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Kalu and Musa decided to dissolve their partnership on 31st December 2022. They shared profit or loss in the ratio of 2:3 respectively. The balance sheet before dissolution was as follows: You are required to prepare: (a) Realization Account; (b) Partners' Capital Account; (c) Bank Account.

Accounting

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Here are the required accounts for the dissolution of the partnership:

Part a· 6 steps

Realization Account

  1. Transfer all assets (excluding bank/cash) to the debit side of the Realization Account at their book values.

    • Motor vehicle: N 720,000
    • Machinery: N 450,000
    • Premises: N 330,000
    • Stock: N 600,000
    • Debtors: N 300,000

  2. Transfer external liabilities (Creditors) to the credit side of the Realization Account at their book value.

    • Creditors: N 300,000

  3. Record the realization of assets on the credit side.

    • Motor vehicle: N 630,000
    • Machinery: N 600,000
    • Stock: N 300,000
    • Debtors: N 225,000
    • Total cash realized = N 630,000 + N 600,000 + N 300,000 + N 225,000 = N 1,755,000

  4. Record assets taken over by partners on the credit side.

    • Kalu (Premises): N 150,000
    • Musa (Premises): N 135,000

  5. Record the payment of creditors and dissolution expenses on the debit side.

    • Creditors paid: N 240,000
    • Dissolution cost: N 90,000

  6. Calculate the profit or loss on realization and distribute it to partners' capital accounts in their profit-sharing ratio (2:3).

    • Total Debits = (720,000 + 450,000 + 330,000 + 600,000 + 300,000) + 240,000 + 90,000 = N 2,730,000
    • Total Credits = 300,000 + 1,755,000 + 150,000 + 135,000 = N 2,340,000
    • Loss on Realization = N 2,730,000 - N 2,340,000 = N 390,000
    • Kalu's share of loss = N 390,000 ×25\times \frac{2}{5} = N 156,000
    • Musa's share of loss = N 390,000 ×35\times \frac{3}{5} = N 234,000
    Realization AccountNNTo Motor vehicle720,000By Creditors300,000To Machinery450,000By Bank (Assets realized)1,755,000To Premises330,000By Kalu’s Capital A/c (Premises)150,000To Stock600,000By Musa’s Capital A/c (Premises)135,000To Debtors300,000By Kalu’s Capital A/c (Loss)156,000To Bank (Creditors paid)240,000By Musa’s Capital A/c (Loss)234,000To Bank (Dissolution expenses)90,000Total2,730,000Total2,730,000\begin{array}{|l|r|l|r|} \hline \textbf{Realization Account} & \textbf{N} & & \textbf{N} \\ \hline \text{To Motor vehicle} & 720,000 & \text{By Creditors} & 300,000 \\ \text{To Machinery} & 450,000 & \text{By Bank (Assets realized)} & 1,755,000 \\ \text{To Premises} & 330,000 & \text{By Kalu's Capital A/c (Premises)} & 150,000 \\ \text{To Stock} & 600,000 & \text{By Musa's Capital A/c (Premises)} & 135,000 \\ \text{To Debtors} & 300,000 & \text{By Kalu's Capital A/c (Loss)} & 156,000 \\ \text{To Bank (Creditors paid)} & 240,000 & \text{By Musa's Capital A/c (Loss)} & 234,000 \\ \text{To Bank (Dissolution expenses)} & 90,000 & & \\ \hline \textbf{Total} & \textbf{2,730,000} & \textbf{Total} & \textbf{2,730,000} \\ \hline \end{array}

Part b· 3 steps

Partners' Capital Account

  1. Bring down the opening balances of Capital and Current Accounts to the credit side.

    • Kalu: Capital N 750,000, Current N 360,000
    • Musa: Capital N 675,000, Current N 195,000

  2. Debit partners for assets taken over and their share of realization loss.

    • Kalu (Premises): N 150,000
    • Musa (Premises): N 135,000
    • Kalu (Loss): N 156,000
    • Musa (Loss): N 234,000

  3. Calculate the final payment to each partner (balancing figure) and transfer to the Bank Account.

    • Kalu's Credit = 750,000 + 360,000 = N 1,110,000
    • Kalu's Debit = 150,000 + 156,000 = N 306,000
    • Kalu's final payment = 1,110,000 - 306,000 = N 804,000
    • Musa's Credit = 675,000 + 195,000 = N 870,000
    • Musa's Debit = 135,000 + 234,000 = N 369,000
    • Musa's final payment = 870,000 - 369,000 = N 501,000
    Partners’ Capital AccountKalu (N)Musa (N)Kalu (N)Musa (N)To Realization A/c (Premises)150,000135,000By Balance b/d (Capital)750,000675,000To Realization A/c (Loss)156,000234,000By Balance b/d (Current)360,000195,000To Bank A/c (Final payment)804,000501,000Total1,110,000870,000Total1,110,000870,000\begin{array}{|l|r|r|l|r|r|} \hline \textbf{Partners' Capital Account} & \textbf{Kalu (N)} & \textbf{Musa (N)} & & \textbf{Kalu (N)} & \textbf{Musa (N)} \\ \hline \text{To Realization A/c (Premises)} & 150,000 & 135,000 & \text{By Balance b/d (Capital)} & 750,000 & 675,000 \\ \text{To Realization A/c (Loss)} & 156,000 & 234,000 & \text{By Balance b/d (Current)} & 360,000 & 195,000 \\ \text{To Bank A/c (Final payment)} & 804,000 & 501,000 & & & \\ \hline \textbf{Total} & \textbf{1,110,000} & \textbf{870,000} & \textbf{Total} & \textbf{1,110,000} & \textbf{870,000} \\ \hline \end{array}

Part c· 4 steps

Bank Account

  1. Bring down the opening bank overdraft balance to the credit side.

    • Bank overdraft: N 120,000

  2. Debit the account for cash received from asset realization.

    • Realization A/c (Assets realized): N 1,755,000

  3. Credit the account for payments made for creditors, dissolution expenses, and final payments to partners.

    • Realization A/c (Creditors paid): N 240,000
    • Realization A/c (Dissolution expenses): N 90,000
    • Kalu's Capital A/c (Final payment): N 804,000
    • Musa's Capital A/c (Final payment): N 501,000

  4. The Bank Account should balance, indicating the dissolution process is complete.

    Bank AccountNNTo Realization A/c (Assets realized)1,755,000By Balance b/d (Overdraft)120,000By Realization A/c (Creditors paid)240,000By Realization A/c (Dissolution expenses)90,000By Kalu’s Capital A/c (Final payment)804,000By Musa’s Capital A/c (Final payment)501,000Total1,755,000Total1,755,000\begin{array}{|l|r|l|r|} \hline \textbf{Bank Account} & \textbf{N} & & \textbf{N} \\ \hline \text{To Realization A/c (Assets realized)} & 1,755,000 & \text{By Balance b/d (Overdraft)} & 120,000 \\ & & \text{By Realization A/c (Creditors paid)} & 240,000 \\ & & \text{By Realization A/c (Dissolution expenses)} & 90,000 \\ & & \text{By Kalu's Capital A/c (Final payment)} & 804,000 \\ & & \text{By Musa's Capital A/c (Final payment)} & 501,000 \\ \hline \textbf{Total} & \textbf{1,755,000} & \textbf{Total} & \textbf{1,755,000} \\ \hline \end{array}

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