Illustration of maximum possible loss method-partnership, Financial Accounting

Illustration of maximum possible loss method

A, B and C have been partners for several years, sharing profits and losses in the ratio 2:2:1. They decided to dissolve the firm on 31 October 2002, on which date the balance sheet was as follows:

Balance Sheet as at 31 October 2002

ASSETS

Ksh

Ksh

Non Current Assets

 

 

Property plant and equipment:

 

 

-         Land and buildings

 

150,000

-         Plant and machinery

 

77,200

-         Fixtures and fittings

 

17,000

-         Motor vehicles

 

8,000

 

 

252,200

Goodwill

 

100,000

 

 

352,000

Current Assets

 

 

Stock

64,000

 

Debtors

59,000

 

Cash

160

 

 

 

123,160

 

 

475,360

EQUITY AND LIABILITIES

 

 

Capitals:  A

 

100,000

               B

 

60,000

               C

 

40,000

 

 

200,000

Current accounts A

40,000

 

                            B

30,000

 

 

 

70,000

 

 

270,000

Non Current Liabilities

 

 

Loan – A

 

20,000

Current Liabilities

 

 

Creditors

57,000

 

Bank overdraft

128,360

 

 

 

185,360

 

 

475,360

 

1)       The assets were duly sold and monies received as follows:

 

2002

November 17th:

Freehold land and buildings

Sh 259,000

December 19th:

Debtors (Part)

Sh 30,000

 

Stock (Part)

Sh 20,000

 

2003

 

 

January 23rd:

Plant and machinery

Sh 51,000

 

Fixtures and fittings

Sh 12,000

 

Motor vehicles

                Sh  5,000

March 18th:

Stock (Remainder)

Sh 36,000

 

Debtors (Remainder)

Sh 42,000

2)             Provision was made for dissolution expenses Sh 2,400.

3)             As soon as sufficient money was available to pay all outstanding creditors, this was done, discounts being received amounting to Sh 1,000.

4)             Dissolution expenses amounted to Ksh 3,400, and these were paid on 31 March 2003.



Required:

a) Statements showing how the dissolution proceeds would be distributed to partners; ignoring the ruling in Garner Vs Murray.
b) The creditors account, realization account, capital accounts and cashbook.

Solution:

 

Total (Sh)

A

(Sh)

B

(Sh)

C

(Sh)

Distribution

(Sh)

Capitals

200,000

100,000

60,000

40,000

 

19th December: Available cash

70,000

40,000

30,000

_-

 

Maximum possible loss

270,000

140,000

90,000

40,000

 

 

(52,400)

 

 

 

 

 

217,600

(87,040)

(87,040)

(43,520)

 

 

 

52,960

2,960

(3,520)

 

 

 

(1,760)

(1,760)

3,520

 

 

 

51,200

1,200

__-

52,400

Posted Date: 12/11/2012 7:05:04 AM | Location : United States







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