Partnership accounting Unit 3 Further aspects of Financial Accounting Mr. Barry Year 13 A-level Accounting

Topic 5 Changes in partners: Dissolution of a partner Mr. Barry Year 13 A-level Accounting

Year 13 A-level Accounting What is a dissolution? Takes place when a partnership ceases to continue operating It can happen when the partners agree mutually or they are forced to because of problems such as lack of cash and/ or profit It could be that a partner wishes to set up independently, is declared bankrupt, die or wishes to retire Mr. Barry Year 13 A-level Accounting

Year 13 A-level Accounting Important The partnership uses its assets to cover any debts in the order of: Trade payables Partners’ loan accounts Any remaining money will go to the partners’ capital accounts Some partners may wish to take over assets themselves, alternatively assets may be sold for cash or taken over by another business Mr. Barry Year 13 A-level Accounting

Year 13 A-level Accounting Realisation account Debit Credit The net book value of the assets to be sold (Non-current & current assets) Discount allowed Costs of dissolution Profit on realisation Proceeds from the sale of the assets Discount received Loss on realisation Mr. Barry Year 13 A-level Accounting

Year 13 A-level Accounting Discounts When customers and suppliers hear that the partnership is being dissolved then they may be: In the customers case not be so willing to pay in full In the suppliers case be willing to receive less than originally owed Mr. Barry Year 13 A-level Accounting

Year 13 A-level Accounting Discounts The discount allowed are calculated by starting with the trade receivables figure and then subtracting what is actually received from them The discount received amount are the trade payables from the balance sheet less what the business actually pays them There will either be a profit or loss on realisation, not both Mr. Barry Year 13 A-level Accounting

Year 13 A-level Accounting Stages in dissolution Enter opening balances of the capital accounts, realisation and bank accounts, you have been asked to produce Enter the non-current asset values and current assets excluding trade receivables. DO NOT INCLUDE THE BANK BALANCE ON THE DEBIT OF THE REALISATION ACCOUNT Debit bank account with what is actually received from trade receivables (NOT NECESSARILY WHAT THEY OWE) and credit the bank with what the business pays Mr. Barry Year 13 A-level Accounting

Year 13 A-level Accounting Calculate discount received (CR) and discounts allowed (DR) and enter in the realisation account Receive cash for assets sold, debt bank and credit realisation account If a partner takes over assets then debit their capital account and credit realisation account with the value of the assets Close down realisation account and post balances on the realisation account in the partners’ capital accounts Close down capital account and bank account Mr. Barry Year 13 A-level Accounting

Transfer of assets to partners Credit the realisation account with the agreed value of the asset taken over Debit the partners’ capital accounts with the agreed value of the asset taken over Mr. Barry Year 13 A-level Accounting

Sale of assets to a company It is possible that a company may wish to take over some of the assets They could provide cash, ordinary shares, or debentures in return It is important to note that it is what the ordinary shares are worth currently that we need to record and not how much their value is Mr. Barry Year 13 A-level Accounting

Year 13 A-level Accounting Practice questions Can you complete all the questions in the question pack now? Mr. Barry Year 13 A-level Accounting