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

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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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