

Transfer balances of partners’ current accounts to capital accounts.

7

Balance of bank account should now equal the total of the balances on partners’ capital accounts.
8
Therefore, the accounts should be settled by the following entries:
Debit Capitals
Credit Bank

Treatments of more complicated items are discussed in the textbook.

9

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Answers to MCQs and exercises
8.1 C 8.2 D 8.3 B 8.4 D 8.5 C

8.6
(a) Realisation
$ $ $
Buildings 800 Cash: Debtors 2,700
Tools and fixtures 850 Buildings 400
Debtors 2,800 Tools and fixtures 950
Cash: Dissolution expenses 100 Discounts received 200
Loss from realisation:
1
Kwan ( 2 ) 150
Wong ( 1 ) 150 300
2
4,550 4,550

(b) Capital
Kwan Wong Kwan Wong
$ $ $ $
Realisation: Loss 150 150 Balances b/f 2,000 1,500
Cash 1,850 1,350
2,000 1,500 2,000 1,500

(c) Cash
$ $
Balance b/f 1,800 Realisation: Dissolution expenses 100
Realisation: Debtors 2,700 Sundry creditors ($2,750 – $200) 2,550
Realisation: Buildings 400 Capitals: Kwan 1,850
Realisation: Tools and fixtures 950 Wong 1,350
5,850 5,850

8.7X
(a) Realisation
$ $ $
Fixtures 12,400 Bank: Fixtures 19,600
Office equipment 6,600 Office equipment 5,900
Stock 9,850 Stock 8,220
Debtors 2,450 Debtors 2,310
Bank: Dissolution expenses 650 Discounts received 60
Profit from realisation:
2
Capital: Bei ( 3 ) 2,760
1
Ng ( ) 1,380 4,140
3
36,090 36,090

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 (b) Bank
$ $
Balance b/f 500 Creditors ($2,700 – $60) 2,640
Realisation: Fixtures 19,600 Realisation: Dissolution expenses 650
Office equipment 5,900 Capitals: Bei 20,060
Stock 8,220 Ng 13,180
Debtors 2,310
36,530 36,530

(c) Capital
Bei Ng Bei Ng
$ $ $ $
Bank: Settlement 20,060 13,180 Balances b/f 17,300 11,800
Realisation: Profit 2,760 1,380
20,060 13,180 20,060 13,180

8.8
(a) Realisation
$ $ $
Premises 24,000 Capital: Ellen
Furniture 2,624 Assets taken over:
Stock 6,400 Stock 7,200
Debtors 1,696 Furniture 2,200
Profit from realisation: Debtors 1,640
1
Daisy ( 2 ) 9,160 Premises 42,000
1
Ellen ( ) 4,580
4
Faye ( 1) 4,580 18,320
4
53,040 53,040

(b) Bank
$ $
Loan from Ellen: Mortgage 32,000 Balance b/f 520
Creditors 2,200
Capital: Daisy 16,700
Faye 12,580
32,000 32,000

(c) Capital: Daisy

$ $
Capital: Ellen (loan) 8,460 Balance b/f 16,000
Bank 16,700 Realisation: Profit 9,160
25,160 25,160

Capital: Ellen
Realisation: Assets taken over $ $
Stock 7,200 Balance b/f 8,000
Furniture 2,200 Realisation: Profit 4,580
Debtors 1,640 Bank 32,000
Premises 42,000 Capital: Daisy (loan) 8,460
53,040 53,040

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 Capital: Faye
$ $
Bank 12,580 Balance b/f 8,000
Realisation: Profit 4,580
12,580 12,580

8.9X
(a) Realisation
$ $ $
Store buildings 145,000 Capital — Yam: Van 5,700
Fixtures 17,900 Capital — Fang: Van 2,900
Vans 12,370 Capital — Au: Stock 11,000
Stock 21,910 Capital — Yam: Store buildings 195,000
Debtors 9,800 Bank: Fixtures 16,000
Bank: Dissolution expenses 680 Van 2,800
Profit from realisation: Stock 8,850
5 Debtors ($9,800 – $180) 9,620
Yam ( 10 ) 22,200
3 Discounts received 190
Fang ( ) 13,320
10
2
Au ( ) 8,880 44,400
10
252,060 252,060

(b) Bank
$ $
Cash: balance banked 710 Balance b/f 21,770
Realisation: Motor Van 2,800 Creditors ($12,390 – $190) 12,200
Fixtures 16,000 Loan from Chow 16,000
Stock 8,850 Realisation: Dissolution expenses 680
Debtors ($9,800 – $180) 9,620 Capitals: Fang (Settlement) 71,820
Capital: Yam (Settlement) 109,300 Au (Settlement) 24,810
147,280 147,280

(c) Capitals
Yam Fang Au Yam Fang Au
$ $ $ $ $ $
Realisation: Balances b/f 69,200 61,400 26,930
Assets taken over Realisation: Profit 22,200 13,320 8,880
Van 5,700 2,900 — Bank: Settlement 109,300 — —
Stock — — 11,000
Store buildings 195,000 — —
Bank: Settlement — 71,820 24,810
200,700 74,720 35,810 200,700 74,720 35,810

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 8.10
(a) Realisation
$ $ $
Premises 50,000 Bank: Premises 45,000
Furniture and fittings 12,500 Stock 4,600
Vehicle 6,800 Debtors 5,000
Stock 5,400 Capital:
Debtors 5,300 Mok: Furniture and fittings 12,500
Bank: Dissolution expenses 1,500 Au: Vehicle 5,000
Capital: Loss from realisation
5
Au ( ) 4,700
10
3
Mok ( ) 2,820
10
Jing ( 2 ) 1,880 9,400
10
81,500 81,500

(b) Bank
$ $
Balance b/f 2,100 Realisation: Dissolution expenses 1,500
Realisation ($45,000 + $4,600 + $5,000) 54,600 Creditors 4,800
Capital: Au 11,760 Loan from bank 2,000
Capital: Mok 8,820 Capital: Au 42,300
Capital: Mok 26,680
77,280 77,280

(c) Capital
Au Mok Jing Au Mok Jing
$ $ $ $ $ $
Current 30,300 Balances b/f 40,000 30,000 11,600
Realisation: Furniture Current 12,000 12,000
and fittings 12,500 Bank 11,760 8,820
Realisation: Vehicle 5,000 Capital: Au 11,760
Realisation: Loss 4,700 2,820 1,880 Capital: Mok 8,820
Capital: Jing 11,760 8,820
Bank: Settlement 42,300 26,680
63,760 50,820 32,180 63,760 50,820 32,180

8.11X
(a) Profit and Loss Account for the year ended 30 September 20X6
$ $
Gross profit 116,300
Less Closing stock over-valued 2,200
Sales overstated 2,800
111,300
Less Operating expenses 92,800
Provision for depreciation 18,225
Increases in provision for bad debts [($21,400 – $2,800) × 4% – $719] 25
Electricity 2,400 113,450
Net loss (2,150)
5
Shared by: Lee ( 10 ) 1,075
3
Ko ( ) 645
10
Ma ( 2 ) 430 (2,150)
10

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(b) Realisation
$ $ $
Fixed assets (net) 103,275 Capital: Lee (fixed assets) 30,000
Stock 25,000 Capital: Lee (debtors) 16,963
Debtors (net) 17,856 Capital: Ko (stock) 19,000
Bank: Realisation expenses 3,782 Creditors: Discounts received 180
Bank: Fixed assets 41,400
Loss from realisation:
5
Capital: Lee ( ) 21,185
10
Ko ( 3 ) 12,711
10
Ma ( 2 ) 8,474 42,370
10
149,913 149,913

(c) Bank
$ $
Realisation: Fixed assets 41,400 Balance b/f 7,331
Realisation: Expenses 3,782
Creditors 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
$ $ $ $ $ $
Profit and loss 1,075 645 430 Balances b/f 90,000 40,000 20,000
Realisation: Current 42,000 31,000
Fixed assets 30,000 Creditors 6,000
Debtors 16,963 Capital: Lee 12,721
Stock 19,000 Ko 7,633
Realisation: Loss 21,185 12,711 8,474
Drawings 38,000 27,000 16,300
Current 15,150
Capital: Ma 12,721 7,633
Bank: Settlement 12,056 10,011
132,000 77,000 40,354 132,000 77,000 40,354

8.14
(a) Realisation
20X9 $000 20X9 $000
Sep 30 Machinery 4,500 Sep 30 Discounts received
Office furniture 100 ($2,700,000 – $2,690,000) 10
Stock 2,500 Bank: Machinery 3,200
Trade debtors 4,500 Bank: Office furniture 40
Bank: Sundry realisation expenses 110 New Ltd: Sales proceeds of
stock and trade debtors 7,400
Capital (Lee): Office furniture
taken over 10
Loss from realisation:
Chan 525
Lee 350
Cheung 175
11,710 11,710

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 or
Realisation
20X9 $000 20X9 $000
Sep 30 Machinery 7,500 Sep 30 Provision for depreciation —
Office furniture 200 Machinery 3,000
Stock 2,500 Provision for depreciation —
Trade debtors 4,500 Office furniture 100
Bank: Sundry realisation 110 Discounts received
expenses ($2,700,000 – $2,690,000) 10
Bank: Machinery 3,200
Bank: Office furniture 40
New Ltd: Sales proceeds of stock
and trade debtors 7,400
Capital (Lee): Office furniture
taken over 10
Loss on realisation:
Chan 525
Lee 350
Cheung 175
14,810 14,810

(b) Bank
20X9 $000 20X9 $000
Sep 30 Balance b/f 1,300 Sep 30 Trade creditors 2,690
Realisation: Realisation: Sundry
Machinery 3,200 realisation expenses 110
Office furniture 40 Capital accounts:
Chan 875
Lee 540
Cheung 325
4,540 4,540

(c) Capital
Chan Lee Cheung Chan Lee Cheung
20X9 $000 $000 $000 20X9 $000 $000 $000
Sep 30 Realisation: Sep 30 Balances b/f 5,100 3,400 1,700
Loss from
realisation 525 350 175
Office furniture
taken over 10
New Ltd:
Sales proceeds
from New Ltd 3,700 2,500 1,200
Bank 875 540 325
5,100 3,400 1,700 5,100 3,400 1,700

(d) New Ltd

20X9 $000 20X9 $000
Sep 30 Realisation: Sep 30 Capital:
Stock and trade debtors 7,400 Chan 3,700
Lee 2,500
Cheung 1,200
7,400 7,400

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8.15X
(a) Realisation
20X1 $ 20X1 $
Dec 31 Office equipment 126,000 Dec 31 Capital (Wong): Motor vehicle 100,000
" 31 Motor vehicle 142,800 " 31 Discount received
" 31 Office furniture 86,000 ($532,100 – $522,000) 10,100
" 31 Investments 650,000 " 31 Bank: Investments 850,000
" 31 Stock 640,500 " 31 Bank: Trade debtors 1,200,500
" 31 Trade debtors 1,225,000 " 31 Number-One Ltd:
" 31 Bank: Sundry realisation expenses 40,000 Sales proceeds of assets 800,000
" 31 Profit from realisation: Mr Wong 25,150
Mr Ho 25,150
2,960,600 2,960,600
Or

(a) Realisation
20X1 $ 20X1 $
Dec 31 Office equipment 172,000 Dec 31 Provision for depreciation:
" 31 Motor vehicle 238,000 Office equipment 46,000
" 31 Office furniture 245,000 " 31 Provision for depreciation:
" 31 Investments 650,000 Motor vehicle 95,200
" 31 Stock 640,500 " 31 Provision for depreciation:
" 31 Trade debtors 1,225,000 Office furniture 159,000
" 31 Bank: Sundry realisation expenses 40,000 " 31 Discount received:
" 31 Profit from realisation: Wong 25,150 ($532,100 – $522,000) 10,100
Ho 25,150 " 31 Capital (Wong): Motor vehicle 100,000
" 31 Bank: Investments 850,000
" 31 Bank: Trade debtors 1,200,500
" 31 Number-One Ltd:
Sales proceeds of assets 800,000
3,260,800 3,260,800

(b) Bank
20X1 $ 20X1 $
Dec 31 Balance b/f 811,400 Dec 31 Trade creditors 522,000
" 31 Realisation: Investments 850,000 " 31 Realisation: Sundry realisation expenses 40,000
" 31 Trade debtors 1,200,500 " 31 Capital accounts: Mr Wong 1,499,950
" 31 Number-One Ltd 800,000 Mr Ho 1,599,950
3,661,900 3,661,900

(c) Capital
Wong Ho Wong Ho
20X1 $ $ 20X1 $ $
Dec 31 Motor vehicle Dec 31 Balances b/f 1,574,800 1,574,800
taken over 100,000 " 31 Realisation:
Bank 1,499,950 1,599,950 Profit from realisation 25,150 25,150
1,599,950 1,599,950 1,599,950 1,599,950

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