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PARTNERSHIP (CONTRACT).
Death of a partner:
From the Accountancy point of view, the only difference between retirement and the death of the partner is that in the former case the retiring partner’s share if not paid at once is credited to “loan Account’’ in the name of the outgoing partner, where as in the case of a partner is death, the adjusted balances of a capital and current Accounts of the deceased partner are transferred to an account called “Executor’s to Deceased” pending payment.
There are no special problems of death except that death may occur any time of the year and this would mean Executors of the deceased partner would be entitled to his share of profit arising after the last closing up to the date of his death.
Death/Retirement.
Treatment of Goodwill
Goodwill Account existed before retirement or death.
(i) Increase in values Goodwill
DR; Goodwill A/c
CR; All partners’ capital A/c, In old sharing ratios
(ii) Decrease in values of Goodwill.
DR; All partners’ capital A/c
C/R; Goodwill A/c, In old sharing ratios.
Admission of New Partner.
Treatment of Goodwill
A new partner pays as his/her share of Goodwill. If a new partner to pay a portion of his Goodwill in cash, such cash paid is called PREMIUM.
Entries;
Cash received from a new partner as his share of Goodwill
DR; Cash/Bank A/c
CR; Premium A/c
Premium is divided between old partners in old profit sharing ratio.
DR; Premium A/c
CR; Old partner’s capital A/C
DISSOLUTION OF A PARTNERSHIP.
Is the situation whereby the firm ceases its operation and its property are disposed off.

REASONS FOR DISSOLUTION
Partnership firm or organization may dissolve due to the following reasons;
(a) If entered into for a specific reason they by expire of that term.

(b) If entered for a single adventure by termination of that adventure.

(c) If entered for undefined time but one partner giving notice to other one his intention to dissolve partnership.

Upon dissolution the following are formulae to follow

(a) Open a realization account and debt it with the total of assets except cash or a debit balance of partners capital.

(b) Open account for cash, creditors, partner’s loan (if any) partner’s capital.

(c) Debit cash and credit realization account with the proceeds from sell of asset.

(d) Credit cash and debit realization account if any of the assets are not sold but are taken over by one of the partner then debit that partner capital account and credit realization account with the agreed value.

(e) Credit cash and debit realization account with the expenses of winding up.

(f) Pay off (a) creditors (b) partners loans i.e credit cash and debit these accounts.

(g) Balance the realization account and transfer the balance profit/ loss the partner’s capital accounts.

(h) Balance partner’s capital accounts and divide cash according to this credit balances of capital.

Example 1
Pendo and Upendo decided to dissolve their partnership on 31st Dec 2010. They shared profit and equally. Their balances as the date on dissolution were as follows.
Liabilities;
Assets
capital
Premises 120,000
Pendo 250,000
fittings 25,000
145,000
Upendo 200,000
450,000

Current Assets
current liabilities
150,000
cash 30,000
stock 250,000
Debtors 175,000
455,000
600,000

600,000
Additional Information’s
(i) Sale proceeds were as follow from their Assets
(ii) Premises 140,000 stock was Tshs 270,000
(iii) Stock was 270,000 Debtors was 170,000
(iv) Upendo took over the fittings at an agreed Price of 20,000
(v) Dissolution expenses was Tshs.10, 000
Cash at bank Tshs.30, 000
Required;
Prepare the Necessary book of Accounts
DR REALIZATION ACCOUNT CR

Details
Amount
Details
Amount
premises
120,000.00
premises
140,000.00
fittings
25,000.00
stock
270,000.00
stock
250,000.00
Debtor
170,000.00
Debtors
175,000.00
Upendo (fittings)
20,000.00
Dissolution expenses
10,000.00
To partners capital
profit on realisation
Upendo – 10,000
pendo – 10,000
20,000.00

600,000.00
600,000.00
DR CASH ACCOUNT CR
DETAILS
AMOUNT
DETAILS
AMOUNT
Balance b/d
30,000.00
Dissolution Expenses
10,000.00
Premises
140,000.00
creditors
150,000.00
stock
270,000.00
Pendo
260,000.00
Debtors
170,000.00
Upendo
190,000.00
610,000.00
610,000.00
DR PARTNER’S CAPITAL ACCOUNT CR
DETAILS
PENDO
UPENDO
DETAILS
PENDO
UPENDO
Realization (fittings)
20,000.00
Balance b/d
250,000.00
200,000.00
cash

260,000.00
190,000.00
profit on realization
10,000.00
10,000.00
260,000.00
210,000.00
260,000.00
210,000.00
LOSS ON REALIZATION
Any Partner with a deficit capital Account must paying efficient cash to clear the deficit cash
GARNER VERSUS MURRAY’S RULE CASE
This rule states that, in the event of a partner’s insolvency share of deficiency shall be borne by solvent partner in their capitals and not in their P & L sharing ratio.
Example
Assume capital Account of A;B;C Tshs 200,000, Tshs 300,000, Tshs 100,000, C’s capital A/c run top a debit balance of Tshs 95,000 thousand out of which he is able to pay 45,000 on his own bank A/c. This will leave a deficiency of Tshs. 50,000 in his capital a/c and this deficiency will be borne by A and B in the ratio of their capital immediately before dissolution.
Soln;
  1. Tshs 200,000
  2. Tshs 300,000
A share to C – x 50,000 =20,000
B share’s to C= x 50,000=30,000
JOURNAL ENTRIES
DETAILS
DEBIT
CREDIT
Bank
45,000
C’s capital
45,000
A’s capital
20,000
B’s capital
30,000
C’s capital
50,000
DR PARTNER’S CAPITAL ACCOUNT CR
DETAILS
A
B
C
DETAILS
A
B
C
C’s capital
20,000
30,000
Balance b/d
200,000
300,000
100,000
Motor van
10,000
A’s capital
20,000
Investment
80,000
B’s capital
30,000
loss on realization
19,500
19,500
19,500
Realization expenses
600
1,000
Cash
25,000
45,000
Balance c/d

175,000
175,500
175,500
225,000
306,000
195,000
225,000
306,000
195,000
Balance b/d
175,000
175,000
175,000
AMALGAMATION OF PARTNERSHIPS
Amalgamation, this is when two or more firms join together to form a partnership firm.
Amalgamation can be between;-
  1. A sole trader and sole trader
  2. A sole trader and partnership
  3. A partnership and a partnership
  • Each business must choose its own books of accounts and transfer them to a new partnership firm
  • But before closing the books of the following adjustment might own; Reserves are shared by partners in profit or loss sharing ratios of the old business.
CONDITION NECESSARY FOR PARTNERSHIP TO AMALGAMATE.
(a) To see each other Balance sheet presents a true statement of financial position of each business.
(b) Asset must be stated at their fair value and all liabilities to be disclosed.
Unequal goodwill of the busines
s will be assessed accordingly at the time of amalgamation by making the right allowances to compensate the owner of the more valuable business.
( c) Balance sheet business is redrafted taken into consideration the adjustment agreed up and this re-drafted balance sheets is then combined to form the initial balance sheet of the partnership. Statement used in the process of Amalgamation.
Statement used on the Process of Amalgamation
(a) A completed and signed copy of form of articles of amalgamation
(b) A completed and signed copy of form of initial registered office address and first board of directors.
(c ) A statutory declaration from a director or office of each amalgamation/corporation
(d) Name search report unless the amalgamated corporation will use the corporate name of the amalgamation corporation
(e) B/sheet of the two amalgamations




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EcoleBooks | ACCOUNTANCY A LEVEL(FORM SIX) NOTES - PARTNERSHIP (CONTRACT).(4)

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