PARTNERSHIP ACCOUNTS

A partnership is an agreement between two or more individuals who come together

to start up a business with a view of earning a profit.
Or a partnership is where two or more individuals agree to contribute money,
labour, skills, knowledge to a business organization for mutual benefit which is
profit.
A partnership may be established by a partnership agreement which is literally
referred to as the partnership deed
However, a partnership may also be established by a mere presumption that a
relationship exists between given individuals by virtual of their actions.
Or partnership is made up of partners who share equal responsibility for the
company’s profits, losses, Debts, liabilities and management. A partnership
consists of between two and twenty partners.
There are two main types of partners that is to say general and limited partners.
General partners are those who have an obligation of liability to third parties
incurred by the internship.
Limited partners are those whose liability for the debts of the partnership is
limited to their investment in the partnership.
Others include:
Sleeping partners are those who do not actively participate in the day to day
activities of the business but shares in profits and losses of the business.
Sub- partners are those who always take share of the profit through another
member who is a partner.
Nominal partners are those who allow their names to be used in the partnership
yet they are not partners in the business and they are liable to third party.
Minor partners are not personally liable for debts of the business but his/ her
shares in the partnership profits with the consent of all the partners.
THE CONTENTS OF A PARTNERSHIP DEED OR PARTNERSHIP
AGREEMENT.
This usually covers the following:
 Name of the partners.
 The capital contributions of the partners.
 The type of the business.
 The interest on capital if any.
 Drawings rights of the partners.
 Interest on the drawings.
 Procedures for admission/retirement of a new partner.
 The profit or loss sharing ratio.
 Salary/ commission to be paid to an active partner.
 Valuation of good will.
 Duration of the partnership business.
 On dilution of partnership business
 E.T.C
NB: Partnership forms the second phase in the evolution of businesses after sole
proprietorship.
Advantages of partnership business.
 Losses are shared among many partners.
 Partnerships are cheap to set up because more finances can be raised.
 It commands a wide range of capital that is to say easy access to capital.
 It commands a wide range of experience and skills from different partners.
 Easy formation of partnership i.e. few steps are involved.
 Work load can be shared between partners.
Disadvantages
 Decisions may take longer because other partners may need to be consulted.
 Profits are shared by many or all partners.
 In case of disputes/ disagreements amongst the partners the business may
come to a standstill.
 Retirement or death of one partner may affect the running of the partnership.
 There’s a risk of implied authority i.e. every partner is liable for the actions
of another.
 There’s a limitation on the number of partners up to twenty.
Financial statements of partnership.
They are not mandatory for the partnership to prepare financial statements but
sometimes they prepare the financial statements in order to access their financial
performance and financial position.
Income statement. This is similar to those of other forms of businesses except for
the inclusion of the appropriations account.
Net profit XXX
Appropriations account
Add: interest on drawings
A xx
B xx XXX
Less: interest on capital
A xx
B xx (XXX)
Less: salary to be paid to an active partner/s (XXX)
Profit to be shared XXXX
Share of profit: 6:4
A 6/10 * Profit
B 4/10 * Profit
Illustration
Charity and Amos commenced business on the 1 st Jan 2010 with capital of 100,000
and 150,000 respectively the two partners agreed to share profits in the ratio of 4:6.
Charity and Amos agreed on the following terms.
 To contribute 3% interest on drawings.
 To be given 2.5% interest on their capital.
 Charity and Amos drew 30,000 and 50,000 respectively from the business.
 By 31st Dec 2010, the partnership had made a net profit of 323,000.
Required
Prepare the partnership appropriation account for the period.
BALANCE SHEET/ STATEMENT OF FINANCIAL POSITION

The statement of financial position prepared by partnership business is the same as

any other form of business except for the presentation of equity part of the
statement of financial position
FORMAT:
Assets
N.C.A cost Acc Dep N.B.V
CURRENT ASSETS
EQUITY & LIABILITIES
Capital balances:
A xx
B xx
C xx XXX
Current a/c
A xx
B xx
C xx XXX
NON-CURRENT LIABILITIES
CURRENT LIABILITIES
NOTE:

 Interest on a loan is a business expense and is treated as a business expense

in the profit and loss account.
 If a partnership gives out a loan in return for interest, the interest received is
treated as a miscellaneous income.
 If a partner extends a loan to the partnership, interest charges on the loan is a
business expense and charged against the profits
METHODS FOR MAINTAINING THE PARTNERS CAPITAL A/CS

There are two methods for maintaining the partner’s capital A/C. i.e.
 The fixed method.
 The fluctuating balance method.
a) Fixed method:
Under this method the capital a/c is opened separate from the current A/C.
i.e. two a/cs are opened up i.e. current a/c and capital a/c.
The capital a/c records only the opening balances of capital plus any
additional fresh capital.
A & B CAPITAL ACCOUNTS

Details A B details A B
Bal B/d xx xx
Bank/Additional k xx
Bal c/d xx xx
xxx xxx xxx xxx

Dr A & B current A/C Cr

Details A B Details A B
Drawings xx xx Bal B/d xx xx
Interest on Drawings xx xx share of profits xx xx
Share of losses xx xx interest on Capital xx xx
xxx xxx salary paid to A xx

Bal c/d xx xx
xxx xxx xxx xxx
If Bal c/d appears on credit side then the partnership was insolvent in deficiency
N.B
The fixed method of maintaining partnership capital a/c is regarded as the
appropriate method since it allows proper monitoring of transactions of partners in
the partnership

b) Fluctuating balance method

Under this method only the capital a/c is opened up to record and the
opening balance of capital to include the transactions of the partners in the
partnership.

A & B capital A/C

Details A B Details A B
Drawings xx xx Bal B/d xx xx
Interest on Drawings xx xx interest on K xx xx
Share of losses xx xx Share of profit xx xx
Salary xx xx
Additional K xx xx
Bal c/d xx xx
xxx xxx xxx xxx

THE BASIC DOUBLE ENTRY UNDER PARTNERSHIP

The following double entry procedure should be followed on recording the

transactions of the partnership (partners capital and current accounts).
 In case additional K is introduced in the partnership.
Dr. Cash / Bank /Assets a/c
 Cr. Individual partners’ capital a/c
 In case of the interest on capital.
Dr. P&L appropriation a/c (Less (Y Statement)
Cr. Individual partners current a/c
 In case of Drawings
Dr. Partners current a/cs (with the Drawings)
Cr. Cash / Bank
 In case of interest on Drawings
Dr. Individual partners currents a/c
Cr. Income statement (P&L appropriation a/c)
Add to income statement Cr.
Sub Dr

 In case of a salary paid to an active partner

Dr. P&L appropriations a/c (Y statement)
Cr. Partners current a/cs.
 In case of a share of the profits
Dr. P&L appropriations a/c (Y Statement)
Cr. Partners current a/c (with the profit)
 In case of a share of the loss
Dr. Partner’s current a/c
Cr. P&L appropriation a/c (Y Statement)
EXAMPLE:
Hellen and Jamila are in a partnership sharing profit and loss in the ratio of 6:4 the
following is their trial balance for the year ended 30th June 2016.
HELLEN AND JAMILA TRIAL BALANCE FOR THE YEAR ENDED 30 TH
JUNE 2016.

DETAILS DR CR
Office equipment at cost 13,000
Motor vehicle at cost 18,400
Provision for depreciation
- Motor vehicles 7,360
- Office equipment 3,900
Inventory 1st July 2015 49,940
 Accounts receivables 41,920
Accounts payables 32,550
Cash at bank 1,230
Cash at hand 280
Sales 180,740
Purchases 143,260
Salaries 16,834
Office expenses 2,740
Discount allowed 1,126
Current account
Hellen 2,758
Jamila 2,422
Capital account
Hellen 54,000
Jamila 24,000
Drawings
Hellen 11,000
Jamila 8,000
TOTAL 307,730 307,730
Additional information:
Closing inventory was valued at shs. 54,680.
Office expenses owing was shs. 220.
Provide for depreciation on motor vehicle 20% on cost and office equipment 10%
on cost.
Interest on capital is charged at 10%.
Charge interest on drawings Hellen shs. 360 and Jamila shs. 420.
Required: prepare final set of accounts (the income statement, balance sheet,
capital and current accounts of the partners).

ACCOUNTING FOR GOOD WILL IN PARTNERSHIP

Good will is an intangible Asset arising from the business’s ability to earn more
profit then other businesses in the same trade.
Good will is defined as the excess of the purchase consideration of the business
sold as a going concern over and above the fair market value of the Net Assets
acquired.
Fair value has been defined in many standards as the value of which an asset may
be exchanged or liability settled between knowledgeable and willing parties at an
arm’s length transaction.

FACTORS THAT LEAD TO THE FORMATION OF GOOD WILL

 Possession of the trade marks
 The location of the business
 Monopoly power of a business
 The costs of Research and Development which have resulted into better
methods of production.
 The new business many continue to trade under the same name.
 Existence of skilled labour force.

CIRCUMSTANCES THAT LEAD TO ASCERTAIMENT OF GOOD WILL

Good will has to be valued or recognized whenever either of the following takes
place:-
 On admission of a new partner
 On retirement of an old partner
 On dissolution of the partnership.
 When there is a change in the profit and loss sharing ratio

TYPES OF GOOD WILL

There are basically 3 types of Good will
 Purchased Good will
 Inherent Good will
 Negative Good will
Purchased Good will: This arises from a defined financial transaction. IFRS 3 -
Business combinations requires this type of Good will to be capitalized as an
intangible asset and recorded on the statement of the financial position.
Inherent Good will: This type of good will results from the normal carrying out of
the business operations. This kind of Goodwill shouldn’t be recorded in the books
as recording it would imply anticipating gains which gains may only be realized
when the business is sold off as a going concern which may never happen.
Negative Good will: This results from a situation where the fair market value of
the Net Assets Acquired exceeds the purchase consideration.

N.B
The value of Goodwill fluctuates from time to time and it varies from one
company to another and therefore its valuation involves on very high degree of
subjectivity.

METHODS USED TO ACCOUNT FOR GOOD WILL

There are 3 methods used in the valuation of Good will i.e.
 The Revaluation method
 The Memorandum Revaluation method
 The Premium method

THE REVALUATION METHOD

Under this method goodwill is recorganize and maintained in the books of
partnership as an intangible Asset.
On recognition of Goodwill
Dr. Good will a/c
Cr. The partners’ capital a/c} using the old profit/loss sharing ratios

THE MEMORANDUM REVALUATION METHOD

Under this method we recorganize Good will and write it off immediately.
On recognition of Good will
Dr. Good will a/c.} Using the old P/L
Cr. Partners’ capital a/c
On writing off Good will
Dr. Partners K a/c} using the new P& L
Cr. Good will a/c

THE PREMIUM METHOD

Under this method a new partner comes in with additional cash on top of the
capital contribution the excess cash being the premium for goodwill. This addition
cash is a sign of appreciation for the goodwill which has been established by the
old partners. The premium may be treated in three ways;

 The partners share the cash premium without any record being raised in the
books of accounts.
 The cash premium is used to increase the old/ existing partner’s capital and
is retained by the partnership
Dr. bank/cash
Cr. old partners’ capital accounts
 The cash premium paid by the new partner is withdrawn by the old partners
and no goodwill account is maintained.
On receipt of the payment
Dr. bank/ cash
Cr. Old partner’s capital account
On withdrawal of the premium by the partners
Dr. Old partners capital account
Cr. Bank/cash account.

Example
XY and Z are partners and have always shared profits/ losses in ratio of 4:3:1
respectively.
They are altering there profit /loss ratio to 3:5:2 respectively their statement of
financial position at 31 Dec 1997 was as below.

Net assets 14,000

Capital
X 6,000
Y 4,800
Z 3,200 14,000
The partners agreed to value good will at 12,000 on the change.
Required prepare
a) The good will a/c
b) Capital a/c
c) Statement of financial position as at 31.Jan 1995.
(i) If the good will a/c was opened and maintained in the books of business.
(ii) Good will a/c was opened & eliminated from the books of a/c.

Example 2
X&Y are in partnership sharing profits losses equally. They decided to admit Z by
agreement Good will was valued at 6,000 to be introduced in the books of the
partnership, Z is required to provide capital equal to that of Y after he has been
credited with his share of goodwill. The new profit-sharing ratio will be 4:3:3 for X
Y& Z respectively. The statement of financial position before the admission of Z
was as follows.
Non-Current Assets 15,000
Bank 2,000
17,000
CAPITAL
X 8,000
Y 4,000
Current liabilities 5,000
17,000
Required: open up the ledger a/cs to reflect the admission of X and the treatment of
Good will using.
a) The revaluation method
b) The memorandum revaluation method
c) Show the goodwill a/c and statement of financial method under the 2
methods using a and b
REVALUATION OF ASSETS AND LIABILITIES
A revaluation of Assets and liabilities is necessary when a new partner is
admitted or when an old partner retires or dies. It is not only good will that is
revalued but also Assets & liabilities have to be revalued in order to discover this
meaningful values in order to arrive at the correct capital a/c balances.
All assets and liabilities have to be taken into consideration during this exercise.
The Assets & liabilities affected are adjusted so that proper records of the business
are kept.
A revaluation a/c is normally complied to determine the profit/ loss on
revaluation. If the Cr. Side of this A/C exceeds the Dr. Side the difference is
known as the profit on revaluation. And this should be credited to the partners’
capital/ current a/c using the old profit/ loss sharing ratios.
However, If the Dr. side of this a/c exceeds the must be shared amongst the
partners and debited to their capital a/cs OR current a/cs using the old P/L sharing
ratios.

ACCOUNTING ENTRIES
 In case of an increase in the value of Assets
Dr. Individual Asset a/c} with the increase
Cr. Revaluation a/c

 In case of a decrease in the value of an Asset

 Dr. Revaluation a/c} with the decrease
Cr. Individual Asset a/c

 In case of an increase in the value of a liability

Dr. Revaluation a/c} with the increase
Cr. Individual liability a/c
 In case of a decrease in the value of a liability
Dr. Individual liability a/c} with the decrease
Cr. Revaluation a/c
 In case of the share of the profit on revaluation
Dr. Revaluation a/c
Cr. Individual capital/ current a/c
 In case of the share of the loss on revaluation
Dr. Individual capital/ current a/c.
Cr. Revaluation account.

Example
A and B are partners sharing P/L in the ratio of 1:3 respectively. On 31 st Dec 1997
there statement of financial position was as follows:-
NCA
Premises 100,000
Furniture 80,000
M.V 40,000
Furniture & fittings 25,000
245,000
Current Assets
Inventory 60,000
A/Cs receivables 45,000
Bank 80,000
Cash 35,000 220,000
TOTAL ASSETS 465,000
Capital & liabilities
Capital A 200,000
B 180,000
380,000
Current liabilities
A/cs payable 15,000
Bills payable 10,000 25,000
N: C liabilities
Stanbic loan 60,000
465,000

On 31st Dec the partners agreed to admit C and he was to contribute 120,000 as
capital to the business bank a/c and Z is entitled to ¼ of the profit and losses.
The revaluation exercise was carried out as follows:-
Premises were revalued to 120,000
Furniture to 90,000
Fixture and fittings to 20,000 and Goodwill to 130,000 Goodwill is to be
maintained in books as an intangible Asset.
Required prepared the necessary ledger a/cs including
(i) Revaluation a/c (ii) capital a/c
(iii) Assets a/c properly adjusted (iv) Bank a/c (v) statement of financial
position after the admission of Z
Question
Charles, David and Ernest are in partnership sharing profits and losses in the ratio
of 2:1:1. They agreed on retirement or admission of a new partner Goodwill will be
valued at 2 times the average of the proceeding year’s profits which were
43,000,000, 55,000,000 and 52,000,000.
At 31st Dec 2000 the statement of financial position of Charles, David and Ernest
was as follows:-
Assets
Freehold premises 40,000,000
Delivery vans 20,000,000
Inventory 25,000,000
Accounts receivables 15,000,000
Bank 10,000,000
TOTAL ASSETS 110,000,000
Capital and liabilities
Capital a/c
Charles 25,000,000
David 20,000,000
Ernest 20,000,000 65,000,000
Current A/C
Charles 10,000,000
David 10,000,000
Ernest 10,000,000 30,000,000
Liabilities
A/C payable 15,000,000
110,000,000
At 31st Dec 2000 Charles Decides to retire and Francis is admitted to a partnership
Charles goes with one the delivery vans valued at 8,000,000 and decides to leave
20,000,000 as loan to the partnership.
The Assets were revalued as follows.
Freehold premises 50,000,000
Delivery Van 17,000,000
Inventory 8,000,000
Francis is required to bring his capital contribution of 70,000,000 and the new ratio
will be 2:2:1
You are expected to Use the Memorandum revaluation method for recording
Goodwill.
a) Prepare the necessary ledger a/cs to reflect the transaction of the partnership.
b) Prepare the statement of financial position of the partners after the retirement
of Charles and admission of Francis.

DISSOLUTION OF PARTNERSHIP
A partnership may be dissolved after a certain period of time the following are the
circumstances under which a partnership business may come to an end.
 Mutual Agreement: when one or more of the partners reaches retirement or
on the expiry of the contract.
 When the partnership business is no longer making profits
 Force of circumstance i.e. death of a partner
 Is where a partnership business has expanded to appoint where it is worth
while running as a company.
 When the parties cannot agree between themselves on how to operate the
business.
N: B
On dissolution the partnership may be sold as a going concern, it may be converted
into a Ltd company or its assets may be sold off individually and then the business
is wound up.
The proceeds from dissolution are used to settle the obligations from the
partnership including the amount due to the partners.

PROCEDURE & ACCOUNTING ENTRIES ON DISSOLUTION

On dissolution a special a/c known as the realizations a/c is opened through which
all the assets of the partnership are closed (Debited) except cash /Bank.
Dr. Realization’s a\c
Cr. Individual Assets a/c.
 The provisions a/c e.g. provision for Bad debts should also be closed off to
the realizations a/c.
Dr. Provision’s a/c.
Cr. realizations a/c.
 External liabilities should be paid from the business bank a/c.
Dr. Individual liability a/c.
Cr. Cash/ Bank.
 In case of a decrease on the value of an Asset e.g. D/Allowed on trade
receivables.
Dr. Realizations a/c} with the D/A
Cr. Individual assets a/c
 In case of a decrease in the value of a liability e.g. Discount Received from
trade creditors
Dr. Individual liability a/c} with the D/R
Cr. Realizations a/c
 For Assets taken over by the partners
 Dr. Individual partners capital a/c} with the agreed take over
price.
Cr. Realizations a/c
 For liabilities taken over
Dr. Liability A/C
Cr. Individual partners capital a/c
 When assets are sold for cash
Dr. Cash / Bank} with the sale proceeds
Cr. Realizations a/c
 For the realization / dissolution expenses paid
Dr. Realization’s a/c
Cr. Cash/ Bank
 Balance off the realizations a/c to determine either a profit / loss on
realization
 In case the Cr. Side of realization exceeds the Dr. Side then there’s a
profit on realization.
 In case the Dr. Side is more the Cr. Side then there’s a loss on
realization.
In case of a profit
Dr. Realizations a/c
Cr. Individuals capital/ currents a/c
In case of a loss
Dr. Individual capital/ current a/c
Cr. realizations a/c
 Transfer the partners current a/c balances to their capital a/cs
 In case of credit balance on a current a/c
Dr. Partner’s currents a/c
 Cr. Partners capital a/c
 In case of Dr. balance on a current a/c
Dr. Partner’s capital a/c
Cr. Partners current a/c
 Balance off the partners’ capital a/cs any partners with a Dr. balance pays
into the firms bank a/c a sufficient sum to clear his/her balance.
Dr. Bank
Cr. Partners Capital A/C
Finally there should be sufficient cash/ bank balances to pay the partners with Cr.
Balance on their capital a/c.
Dr. Partner’s capital A/C
Cr. Cash/ Bank A/C
N: B
After all the above transactions the bank/ cash A/C must automatically balance.
Example one
Allen and Ben are partners sharing profits and losses in the ratio of 2:1 on 31 st Dec 2015 they
decided to dissolve the partnership. The balance sheet as at that date was as below.
Balance sheet as at 31 Dec 2015
N.C.A
Land and buildings 150,000
Furniture 100,000
M.V 100,000
350,000
C.ASSETS
Inventory 150,000
A/C receivable 200,000
Bank 50,000 400,000
750,000
CAPITAL & LIABILITIES
CAPITAL A/C 500,000
Allen 200,000
Ben 700,000
Current a/c
Allen 100,000
Ben (300,000)
A/Cs payable 250,000
750,000
On that date the following transactions took place. Building and furniture realized shs 170,000 &
80,000 respectively. Motor Vehicle were taken over by Allen at 85,000, Inventory was taken
over by Allen at shs 130,000. Accounts receivables were factored to Sukran at shs. 180,000.
The external liabilities were paid off less 5% discount, Realization expense amounted at
40,000/=.
Required
Prepare the following ledger account to close off the book of the partnership
a) Realisation A/C
b) Capital A/C
c) Bank a/c
Example Two

X Y and Z have been partners sharing profits/ losses in a ratio of 3:2:1 respectively on 31 st Dec
2016 they decided to dissolve the partnership. Their statement of financial position was as
follows:-
N.C.A
Land & Buildings 300,000
Equipment 250,000
M.Vehicles 200,000
750,000
C.A
Inventory 300,000
A/cs recievables 120,000
Bank 80,000 500,000
TOTAL ASSETS 1,250,000
CAPITAL & LIABILITIES
Capital a/c
X 500,000
 Y 400,000
Z 100,000
1,000,000
Current a/cs
X 50,000
Y (25.000)
Z (25.000) _
A/C payable 250,000
1,250,000
Additional information
The following information was also available land and building were sold for shs.350, 000.
Equipment realized shs.230, 000, X took over one Motor Vehicle shs.150, 000 while the others
realized shs.80, 000.
Inventory was taken over by Z at shs.280, 000.
A/c receivables were factored to Kutty at shs.110, 000.
A/cs payables were paid off less 2 1/2% discount.
All partners were solvent
Required
Prepare a) Realization a/c b) Partners capital a/c c) Bank a/c

Exercise
Allan, Ben and Charles have been in partnership for the last past years sharing P/losses in a ratio
of 2:2:1 respectively. On 31st Dec 2017 they decided to dissolve the partnership and their
statement of financial position was as follows.
ALLAN, BEN CHARLES STATEMENT OF FINANCIAL POSITION AS AT 31 DEC
2017
N.C.A
Land & Buildings 4,250,000
M. Vehicles 7,500,000
11,750,000
C.A
Inventory 4,250,000
A/cs receivables 2,250,000 6,500,000
TOTAL ASSETS 18,250,000

CAPITAL &LIABILITIES
Capital A/c Allen 5,000,000
Ben 2,500,000
Charles 500,000
8,000,000
LIABILITIES
A/c payable 7,500,000
Bank 2,750,000 10,250,000
TOTAL CAPITAL &LIABILITIES 18,250,000

Additional information.
Land and buildings were taken by Allan at valuation of 2,500,000.
Two motor vehicles were taken by Allan and Ben at 3,000,000 and 2,500,000 respectively.
Inventory was sold at 3,500,000 and amt paid for by cheque.
A/cs receivables were factored to XYZ Ltd at 1,750,000.
All the partners were solvent.
Required;
Prepare the following ledger a/cs.
a) Realisation a/c.
b) Partners capital a/c.
c) Bank a/c.

A CASE FOR THE INSOLVENT PARTNERS

Sometimes a partner may be insolvent i.e. being unable to bring in the amount
required to cover his/ her deficiency (the Debit capital A/C bal). The solvent
partners will have to share his/her deficiency at an agreed ratio.

If the partnership agreement is silent as to how the deficiency will be shared the
Garner Vs Murray rule will apply.
The rule states that in case of an insolvent partner his/ her deficiency should
be shared by the solvent partners in the ratio of their last capital a/c.

Example

Betty, Connie and Dan were partners in BCD partnership for over thirty (30) yrs.
dealing in general merchandise with several branches nationwide. They were
sharing profits and losses in the ration of 3:2:1 respectively. The operations had
been successful over years except for the year ended march 31. 2016 during which
one partner became insolvent while others were exhausted by age and could not
cope up with the aggressive competition that had the market. They decided to
terminate the operations of BCD. Their statement of financial position as at March
31, 2018, was as follows;-

BCD STATEMENT OF FINANCIAL POSITION AS AT 31.3 2018

ASSETS SHS (000) SHS (000)

N.C.A
Land & Building 14,000
Motor Vehicles 10,000
24,000
C.A
Inventory 9,000
A/C receivables 5,000 14,000
Total assets 38,000
Capital & liabilities
Capital a/c Betty 2,500
Connie 6,000
Dan 8,000
16,500
Current a/c Betty (1,000)
Connie 1000
 Dan 2000
18,500
Liabilities
N.C.L
Bank loan 1,000
C. Liabilities
A/C payable 14,000
Bank 4.500 18,500
TOTAL CAPITAL & LIABILITIES 38,000
During termination the Following took place.
 Assets were realized as follows Land & building 10,000 and Motor Vehicle 5,000.
 Inventory was taken over by Connie at an agreed sum of 8,000. A/Cs receivable factored
to bid shs 3,000 and A/Cs payable settled by less 20% discount.
 Termination (dissolution) expense amounted to shs. 3,000
 Betty was so insolvent that she could only afford to settle 40% of her indebtedness.
Required
a) Realization a/c
b) Partners capital a/c
c) Bank a/c
d) Any other relevant a/cs.

Exercise
ABC&D are partners sharing P&L in the ratio of 2:1:1:1 on 31 Dec 1999. They decided to
dissolve their partnership. Their statement of financial position was as follows.
N.C.A
Plant & machinery 400,000
Equipment 500,000
M.Vehicles 300,000
1,200,000
C. Assets:
Inventory 180,000
A/C receivables 160,000
Bank 60,000 400,000
Total Assets 1,600,000
CAPITAL AND LIABILITIES
Capital A 600,000
B 400,000
C 200,000
D 100,000
1,300,000
A/C payable 200,000
Current A/C A 200,000
B 300,000
C (240,000)
D (160,000)
TOTAL CAPITAL & LIABILITIES 1,000,000
Assets were realized as follows:
Plant & machinery 340,000
Equipment 520,000
Inventory 160,000
 A took a M.Vehicle valued 280,000
 A/C receivables realized 140,000
 A/C payables were paid off less 5% discount
 Realisation expenses were 60,000.

Both C & D are insolvent C could only bring half of his deficiency