Hong Kong Tang King Po College

Business, Accounting and Financial Studies: Accounting Module

Supplementary Exercise: Dissolution

FA2C13T2Q4eng
Cinda, Paul and Aaron were partners, sharing profits and losses equally. Their statement of financial position as
at 31 March 2016 is as follows:
Cinda, Paul and Aaron
Statement of Financial Position as at 31 March 2016
$ $ $
Non-current assets
Plant and machinery 193,000
Less Accumulated depreciation 72,000 121,000
Furniture 57,000
Less Accumulated depreciation 20,000 37,000
Motor vehicles 86,000
Less Accumulated depreciation 43,000 43,000
201,000
Current assets
Inventory 33,200
Trade receivables 26,000
Less Allowance for doubtful accounts 2,000 24,000
Bank 46,200
103,400
Less Current liabilities:
Trade payables 43,000
Net current assets 60,400
261,400
Less Non-current liabilities:
Loan from Cinda 20,000
241,400
Financed by:
Capital account: Cinda 98,000
Paul 52,000
Aaron 75,000 225,000
Current account: Cinda 4,400
Paul 6,700
Aaron 5,300 16,400
241,400

The partnership was dissolved on 31 March 2016. Upon the liquidation of the business, the following amounts
were received:
$
Plant and machinery (part) 72,000
Furniture 40,000
Motor vehicles 38,000
Inventory 33,000
Trade receivables 25,000

Paul took over the remaining plant and machinery for $48,000. He was also personally responsible for paying
half of the trade payables. The balance was settled by the partnership with a discount of 5%. Dissolution costs
amounted to $5,771.

You are required to prepare:

(a) the realisation account; (9.5 marks)
(b) the bank account; and (6 marks)
(c) the partners’ capital accounts in columnar form. (6.5 marks)
FA2C13T2Q8eng
Mandy, Nelson and Patrick were in partnership, sharing profits and losses in the ratio of 3 : 2 : 1. It was decided
that the partnership be dissolved on 31 March 2016 due to disputes among the partners.
The draft statement of financial position as at 31 March 2016 is as follows:

Mandy, Nelson and Patrick

Statement of Financial Position as at 31 March 2016
$ $
Non-current assets
Furniture and fittings 102,480
Motor vehicles 212,620
315,100
Goodwill 120,000
435,100
Current assets
Inventory 51,400
Trade receivables 74,350
Bank 35,400
161,150
Less Current liabilities:
Trade payables 51,000
Net current assets 110,150
545,250
Capital accounts:
Mandy 305,000
Nelson 214,500
Patrick 25,750
545,250

The partnership was dissolved on the following terms:

(i) Mandy took over the furniture and fittings for $85,000.
(ii) The motor vehicles were taken over by Mandy and Nelson at agreed values of $50,000 and $115,000,
respectively.
(iii) Mandy took over 70% of the inventory at book value. The remaining inventory was sold at half of the
book value.
(iv) Trade receivables realised a total of $69,000.
(v) Trade payables were settled in full and a discount of 3% was received.
(vi) Realisation expenses amounted to $37,400.
(vii) Since Patrick was insolvent, he was only required to contribute $5,000 to the partnership. The deficiency
was borne by Mandy and Nelson based on their profit and loss sharing ratio.

You are required to prepare the following:

(a) Realisation account (9.5 marks)
(b) Bank account (4.5 marks)
(c) Partners’ capital accounts in columnar form (8 marks)
(Calculations to the nearest dollar)
FA2C13T2Q10eng
Chan, Lam and Luk were in partnership, sharing profits and losses in the ratio of 2 : 2 : 1. Their statement of
financial position as at 31 December 2015 is as follows:

Chan, Lam and Luk

Statement of Financial Position as at 31 December 2015
$ $ $ $
Non-current assets Capital accounts
Office equipment, Chan 282,000
at net book value 387,450 Lam 202,500
Motor vehicles, Luk 225,000 709,500
at net book value 228,000
615,450 Current accounts
Current assets Chan 30,000
Inventory 65,250 Lam 15,000
Trade receivables 270,000 Luk (7,500) 37,500
Bank 18,000 353,250
Current liabilities
Trade payables 221,700
968,700 968,700

The partners agreed to change the profit and loss sharing ratio to 1 : 2 : 1 starting from 1 January 2016.

Goodwill was to be valued at $312,600. No goodwill account was to be opened.

The following assets were revalued: office equipment to $468,000, motor vehicles to $180,000 and inventory to
$60,000. An allowance of $16,000 was to be made for doubtful accounts.

Required:
(a) Prepare the revaluation account. (5 marks)
(b) Show the partners’ capital accounts (in columnar form). (7.5 marks)

During the year ended 31 December 2016, the new partnership made a net profit of $20,000. Depreciation had
been charged on the revalued non-current assets at 20% per annum.

As at 31 December 2016, the partnership had the following balances:

$
Inventory 80,000
Trade receivables, net 320,000
Trade payables 178,100
Bank 38,000

Owing to unforeseen circumstances, the partnership was dissolved on 31 December 2016 on the following
terms:
(i) The office equipment was taken over by Luk for $415,500.
(ii) The motor vehicles and inventory were sold for a total of $250,000.
(iii) Trade payables were settled in full for $170,000. A total of $250,000 was received from trade receivables.
(iv) Dissolution costs amounted to $9,000.

A to
$9,000.

Required:
(c) Draw up the realisation account. (7 marks)
(d) Draw up the partners’ capital accounts (in columnar form). (9.5 marks)
FA2C13T2Q30eng
Alice, Bobby and Carol were partners, sharing profits and losses in the ratio of 25% : 30% : 45%. On 30 June
2020, they decided to dissolve the partnership due to substantial losses over the past few years. The last
statement of financial position of the partnership is as follows:

Alice, Bobby and Carol

Statement of Financial Position as at 30 June 2020
$ $ $
Non-current assets
Office equipment, at net book value 170,000
Motor vehicles, at net book value 130,000
300,000
Goodwill 276,000
576,000
Current assets
Inventory 45,520
Trade receivables 35,560 81,080

Less Current liabilities:

Bank overdraft 12,000
Trade payables 69,060 81,060
Net current assets 20
576,020
Financed by:
Capital accounts:
Alice 200,000
Bobby 300,000
Carol 400,000 900,000

Current accounts:
Alice (150,660)
Bobby 51,760
Carol (225,080) (323,980)
576,020
The terms of dissolution are as follows:
(i) The office equipment was sold for $50,000.
(ii) Some of the motor vehicles were taken over by Bobby at an agreed value of $40,000. The other motor
vehicles were sold for $35,000.
(iii) All trade receivables, with the exception of bad debts of $500, were collected.
(iv) The inventory was sold at half of its cost.
(v) All the trade payables were settled. Discounts of $1,260 were received.
(vi) Dissolution costs amounted to $12,000.
(vii) The partners agreed that if any of them had a capital deficiency, the amount would be borne equally by
the solvent partners.

Required:
(a) Prepare the realisation account. (8.5 marks)
(b) Prepare the bank account. (4.5 marks)
(c) Prepare the partners’ capital accounts in columnar form. (7 marks)
(d) State two other possible reasons for the dissolution of a partnership. (2 marks)
 Hong Kong Tang King Po College
Business, Accounting and Financial Studies: Accounting Module
Supplementary Exercise: Dissolution
Marking Scheme

FA2C13T2Q4eng
(a)
Realisation
2016 $ $ 2016 $
Mar 31 Plant and machinery 121,000 Mar 31 Bank — 0.5

" 31 Furniture 37,000 Plant and machinery 72,000 0.5 0.5

" 31 Motor vehicles 43,000 Furniture 40,000 0.5 0.5

" 31 Inventory 33,200 Motor vehicles 38,000 0.5 0.5

" 31 Trade receivables 24,000 Inventory 33,000 0.5 0.5

" 31 Bank — Trade receivables 25,000 0.5

Dissolution costs 5,771 " 31 Capital: Paul — 0.5

" 31 Profit on realisation — Plant and machinery

Capital: Cinda (1/3) 4,868 taken over 48,000 0.5 0.5
1
Capital: Paul ( /3) 4,868 " 31 Trade payables — 0.5

Capital: Aaron (1/3) 4,868 14,604 Personally paid by Paul 0.5

($43,000  50%) 21,500 1

Discounts received
($21,500  5%) 1,075 1

278,575 278,575

(b)
Bank
2016 $ 2016 $
Mar 31 Balance b/f 46,200 Mar 31 Realisation — 0.5

" 31 Realisation — Dissolution costs 5,771 0.5

Plant and machinery 72,000 " 31 Loan from Cinda 20,000 0.5 0.5

Furniture 40,000 " 31 Trade payables ($21,500 × 95%) 20,425 0.5 0.5

Motor vehicles 38,000 " 31 Capital — Final settlement 0.5

Inventory 33,000 Cinda 107,268 0.5 0.5

Trade receivables 25,000 Paul 15,568 0.5 0.5

Aaron 85,168 0.5

254,200 254,200

(c)
Capital
Cinda Paul Aaron Cinda Paul Aaron
2016 $ $ $ 2016 $ $ $
Mar 31 Realisation — Mar 31 Balances b/f 98,000 52,000 75,000 0.5 each
 Plant & machinery — 48,000 — " 31 Current 4,400 6,700 5,300 0.5 each
" 31 Bank — Final " 31 Realisation —
settlement 107,268 15,568 85,168 Share of profit 4,868 4,868 4,868 0.5 each
107,268 63,568 85,168 107,268 63,568 85,168
FA2C13T2Q8eng
(a)
Realisation
$ $ $
Furniture and fittings 102,480 Capital: 0.5

Motor vehicles 212,620 Mandy — 0.5

Goodwill 120,000 Furniture and fittings taken over 85,000 0.5 0.5

Inventory 51,400 Motor vehicles taken over 50,000 0.5 0.5

Trade receivables 74,350 Inventory taken over 0.5

Bank — Realisation expenses 37,400 ($51,400  70%) 35,980 0.5 1

Nelson — Motor vehicles taken over 115,000 0.5

Bank —
Inventory
($51,400  30%  50%) 7,710 1

Trade receivables 69,000 0.5

Trade payables — Discounts

received ($51,000  3%) 1,530 1

Loss on realisation —
Capital: Mandy (3/6) 117,015 0.5

Nelson (2/6) 78,010 0.5

1
Patrick ( /6) 39,005 234,030 0.5

598,250 598,250

(b)
Bank
$ $ $
Balance b/f 35,400 Trade payables ($51,000  97%) 49,470 0.5 1

Inventory 7,710 Realisation — Realisation expenses 37,400 0.5 0.5

Trade receivables 69,000 Capital — Final settlement 0.5

Capital: Patrick 5,000 Mandy 12,052 0.5 0.5

Nelson 18,188 30,240 0.5

117,110 117,110

(c)
Capital
Mandy Nelson Patrick Mandy Nelson Patrick
$ $ $ $ $ $
Realisation — Balances b/f 305,000 214,500 25,750 0.5 each

Furniture and fittings 85,000 — — Bank — — 5,000 0.5 each

Motor vehicles 50,000 115,000 — Deficiency shared by 0.5 each

Inventory 35,980 — — Mandy and Nelson — — 8,255 0.5 each

Share of loss 117,015 78,010 39,005 0.5 each

Share of Patrick’s
deficiency (3 : 2) 4,953 3,302 — 0.5 each

Bank — Final
settlement 12,052 18,188 — 0.5 each

305,000 214,500 39,005 305,000 214,500 39,005

FA2C13T2Q10eng
(a)
Revaluation
2016 $ $ 2016 $
Jan 1 Motor vehicles Jan 1 Office equipment
($228,000 – $180,000) 48,000 ($468,000 – $387,450) 80,550 1 1

" 1 Inventory
($65,250 – $60,000) 5,250 1

" 1 Allowance for doubtful

accounts 16,000 0.5

" 1 Profit on revaluation —

Capital: Chan (2/5) 4,520 0.5
2
Capital: Lam ( /5) 4,520 0.5

Capital: Luk (1/5) 2,260 11,300 0.5

80,550 80,550

(b)
Capital
Chan Lam Luk Chan Lam Luk
2016 $ $ $ 2016 $ $ $
Jan 1 Goodwill Jan 1 Balances b/f 282,000 202,500 225,000 0.5 each
adj. (W1) — 31,260 15,630 " 1 Goodwill 1 each
" 1 Balances c/d 333,410 175,760 211,630 adj. (W1) 46,890 — — 1.5 1
" 1 Revaluation —
Share of
profit 4,520 4,520 2,260 0.5 each
333,410 207,020 227,260 333,410 207,020 227,260

Workings:
(W1)
Goodwill Adjustment
Goodwill shared Goodwill shared Gain (loss) from
Partner Required adjustment
in old ratio in new ratio change in ratio
$ $ $ $
Chan (2/5) 125,040 (1/4) 78,150 (46,890) Cr Capital: Chan 46,890
2 2
Lam ( /5) 125,040 ( /4) 156,300 31,260 Dr Capital: Lam 31,260
Luk (1/5) 62,520 (1/4) 78,150 15,630 Dr Capital: Luk 15,630
312,600 312,600

(c)
Realisation
2016 $ 2016 $ $
Dec 31 Office equipment Dec 31 Bank —
($468,000  80%) 374,400 Motor vehicles and 1

" 31 Motor vehicles ($180,000  80%) 144,000 inventory 250,000 1 0.5

 " 31 Inventory 80,000 Trade receivables 250,000 0.5 0.5

" 31 Trade receivables 320,000 " 31 Capital: Luk — 0.5

" 31 Bank — Dissolution costs 9,000 Office equipment 0.5

taken over 415,500 0.5

" 31 Trade payables —

Discounts received
($178,100 – $170,000) 8,100 0.5

" 31 Loss on realisation —

Capital: Chan (1/4) 950 0.5

Capital: Lam (2/4) 1,900 0.5

Capital: Luk (1/4) 950 3,800 0.5

927,400 927,400

(d)
Capital
Chan Lam Luk Chan Lam Luk
2016 $ $ $ 2016 $ $ $
Dec 31 Realisation — Jan 1 Balances b/d 333,410 175,760 211,630 0.5 each
Office equipment — — 415,500 Dec 31 Current (W2) 35,000 25,000 — 0.5 2
" 31 Realisation — " 31 Bank — Final
Share of loss 950 1,900 950 settlement (W3) — — 207,320 1.5 1
" 31 Current (W2) — — 2,500 1
" 31 Bank — Final
settlement (W3) 367,460 198,860 — 1 each
368,410 200,760 418,950 368,410 200,760 418,950

Workings:
(W2)
Current
Chan Lam Luk Chan Lam Luk
2016 $ $ $ 2016 $ $ $
Jan 1 Balance b/f — — 7,500 Jan 1 Balances b/f 30,000 15,000 —
Dec 31 Capital 35,000 25,000 — Dec 31 Profit and loss
appropriation —
Share of profit
(1 : 2 : 1) 5,000 10,000 5,000
" 31 Capital — — 2,500
35,000 25,000 7,500 35,000 25,000 7,500

(W3)
Bank
2016 $ 2016 $
Dec 31 Balance b/f 38,000 Dec 31 Realisation —
" 31 Realisation — Dissolution costs 9,000
Motor vehicles and inventory 250,000 " 31 Trade payables 170,000
Trade receivables 250,000 " 31 Capital — Final settlement
" 31 Capital — Final settlement Chan 367,460
 Luk 207,320 Lam 198,860
745,320 745,320

FA2C13T2Q30eng (new) 2018 Exam

(a)
Realisation
$ $ $
Office equipment 170,000 Bank — 0.5

Motor vehicles 130,000 Office equipment 50,000 0.5 0.5

Goodwill 276,000 Motor vehicles 35,000 0.5 0.5

Inventory 45,520 Trade receivables 0.5

Trade receivables 35,560 ($35,560 – $500) 35,060 0.5 1

1
Bank — Dissolution costs 12,000 Inventory ($45,520 × /2) 22,760 0.5 1

Capital: Bobby —
Motor vehicles taken over 40,000 0.5

Trade payables —
Discounts received 1,260 0.5

Loss on realisation —
Capital: Alice (25%) 121,250 0.5

Capital: Bobby (30%) 145,500 0.5

Capital: Carol (45%) 218,250 485,000 0.5

669,080 669,080

(b)
Bank
$ $
Realisation — Balance b/f 12,000 0.5

Office equipment 50,000 Realisation — Dissolution costs 12,000 0.5 0.5

Motor vehicles 35,000 Trade payables ($69,060 – $1,260) 67,800 0.5 1

Trade receivables 35,060 Capital — Final settlement 0.5

Inventory 22,760 Bobby 51,020 0.5 0.5

142,820 142,820

(c)
Capital
Alice Bobby Carol Alice Bobby Carol
$ $ $ $ $ $
Current 150,660  225,080 Balances b/f 200,000 300,000 400,000 1 1

Realisation — Current  51,760  0.5

Motor vehicles  40,000  Capital: Bobby 71,910  43,330 0.5 each

Share of loss 121,250 145,500 218,250 0.5 each

Capital: Alice  71,910  0.5

Capital: Carol  43,330  0.5

Bank 
Final settlement  51,020  0.5

271,910 351,760 443,330 271,910 351,760 443,330

(d) Other possible reasons for the dissolution of a partnership:

 One or more of the partners are leaving due to retirement, ill health or have died.
 There are serious conflicts among the partners.
 The partnership is converted into a limited company. Any two,

 The partnership is taken over by another business. 1 each