Simple Illustration On Partnership’s Dissolution

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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