Simple Illustration On Partnership’s Dissolution

October 15th, 2008 Comments off
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Earlier article regarding partnership’s summary of steps upon the dissolution of a partnership. Append below a very basic illustration on this.

Jim and John are partners sharing profits or loss in the ratio 50:50 respectively. Both agree to dissolve the partnership and their Balance Sheet at the date of dissolution 31 December 2007 is as follows:

$

$

Caoital Accounts:

Building

12,000

Jim

15,000

Stock

6,000

John

10,000

Debtors

9,000

Creditors

8,000

Cash

6,000

33,000

33,000

The assets other than cash were disposed for a total sum of $30,000.

Required: Close the books of the firm.

Solution:

Realization Account

$

$

31/12/07

31/12/07

Building

12,000

Cash Account: Disposal value of assets

30,000

Stocks

6,000

Debtors

9,000

Profit on realization transferred to Capital account:

Jim 50% x $3,000

1,500

John 50% x $3,000

1,500

30,000

30,000

Creditors Account

$

$

31/12/07

31/12/07

Cash Account

8,000

Balance b/f

8,000

8,000

8,000

Capital Account

Jim

John

Jim

John

$

$

$

$

Cash account

16,500

11,500

31/12/07

Balance b/f

15,000

10,000

Realization Account

1,500

1,500

16,500

11,500

16,500

11,500

Cash Account

$

$

31/12/07

31/12/07

Balance b/f

6,000

Creditors

8,000

Realization account

30,000

Capital Accounts:

Jim

16,500

John

11,500

36,000

36,000

At the end of the day, the balance in the cash book should equate the payment to the partners capital account

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