- 4, SALE TO A COMPANY partnership firm converts itself into a joint stock limited company or sells its business ‘pan existing one. Broadly, the procedure already discussed above will be followed for closing the books of the firm. Rx ition Account will be opened and assets transferred to it, so also abilities (but not if liabilities are not assumed by the company). Whatever the company pays as will be credited to the Realisation Account. If expenses are incurred by the firm, will be debited to the Realisation Account. If the creditors are taken over by the ‘no further treatment is necessary beyond transferring them to the credit of Realisation but if creditors are to be paid by the firm, the actual amount paid to them will be liability account concemed; the difference between the book figure and the amount will be transferred to Realisation Account. The profit or loss on realisation will be to the capital accounts in the profit-sharing ratio. Besides the above, the main points are the following: ally, the company takes over all the assets including cash. Therefore, cash should o be transferred to Realisation Account. If, however, the company does not take over debentures and shares. Separate accounts will, of course, be opened for itures and shares received. Partners will divide the debentures and shares among Ives, in the absence of an express agreement, in the ratio of their final claims, to say, in the ratio of capitals standing after the loss or profit on realisation other reserves and profits have been transferred. Further, since no fraction of a ‘or debenture can be allotted, the nearest whole number of shares or debentures d be given to a partner, the necessary adjustment being made in cash. If there is it to divide the shares of debentures in a particular manner, the agreement d be followed, Some authorities recommend that shares in joint stock companies should be divided among partners in the profit-sharing ratio. This will enable partners to enjoy any future profit or loss on shares in the profit-sharing ratio. However, it Seems that in the absence of an agreement, the Partnership Act does not permit this method of distribution. Profits and losses after dissolution have no bearing10.20 Advanced Accounts ‘on partnership accounts. Shares cannot be treated diferent say stock and furniture. It would, ofcourse, be beter ifthe Comiains «clause regarding this matter 12) YFohere is some vaeles asset in the books of the firm and if ttivded amo the partner, it should be divided inthe profits ‘har any ultimate profit o° Toss may correspond to the ratio in are shared IMastration 7.8 aad carry on busines in partnership sharing profs and loses in of 12.8 and 8 rexpcthes. On 81st March, 215, hey agreed t sll thee business oi “Thee positon on tha date Was a follows — 48 Capital Machinery BS Capital Furniture C3 Capital Stock “Loan on Mortgage Dek Dea Sundry Creditors Cash “The company took the fllowing assets at the valuation shown below:— r Machinery 61,000 Furure 31,800 Stock 22000 Book Debss 14.000 Goodwill 10,000 The company also agreed to pay the creditors which was agreed at € 17,700. paid © 67,000 in flly paid shares of € 10 cach and the balance in cash, The expenses ison, Prepare ledger accounts inthe books of the frm. De Realisation Account z By Loan on Mortgage [By Sundry Creditors By Lid. Company's Alc— Machinery 61,000 Fumiture 31.800 Stock 22000 Book Debis 14,000 Goodwill _10,000 138,800 ‘Less: Creditors 17,700 a Tim Mar. 31] To Realisation A/c 31] By Shares in Lad, | By CashParmership Accounts (I) 10.21 Cash Account Te Dahace ap Tat Cony My Rea Ae i rh oil ba 16,380 Itae0 ae ‘To Lad, Company By 4's Capital Ale By B’s Capital Ale By C's Capital Ale To Shares in... Ltd Ci To Cash settlement, balancing figure By Balance ty? By Realisation Al— Nove. Total nuniber of shares received from the limited company is 6,700, Theses have been divided ‘among 4, B and C in the ratio of 448, 336 and 272 of 28, 21 and 17 respectively, namely, the ratio of the amount finally due to them, Hence A gas S70 280284 hare of 280 2 gots 9200 21 of 212 ses of € 21320; and pes S12 lee tee of 136% ration 8, Mr. B and Mr. Fare partners sharing profit and losses in the ratio of 3 : 2 respectively, (on 30th September, 2014 they admit Mr, C as partner, and the new profit sharing ratio is 2: 2: 1. C teoughtin fixtures € 3,000 and cash € 10,000, the goodwill beng () B and € 20,000 and (i) C ¥ 10,000, tut neither figure isto be brought into the book ‘On STst March, 2015, the parnership is dissolved, 2 retiring and the other two partners forming a company called EC (Pet) Ltd. with equal capitals, taking overall remaining assets and tails, goodwill ting agreed at € 40,000 and brought into books of the company, B agrees to take over the Scooter at £3,700. A machine of book value of € 4,000 was sold for € 3,000, being in excess of requirements. The roftof the two preceding years were © 17,200 and & 19,000 respectively and it was agreed that for the | half year ended 30th September, 2014 the net profit was tobe taken as equal to the average of the Two ‘receding years and the current year,10.22 Advanced Accounts [No entries had been made when C entered, except for cash received. No new EC (Pvt,) Company Ltd, B agreed to have & 50,000 as loan to the company, secured ‘The following is the trial balance as on 31st March. 2015: Capital Accounts B iss 5 ak c ms Drawing Accounts B 6,000 E 5,000 Z 2,800 Debiors and Creditors 31,000 Machines 23,000 Fixtures 7,000 Scooter 2,700 Stock on 31st March, 2015 13,000 Bank 16,300, Profit and Loss Account for the year (9, Goodwill Adjustment Account i) Capital accounts of the partners (iid) Profit and Loss Appropriation Account (») Balance Sheet of EC (Pvt) Ltd. as on 31st March, 2015, Mar. 31] To Partners’ Capital of all the partners on 30th Sept. 2010) B GIS of & 20,000) QI of & 20,000) c To Partners’ Copital ‘Accounts (firm's goodwill 1s on 31st March, 2011) 8 Q2IS of & 40,000) EQNS of & 40,000) C.(U5 of & 40,000) Goodwill Adjustment Account ‘Accounts (to raise goodwill [CA. (inter) Now. By Partners” Capital Accounts (o write off total goodwill as on 30th Sept. 2010) B Q'S of & 30,000) E (25 of & 30,000) CA of & 30,000) By Goodwill Account (account closed the company)an 7 = yas re < Mac 31 z =] Mar 31 = = < Te Doings a0 | 5000 | 2800) By Balance 0 sso00 \ 20000 | 10900 Te Goodwill Adjustment By Goodwil Adjustment Acount—riten of 12000 | 12000 | 6000 ‘Account-—rased. 12,000 3.000 | 10,000 Te Soooer 3,700 By Goodwill Adjustment To Machineslos on sale ‘wo | 400 200 ‘Accoun—rssed 16000 | 16.000 $,000 To Loan fom By Fixurer—not Account? 0000 recorded earlier 3,000 ToBme By Prot & Loss = setlement 7a20 — Appropriation Account To Bank = profit upto 30th Sep; 2008 13,200 800 a 7580 By Profit & Loss To Share Copia Account| ‘Appeorits Acco aie sis | s130 — profit of the ew fm 3420 3.20 1560 x By Seoot—proft on tkeover 00 ‘0 20 § By Bank : — to make capita enn a0 p20 | 36320 | 40340 73,720 seo | a3e8 i 8 colTw Pane’ Cop het rot ping ef) ering 0 8m) Mas oe7s) Beas o€ 730) Cli or 730) Tamtines ‘Assets ‘Share Capital Fined assets Autborsed Goodwill awed and Subscribed Machines (All the shares have boon Fintures alloted as filly pad Up person to & ‘Current Assets, Loa tentrct without payments ‘Advances being received in eat) (4) Current Assets Secured Lane Stock Lone tom Debtors 0,00} (Cash at Bank 107% Debentures Less: Debentures (B) Loans and Advances Suspense Account 50,000 Current Liabilities and Provisions | (A. Comet liabilities cedns 2. Provisions Ta 0 as be acd at 10% Debate ave been aed by (oly 106 secured debentures may be issued without raising « loan Worbng Hotes (0) rekeup of total net profit Pros forthe preceding Add: Cure(sale, book value & 4,000) By Partners’ Capital Accounts (transfer of loss on sale) BS « & 1,000) E (2/8 « & 1,000) CS » 8 1,000) ermaivcly, realisation account may be opened to which profit on take-over of scooter and Toss on Fmachine will be transfered. Realisation account will show no profit or loss and hence there wil fer 0 capital accounts. timents to be made in the capitals of E and capital before adjustment Bs capital before adjustment al and C are to have equal capital ach must have a capital of € 31340 Gull bring in &(31,340-23.760) or & 7,580 to make his capital equal to © 31-340, Hl withdraw © (38,920-31,340) or & 7.$80 to leave a balance of € 31,340 in his Cash Book (Bank Columns) z nce bit 16300 ines Account 3,000 pital Account brought in 7.580 = 7 ton 9. 17, and T carried on business in parmersip, sbarig T respectively. They decided to form a private companys 7