Inventory Share of loss 51600 82500 94000 55000 27500 Apr 1 1 1 1 Balances bf

Inventory share of loss 51600 82500 94000 55000 27500

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Inventory Share of loss 51,600 82,500 94,000 55,000 27,500 Apr 1 1 1 1 Balances b/f Realisation Commissio n Capital: Paul Raymond Loan from 100,00 0 84,000 100,00 0 100,000 6,900 82,000 100,000
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Exhibit 13.2 A more complicated example Capital Paul Marti n Raymo nd Paul Marti n Raymo nd 2015 $ $ $ 2015 $ $ $ Apr 1 1 1 Current: Martin (Note 10) Realisation Inventory Share of loss Bank — Final settlement 51,600 82,500 49,900 94,000 55,000 27,500 261,400 Apr 1 1 1 1 1 Balances b/f Realisation Commissio n Capital: Paul Raymond Loan from Raymond (Note 11) Bank — Final settlement (Note 12) 100,00 0 84,000 100,00 0 49,000 100,000 6,900 82,000 100,000 184,000 149,00 288,900 184,00 149,00 288,900
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A more complicated example Bank 2015 Apr 1 1 Office furniture Trade receivables Capital — Final settlement Martin 12,000 208,00 0 105,00 0 138,00 0 49,000 1 costs Capital — Final settlement Paul Raymond 49,900 261,40 0 8. Settle the final balances in the partners’ capital accounts (i) For capital accounts with credit balances: Dr Partners’ capital accounts Cr Cash/Bank account (with the credit balances in capital accounts) (ii) For capital accounts with debit balances: Dr Cash/Bank account (with the debit balances in capital accounts) Cr Partners’ capital accounts
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Capital deficiency of an insolvent partner When a partner ends up with a debit balance in his capital account , he is said to have a capital deficiency. He is indebted to the partnership and is required to repay the amount owed to the partnership. However, if the partner is unable to pay (i.e., being insolvent ), his capital deficiency would have to be shared by the solvent partners on a sharing ratio agreed by all the partners beforehand.
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Exhibit 13.3 Sharing of capital deficiency Suppose in Exhibit 13.2, an agreement had been drawn up to share the capital deficiency of any insolvent partner in the existing profit and loss sharing ratio. If Martin was unable to pay the final debit balance in his capital account ($49,000), it would have to be shared by Paul and Raymond in their profit and loss sharing ratio of 3 : 1 as follows: Paul 3 : Martin 2 : Raymond 1 Paul 3 : Martin 2 : Raymond 1
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Exhibit 13.3 Sharing of capital deficiency The required entries are: Dr Paul’s capital account $36,750 Cr Martin’s capital account $36,750 Dr Raymond’s capital account $12,250 Cr Martin’s capital account $12,250 or simply Dr Paul’s capital account $36,750 Dr Raymond’s capital account $12,250 Cr Martin’s capital account $49,000
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Capital Paul Marti n Raymo nd Paul Marti n Raymo nd 2015 $ $ $ 2015 $ $ $ Apr 1 1 Current: Martin Realisation Inventory Share of loss 51,600 82,500 94,000 55,000 27,500 Apr 1 1 1 1 Balances b/f Capital: Paul Raymond Realisation Commissio n Loan from Raymond 100,00 0 84,000 100,00 0 100,000 82,000 6,900 100,000 Exhibit 13.3 Sharing of capital deficiency The capital accounts would be settled as follows: 1 Bank — Final settlement 13,150 50,000 249,150 184,000 149,00 0 288,900 184,00 0 149,00 0 288,900 1 Capital: Martin 36,750 55,000 12,250 1 Capital: Paul Raymond 36,750 12,250
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Tips concerning partnership dissolution Learning Tips In public examinations, it is almost the norm for candidates
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  • Spring '07
  • Smith
  • Balance Sheet, realisation, Dr Partners

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