Illustrations of dissolutions, Financial Accounting

Illustrations of Dissolutions

X, Y and Z have been trading as partners sharing profits and losses in the ratio of 2:2:1 on the 1st July 2005, they decided to dissolve the partnership and all the assets were sold in a single transaction in the market.  The balance sheet as at 1s July 2005 was as follows:

 

X, Y and Z

Balance Sheet as at 1.7.2005

 

£

£

NON-CURRENT ASSETS

 

 

Freehold property

 

60,000

Equipment

 

30,000

 

 

90,000

CURRENT ASSETS

 

 

Inventory

16,000

 

Account receivables

9,000

 

Cash at bank

  4,200

 

 

29,200

 

CURRENT LIABILITIES

 

 

Account payables

(6,000)

 

Net current assets

 

  23,200

NET ASSETS

 

113,200

 

 

 

FIANCNED BY:

 

 

Capital accounts   X

 

78,000

                             Y

 

26,000

                             Z

 

   4,000

 

 

108,000

 

 

 

Current accounts    X

1,400

 

                               Y

(600)

 

                               Z

400

    1,200

 

 

109,200

NON-CURRENT LIABILITIES

 

 

Loan from bank

3,000

 

Loan from Y

1,000

    4,000

 

 

113,200

 

The current assets sold on the market fetched the following assets:

 

 

£

Freehold property

62,000

Equipment

9,600

Inventory

5,800

 

 

The receivables paid their amounts in full while payables gave discounts of £200.  The dissolution amounts to £1600.

 

Required:

Prepare the relevant accounts to record the dissolution.

 

Solution

 

Realization account

 

£

 

£

Freehold property

60,000

Cash book equipment

9,600

Equipment

30,000

Property

6,200

Inventory

16,000

Inventory

8,800

Debtors

9,000

Debtors

9,000

Cash book dissolution expenditure

1,600

A/c payables discounts

200

 

 

Loss on dissolution      X

12,000

 

 

                                    Y

12,000

 

______

                                    Z

    6,000

 

116,600

 

116,600

 

 

Cash book account

 

£

 

£

Balance b/d

4,200

Realizable dissolution expense

1,600

Realisation – equipment

9,600

Accounts payables

5,800

Freehold property

62,000

Loan from bank

3,000

Inventory

5,800

Loan from Y

7,000

Accounts receivables

9,000

Capital X

67,400

Capital account Z

  1,600

            Y

13,400

 

92,200

 

92,200

 

 

 

Capital account

 

X

Y

Z

 

X

Y

Z

 

£

£

£

 

£

£

£

Realisation account – loss

12,000

12,000

6,000

Bal b/d

78,000

26,000

4,000

Current account

-

600

-

Current account

1,400

-

400

Cash book (bal. Fig)

67,400

13,400

_____

Cash book (Bal. Fig)

_____

_____

1,600

 

79,400

26,000

6,000

 

79,400

26,000

6,000

 
In the current example, we have assumed that partner Z is solvent and therefore he is in a position to bring in the cash required from him so that full distribution is made to the other partners.

However, in certain situations, a partner/some partners may not be able contribute the additional cash required and thus they are said to be insolvent.

Posted Date: 12/11/2012 6:51:39 AM | Location : United States







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