Cambridge IGCSE Accounting(0452)/O Level Principles of Accounts(7110) Notes: Accounting for Partnerships: Partnership Dissolution Example

  • We have looked at reasons why a partnership might dissolve here
  • Now we will look at an example question
  • The solution to this question can be found by clicking here

Question

Nkosi,Xo and Zack have been in partnership for several years, sharing profits and losses in the ratio 3 : 2 : 1. Their last Statement of Financial Position which was prepared on 31 January 20X9 is as follows:

$$$
Non-Current Assets
At Cost20 000
Depreciation

6 000
14 000
Current Assets
Inventories5 000
Accounts Receivable

21 000
26 000
Current Liabilities
Cash at Bank13 000
Accounts Payable

17 000

(30 000)
(4 000)

10 000
Capital
Nkosi4 000
Xo4 000
Zack2 000

10 000

They had been relying on one customer for most sales; Jonathan Moyo. They sold goods to him on credit worth $18 000. In November of the same year there was an National uprising resulting in Moyo losing his business. Since their main customer is insolvent Nkosi, Xo and Zack have reluctantly decided to dissolve their business on the following terms:

  1. The stock is to be sold to Chicken Slice Ltd for $4 000.
  2. The fixed assets will be sold for $8 000 except for certain items with a book value of $5 000 which will be taken over by Xo at an agreed valuation of $7 000.
  3. The debtors except for Jonathan Moyo are expected to pay their accounts in full.
  4. The costs of dissolution will be $800 and discounts received from creditors will be $500.
  5. Zack is unable to meet his liability to the partnership out of his personal funds.

Required:

  1. the realisation account;
  2. the capital accounts to the partners recording the dissolution of the partnership

NB:

To access more topics go to the Cambridge IGCSE Accounting(0452)/O Level Principles of Accounts(7110) Notes.