Principles of Accounting: Partnership Dissolution Entries

////Principles of Accounting: Partnership Dissolution Entries

Principles of Accounting: Partnership Dissolution Entries

ZIMSEC O Level Principles of Accounting: Accounting for Partnerships: Partnership Dissolution Entries

  • While the dissolution of each partnership is no doubt unique
  • There are entries that are typical to the dissolution of each partnership
  • During dissolution the following entries are typically made:
    1. When we transfer provision such as for bad debts/depreciation to their respective asset accounts:
      1. Dr Provision Account
      2. Cr The relevant Asset Account
    2. The Net Book Value (Carrying Amount) of all the assets are transferred to theĀ Realisation Account:
      1. Dr Realisation Account
      2. Cr The Asset Account
    3. When we receive amounts from the disposal of assets:
      1. Dr Bank
      2. Cr Realisation Account
    4. When a partner takes an asset without payment:
      1. Dr Partner’s Capital Account
      2. Cr Realisation Account
    5. When we pay one our creditors:
      1. Dr Creditor’s Account
      2. Cr Bank Account
    6. When paying for the dissolution expenses e.g. cost of lawyers, estate valuers etc:
      1. Dr Realisation Account
      2. Cr Bank Account
    7. If there is a profit on realisation it is to be shared among partners in their profit/loss sharing ratios and the following entries have to be made:
      1. Dr Realisation Account
      2. Cr Partner’s Capital Accounts with each share
    8. Conversely if a loss is made on realisation the loss is to be shared among partners in their profit/loss sharing ratio and the following entries need to be made in the books to reflect this:
      1. DR Partner’s Capital Accounts with each share
      2. Cr Realisation Account
    9. Transfer the partner’s Current Account balances to their relevant Capital Accounts:
      1. Dr/Cr Partner’s Current Accounts depending with whether the account has a Cr/Dr balance
      2. Cr/Dr the Capital Account with the corresponding entry
    10. When the partners are paid their final balances as shown in their capital accounts:
      1. Dr Capital Accounts
      2. Cr Bank Account
    11. In addition note that any discount received when creditors are paid is credited to the Realisation Account

NB

  • Questions involving piece-meal realisation of assets are beyond the scope of the syllabus for which these notes are written
  • An example question can be found here

To access more topics go to the Principles of Accounts Notes.

By |2018-04-16T09:47:55+00:00April 16th, 2018|Notes, Ordinary Level Notes, Principles of Accounts Notes|Comments Off on Principles of Accounting: Partnership Dissolution Entries

About the Author:

He holds an Honours in Accountancy degree from the University of Zimbabwe. He is passionate about technology and its practical application in today's world.
%d bloggers like this: