PARTNERSHIP ACCOUNTS Partnership is relationship that exists between two or more people carrying out the business with

view of making profits. Partnership Deed/Agreement Is a written document which specifies terms and conditions to be followed in partnership. Contents of the Partnership Deed a) Name of the business/firm b) Nature of business kind of business c) Amount of capital to be contributed by each partner d) Profit or loss sharing ratio e) Amount drawings by each partner f) Amount of salary to be paid to the Partners g) Interest on capital h) Commencement and duration of partnership i) Interest on loans j) Valuation of Goodwill In the absence of Partnership agreement the following terms may apply: a) Partners should contribute equal amount of capital b) Profit or loss should be shared equally c) No Drawings is allowed in the partnership d) No new partner is to be admitted in the partnership without consent of all partners e) 5% is allowed as a rate of interest for Loans made to the partnership f) No salary will be paid to a partner even the employed one ADMISSION OF A NEW PARTNER Factors which influence admission of a new partner are: a) To replace a position of a partner who is about to retire b) To take a place a partner who died c) Need to expand a business a new partner to contribute capital, talent, skills to the partnership. Before a new partner is admitted factors to be considered by existing partnership: a) Net Assets must be revalued and the net surplus or deficit must be apportioned between the partners b) Valuation of Goodwill c) Change in the Profit sharing ratio What is goodwill? Reputation of a business Benefits advantages, business connections enjoyed by a business Benefits can be locations, customers If you are capable of supplying goods at right quality, quantity, time to the customers; this will increase Goodwill. Goodwill is a capability of a business to raise it reputation. Any of the following factors may raise goodwill of a business Monopoly Power Goodwill performance of a business quality and quantity of goods/services offered by a business to the customer Location of business 1

 Patent right, trade mark, copy rights of the firm Reputation of the owners of the firm Monopoly power means there is a single supplier of a goods, people have to buy your goods/services as there is only one supplier Good performance will result in rising up your profits Patent rights is intellectual asset you discover a unique way of service or produce goods e.g. cocacola Trade mark is a symbol of a business which differentiate a business with another firm. It can be easy for customers to differentiate How to Value Goodwill Average profit approach Super profit approach Capitalization approach Average profit approach In this method, the average of the last few years profit is computed multiplied by a specified number of years. Example: Profits of A&B partnership in the last three years were as follows: Year 2006 2008 2009 Profit 15,000 20,000 25,000

Required: To calculate the amount of Goodwill on the basis of 2 years purchase of average profits of the last three years. Average profit = (15,000+20,000+25,000)/3 = 20,000 Goodwill = Average Profit X Number of years Goodwill = 20,000 X 2 = 40,000 Super Profit Approach In this method expected profits is computed in percentages of return to the capital employed. Capital employed = Fixed Assets (NCA) + Working Capital Where Working capital = Current Assets Current Liabilities In this method, the rate of expected return is computed on the agreed asset figure i.e. capital employed. The excess of the actual profit over expected return is considered to be super profit. The super profit is then capitalized at the specific risk rate and the resultant figure is the value of goodwill e.g. Actual Profit xxx Less: Expected Profit xxx Super Profit xxx Capitalized profits The profit of AB&C partnership for the last 5 years average is 60,000/= per annum. Net Capital employed is 180,000/=. The expected rate of return is estimated at 15%. The risk factor is 5%. 2

Required: calculate the value of Goodwill Expected returns/profit = 180,000 x 15% = 27,000/= Super Profit Actual Profit = 60,000/= Less: Expected = 27,000/= Super Profit = 33,000/= Expected returns/profit + Risk factors = 15% + 5% = 20% Goodwill = (33,000 X 100)/20 = 165,000/= Capitalization Approach Goodwill = Net Assets Value of Business Value of Business = Actual Profit x 100 / Normal Profit Suppose a firm earns a net profit of 50,000/= annually and normal rate of return is 10%. Calculate the value of the firm. If the net tangible Assets of the business amount to 600,000/=. Calculate the amount of Goodwill. Value of Business = 50,000 10% = 500,000 Goodwill = Net Assets - Value of Business = 600,000 500,000 = 100,000/= Treatment of Goodwill in the Books of Accounts A Goodwill can be received in cash by Old Partners from the New Partners directly without being recorded in the books of accounts. But this is not a good method. A Goodwill received in cash should be recorded in the books of Accounts. DR. DR. Cash A/C xxxxxx CR. Goodwill A/Cs xxxxxx Goodwill A/C xxxxxx CR. Old Partners Capitals xxxxxx with the amount received Cash brought by New Partiners with the amount received using old PSR

ACCOUNTING FOR PARTNERSHIPS

The use of the Appropriation account in: Computing and the division of the profit and loss among Partners The use of Partners Account and Current Accounts The formats for Profit & Loss Accounts and Balance Sheets Example: Andrew, Gurnery and Martin are in partnership as camping equipment retailers. Their trial balance as at 31/12/2003 was:
DR Fixed Assets at cost Stock at 31/12/2002 Debtors Overheads Purchases Drawings: Andrew Gurnery Martin Bank Total 24,300 16,720 1,340 7,105 78,626 4,800 7,100 5,600 1,220 146,811 CR Depreciation Provision at 31/12/2002 Sales Capital: Andrew Guy Martin Creditors 4,750 112,220 12,020 7,001 1,000 9,820

Total

146,811

Notes: a) Stock at 31st Dec 2003 was valued at 22,300 b) Depreciation is at 20% a year on the reducing balance. c) The Partnership agreement provides that profits be shared: Interest on capital 15% Salaries: Guy 3,000, Martin 2,000 Balance: 5:4:3 Required: Prepare trading and profit and loss and appropriation accounts for the year ending 31/12/2003. The answer The first stage is to prepare the Trading, Profit and Loss Account as with the accounts of a Sole Trader With a sole trader all the profits belong to the sole trader, but in a partnership the profit is shared among the partners. An additional account is required to show the appropriation of the profits among the partners. The Profits is shared in accordance with the agreement Andrew, Gurnery and Martin Trading and Profit and Loss Account for the year ending 31st December 2003
Sales Less: 112,220 Cost of Sales: Opening Stock Purchases Available for Sales Closing Stock 16,720 78,626 95,346 22,300 7,106 3,910

Gross Profit Overhead Depreciation Net Profit

73,046 39,174 11,016 28,158

Appropriation Account
Andrew Interest on Capital Salaries Balance 1,803 8,398 10,201 Gurnery 1,050 3,000 6,719 10,769 Martin 150 2,000 5,039 7,189 Total 3,003 5,000 20,156 28,159

In the above example the partnership had made a profit and the profit was apportioned in unique way as per agreement. Suppose the firm had made a profit of only Tshs. 7,000/=. How would this profit be apportioned? There are at least two possibilities: Option 1.
Andrew Interest on Capital Salaries Balance 1,803 (418) 1,385 Gurnery 1,050 3,000 (334) 3,716 Martin 150 2,000 (251) 1,899 Total 3,003 5,000 (1,003) 7,000

Option 2.
Andrew Interest on Capital Salaries 1,803 1,803 Gurnery 1,050 2,398 3,448 Martin 150 1,599 1,749 Total 3,003 3,997 7,000

In Option 2 Salaries has been reduced to absorb the remainder of the profits. Another alternative is to give priority to salaries over interest on capital. Whichever is correct depends on a legal interpretation of the partnership agreement. To avoid such ambiguity the agreement had to cover all sizes of profits and losses PROFIT SHARING IN THE ABSENCE OF AN AGREEMENT If the partners had no agreement or the agreement does not stipulate how the profits will be shared: a) They could come into agreement in arrears b) They could use the Partnership Act 1890, Section 24: i. 5% interest on loans to the Partnership by Partners ii. No interest is to be allowed on capital iii. Balance of profit to be shared equally

Capital and Current Accounts

Some partnerships have capital and current accounts. Some have only Capital Accounts. Capital Accounts where there are also Current Accounts At the formation of a new Partnership, the Partners may agree to put into the partnership from their private resources, cash and/or other assets to an agreed value. The amount of such resources put in by a partner is his capital. Usually the partners agree that no partner will withdrawal resources from the partnership in such a way that the capital is reduced. A partners capital account will only change by agreement or on the occurrence of events such as a change in the profit sharing ratio or on the death or retirement of a partner or the admission of a new partner.

Current Accounts If a profit is made a partnership, it means that the net assets of the partnership have increased by the amount of the profit. Each partners share of the profit is credited to his current account. The balance standing to the credit of a partners current account represents the maximum amount that the partner can withdraw from the partnership assets. Thus a partner can only make drawings up to the amount of his accumulated share of profits. The current account represents undrawn profits. Capital Accounts without Current Accounts Many partnerships simply have capital accounts without partners current accounts. In these cases, the capital account represents a mixture of capital subscribed and undrawn profits. There is therefore no maximum put on partners drawings by the division between capital and current accounts and restriction of another sort has to be agreed upon. (Perhaps a weekly amount and an annual drawing when profits have been calculated). In the question in example No 1, the partners capital account would appear thus:

Andrew, Guy and Martin Partnership Capital Account as at 31st December 2003
Drawings 31/12/2003 Balance 31/12/2003 Andrew 4,80 0 17,4 21 22,2 21 Gurnery 7,10 0 10,67 0 17,77 0 Martin 5,60 0 2,58 9 8,18 9 22,221 17,770 8,189 Andrew Balance 31/12/2002 Profit 31/12/2003 12,020 10,201 Gurnery 7,001 10,769 Martin 1,000 7,189

Formats The format for Trading and Profit and Loss account are the same as for sole trader. Additional features for partnership is the Appropriation Account and a suitable format is as follows: Appropriation Account
Interest on Capital Salaries Balance Andrew 1,803 8,398 10,201 Gurnery 1,050 3,000 6,719 10,769 Martin 150 2,000 5,039 7,189 Total 3,003 5,000 20,156 28,159

An alternative format is as follows: Appropriation Account

Andrew Gurnery Martin Interest 1,803 1,050 150 3,003 Salary 3,000 2,000 5,000 Balance 8,398 6,719 5,039 20,156 Total 10,201 10,769 7,189 28,159

Other formats are possible but any format should show the total share of profits given to each partner. The Balance Sheet formats Same as for Sole Trader The difference is that instead of a single capital account for sole trader there are several accounts and perhaps current accounts, one for each partner. 6

In simple cases the full accounts can be given, showing separately, opening balances, share of profit, drawings, closing balances. In more complex cases, the detail is usually put in a separate schedule and only the final balances put on the Balance Sheet. An Example Kate and Brennan are in partnership as tree surgeons sharing profits 3:2. Their trial balance after computing profits at 31.12.2004 showed:
Fixed Assets Debtors/Creditors Cash at Bank Stock Current A/C 31/12/03 - Katie Drawings: Katie Brennan DR 20,000 15,400 1,100 8,400 180 4,600 5,200 54,880 Creditors Capital: Current A/C 31/12/03 Katie Loan at 15% Brennan Profit 2004 Depreciation CR 6,280 10,000 7,000 3,100 10,000 10,200 8,300 54,880

Katie Brennan Brennan

Note: During 2004, each partner had subscribed an additional shs.3,000/= Required: Draw up a balance sheet at 31st Dec 2004

Kate and Brennan Schedule of Capital and Current Accounts year ended 31st December 2004
Katie Capital Accounts As at 31.12.2003 Additions in 2004 As at 31.12.2004 Current Accounts As at 31.12.2003 Profit Share 2004 Drawings Total Interest in the net Assets of the Partnership as at 31/12/2004 7,000 3,000 10,000 (180) 6,120 5,940 4,600 1,340 11,340 Brennan 4,000 3,000 7,000 3,100 4,080 7,180 5,200 1,980 8,980 Total 11,000 6,000 17,000 2,920 10,200 13,120 9,800 3,320 20,320

Balance Sheet as at 31/12/2004 7

Fixed Asset at Cost Less: Depreciation Current Assets Stock Debtors Cash at Bank Current Liabilities Creditors

20,000 8,300 11,700 8,400 15,400 1,100 24,900 6,280 18,620 30,320 20,320 10,000 30,320

Partners' Interest as schedule Long Term Liability Loan at 15%

Andrew, Guy and Martin Partnership Balance Sheet as at 31st December 2003
Fixed Asset at Cost Less: Depreciation Current Assets Stock Debtors Cash at Bank Current Liabilities Creditors 24,300 8,660 15,640 22,300 1,340 1,220 24,860 9,820 15,040 30,680

Andrew Capital Accounts As at 31.12.2003 Net Profit Drawings 12,020 10,201 22,221 4,800 17,421

Guy 7,001 10,769 17,770 7,100 10,670

Martin 1,000 7,189 8,189 5,600 2,589

Total 20,021 28,159 48,180 17,500 30,680

EXAMPLE 1: A and B are carrying business in partnership sharing profits and loss in the ratio of 3:2 respectively. Accounting period of the firm of the firm usually ends 31/12. C was admitted to the firm on 01/10/2006. The partnership agreement before Cs admission provided that 5% p.a. interest be charged on opening balances of Partners account and each partner was to receive a monthly salary of shs. 3,000/=. This condition did not change at the time of Cs admission the new profit sharing ration became 2:2:1 for A, B, C respectively. The Trial Balance extracted as at 31/12/2006: 8

DR

CR

Fixed Assets Debtors/Creditors Sales Cost of Sales Selling expenses Admin Expenses Drawings:

2,500,000 800,000 3,500,000 300,000 200,000 50,000 150,000 25,000

250,000 6,000,000

Capital Account

A: B: C: A: B: C:

750,000 1,000,000 1,250,000 200,000 300,000 1,225,000 9,250,000

Stock Cash Goodwill

9,250,000

REQUIRED a) Trading and Profit and Loss for the Partnership for the year ended 31/12/2006. b) Profit and Loss Appropriation account for the year ended 31/12/206 c) The Balance Sheet as at that date.

A, B and C Partnership Trading and Profit and Loss for the Partnership for the year ended 31/12/2006
9 Month 3 Month Total Sales Less: Cost of Sales Gross Profit 225,0 00 150,0 00 1,500,0 00 1,875,0 00 75,00 0 50,00 0 500,00 0 625,00 0 1,875,0 00 625,00 0 9 Month 3 Month Total 6,000,0 00 3,500,0 00 2,500,0 00 2,500,0 00

Selling Expenses Admin Expenses Net Profits

300,000 200,000 2,000,000 2,500,000

Gross Profit

Profit and Loss Appropriation Account for the year ended 31/12/2006
Interest on Capital Net Profits 1,500,0 00 500,00 0 2,000,0 00

10

A B C Salaries A B C Share of Profits A B C

28,12 5 37,50 0 27,00 0 27,00 0 828,2 25 552,1 50 1,380,3 75 1,500,0 00

9,375 12,50 0 15,62 5

37,500 50,000 15,625

9,000 9,000 9,000 174,20 0 174,20 0 87,10 0 435,50 0 500,00 0

36,000 36,000 9,000

1,002,425 726,350 87,100 1815875 2,000,000 1,500,0 00 500,00 0 2,000,0 00

A, B and C Partnership Capital Account

A Drawings 50,000 DR B 150,000 C Balance b/forward Cash Appropriation Interest Appropriation Salaries Appropriation Profits A 750,000 CR B 1,000,000 C -

28,125 27,000 828,225 1,633,350

37,500 27,000 552,150 1,616,650

Balance before Admission

1,583,350 1,633,35 0

1,466,650 1,616,650

Drawings

25,000

Balance Carried down

1,775,925 1,775,925

1,662,350 1,662,350

1,336,725 1,361,725

Balance before Admission Cash Appropriation Interest Appropriation Salaries Appropriation Profits

1,583,350

1,466,650

1,250,000 15,625 9,000 87,100 1,361,725

9,375 9,000 174,200 1,775,925

12,500 9,000 174,200 1,662,350

A, B and C Partnership Balance Sheet as at 31st December 2007

11

Fixed Assets Fixed Assets Goodwill Current Assets: Stocks Debtors Cash Less: Current Liabilities FINANCED BY: Capital: A: B: C:

2,500,000 1,225,000 200,000 800,000 300,000 1,300,000 250,000

1,050,000 4,775,000 1,775,000 1,662,350 1,336,725 4,775,000

Example 2:
W and X are carrying business in partnership sharing profit and loss in the ratio 3:2. But during the year ended 31/12/2005, other members were admitted Y and Z on July 1st and September 30th 2005 respectively. Net Sales during the year amounted to shs. 500,000/=; selling and distribution expenses shs. 50,000/= and administration expenses amounted to shs. 24,000/=. The following is the breakdown of the trend of sales during the year.
January 1st to March 31, 2005 April 1st to June 30, 2005 July 1st to September 30, 2005 October 1st to December 31, 2005 125,000 187,500 62,500 125,000

The firm usually fixes the Gross profit at 25% above cost. The Profit and Loss sharing ratio were: W: X: Y: W: X: Y: Z Required: Prepare Profit and Loss Appropriation account for the year ended 31/12/205 Let Cost of Sales be x. Cost + 25% Cost = Sales X + 25% X = = 500,000 4X +X = 2,000,000 X = 400,000 Gross Profit = 100,000
PERIOD Jan - March April - June July - Sept SALES 125,000 187,500 62,500 GROSS PROFIT 25,000 37,500 12,500 SELL EXPENSE 12,500 18,750 6,250 ADM EXPENSES 6,000 6,000 6,000 NET PROFIT 6,500 12,750 250

2: 2: 1 4: 3: 2: 1

12

Oct - Dec

125,000 500,000

25,000 100,000

12,500 50,000

6,000 24,000

6,500 26,000

PROFIT AND LOSS APPROPRIATION ACCOUNT

JAN-JUNE Share of Profit W(3) X(2) W(2) X(2) Y(1) W(4) X(3) Y(2) Z(1) 11,550 7,700 100 100 50 2,600 1,950 1,300 650 6,500 X 7,700 100 1,950 9,750 Y 50 1,300 1,350 JULY - SEP OCT-DEC Net Profit JAN-JUNE 19,250 JULY - SEP 250 OCT-DEC 6,500

19,250 PERIOD Jan - June July - Sept Oct - Dec W 11,550 100 2,600 14,250

250

19,250 Z 650 650

250

6,500 Total 19,250 250 6,500 26,000

INTEREST ON DRAWINGS Assume that a fixed amount of shs.10,000/= was drawn by a partner very month. Compute interest on drawings when drawing was made: a) At the beginning b) At the and of each month 13

From 1st January to 31st December The interest rate is 10%.

January February March April May June July August September October November December (a) Beginning of month 10000x10%x12`month 10000x10%x11`month 10000x10%x10`month 10000x10%x9`month 10000x10%x8`month 10000x10%x7`month 10000x10%x6`month 10000x10%x5`month 10000x10%x4`month 10000x10%x3`month 10000x10%x2`month 10000x10%x1`month 12 month (b) End of Month 10000x10%x11`month 10000x10%x10`month 10000x10%x9`month 10000x10%x8`month 10000x10%x7`month 10000x10%x6`month 10000x10%x5`month 10000x10%x4`month 10000x10%x3`month 10000x10%x2`month 10000x10%x1`month 10000x10%x0`month 11 month

1 month

0 month

Guarantee of Profit by Partners

If a partner newly admitted is guaranteed a minimum share of profit for year and after division of the profit for the particular year, a partner gets less than the minimum guaranteed share, then the difference has to be born by the guaranteeing partners in their profit sharing ratio. Example A and B are carrying on business in partnership since 2003 and their profit sharing ratio is 3:2. on January 1st 2006 C was admitted to the partnership and the new profit sharing ratio was agreed to be 2:2:1 for A, B, and C respectively. At the time of admission B guaranteed C a minimum share of profit of shs.72,000/= per annum. However the profit during the year ending December 31st 2006 amounted to shs.240,000/=. Required: To prepare the statement of Profit and Loss Appropriation
A Profit as per Sharing Ratio Guaranteed Profit for C 96,000 96,000 B 96,000 (24,000) 72,000 C 48,000 24,000 72,000 Total 240,000

Therefore, according to the profit sharing ratio A,B, and C will get shs,96,000/=; shs,96,000/= and shs,48,000/= respectively. But because B had guaranteed C to get shs.72,000/= then difference has to come out of Bs share of profit. X and Y has been practicing as Lawyers and sharing profit and Losses in the ratio of 1:1. In 2004 Z was admitted into the firm commencing on 1st July 2004 taking half of Ys share of profits in the business. In addition to that, X, and Y guaranteed Z a minimum share of profit of shs.180,000/= out of the partnership every year. The profits for the year ended 31st December 2004 amounted to shs.576,000/. The accounting year for the firm ends 31st December. Required: To prepare the statement of Profit and Loss Appropriation Profit and Loss Appropriation
X Y Z Total

14

Jan - June July - Dec

144,000 144,000 (12,000) 276,000

144,000 72,000 (6,000) 210,000

72,000 18,000 90,000

288,000 288,000

Guarantee for six month is shs.90,000/= The difference has be borne by partners X and Y in their profit sharing ratio 2:1

Capital and Current Accounts

Some partnerships have capital and current accounts. Some have only Capital Accounts. Capital Accounts where there are also Current Accounts At the formation of a new Partnership, the Partners may agree to put into the partnership from their private resources, cash and/or other assets to an agreed value. The amount of such resources put in by a partner is his capital. Usually the partners agree that no partner will withdrawal resources from the partnership in such a way that the capital is reduced. A partners capital account will only change by agreement or on the occurrence of events such as a change in the profit sharing ratio or on the death or retirement of a partner or the admission of a new partner. Current Accounts If a profit is made a partnership, it means that the net assets of the partnership have increased by the amount of the profit. Each partners share of the profit is credited to his current account. The balance standing to the credit of a partners current account represents the maximum amount that the partner can withdraw from the partnership assets. Thus a partner can only make drawings up to the amount of his accumulated share of profits. The current account represents undrawn profits. Capital Accounts without Current Accounts Many partnerships simply have capital accounts without partners current accounts. In these cases, the capital account represents a mixture of capital subscribed and undrawn profits. There is therefore no maximum put on partners drawings by the division between capital and current accounts and restriction of another sort has to be agreed upon. (Perhaps a weekly amount and an annual drawing when profits have been calculated). In the question in example No 1, the partners capital account would appear thus:

Drawings 31/12/2003 Balance 31/12/2003

Andrew 4,8 00 17,4 21 22,2 21

Guy 7, 100 10, 670 17, 770

Martin 5, 600 2, 589 8, 189

Balance 31/12/2002 Profit 31/12/2003

Andrew 12,0 20 10,2 01 22,2 21

Guy 7,0 01 10,7 69 17,7 70

Martin 1,0 00 7,1 89 8,1 89

Formats The format for Trading and Profit and Loss account are the same as for sole trader. Additional features for partnership is the Appropriation Account and a suitable format is as follows: Appropriation Account
Interest on Capital Andrew 1,803 Guy 1,050 Martin 150 Total 3,003

15

Salaries Balance

8,398 10,201

3,000 6,719 10,769

2,000 5,039 7,189

5,000 20,156 28,159

An alternative format is as follows: Appropriation Account

Andrew Guy Martin Interest 1,803 1,050 150 3,003 Salary 3,000 2,000 5,000 Balance 8,398 6,719 5,039 20,156 Total 10,201 10,769 7,189 28,159

Other formats are possible but any format should show the total share of profits given to each partner. The Balance Sheet formats Same as for Sole Trader The difference is that instead of a single capital account for sole trader there are several accounts and perhaps current accounts, one for each partner. In simple cases the full accounts can be given, showing separately, opening balances, share of profit, drawings, closing balances. In more complex cases, the detail is usually put in a separate schedule and only the final balances put on the Balance Sheet. An Example Kate and Brennan are in partnership as tree surgeons sharing profits 3:2. Their trial balance after computing profits at 31.12.2004 showed:
Fixed Assets Debtors/Creditors Cash at Bank Stock Current A/C 31/12/03 - Katie Drawings: Katie Brennan DR 20,000 15,400 1,100 8,400 180 4,600 5,200 54,880 Creditors Capital: Current A/C 31/12/03 - Katie Loan at 15% Brennan Profit 2004 Depreciation CR 6,280 10,000 7,000 3,100 10,000 10,200 8,300 54,880

Katie Brennan Brennan

Note: During 2004, each partner had subscribed an additional shs.3,000/= Required: Draw up a balance sheet at 31st Dec 2004 Kate and Brennan Schedule of Capital and Current Accounts year ended 31st December 2004
Katie Capital Accounts As at 31.12.2003 Additions in 2004 As at 31.12.2004 Current Accounts 7,000 3,000 10,000 Brennan 4,000 3,000 7,000 Total 11,000 6,000 17,000

16

As at 31.12.2003 Profit Share 2004 Drawings Total Interest in the net Assets of the Partnership as at 31/12/2004

(180) 6,120 5,940 4,600 1,340 11,340

3,100 4,080 7,180 5,200 1,980 8,980

2,920 10,200 13,120 9,800 3,320 20,320

Balance Sheet as at 31/12/2004

Fixed Asset at Cost Less: Depreciation Current Assets Stock Debtors Cash at Bank Current Liabilities Creditors 20,000 8,300 11,700 8,400 15,400 1,100 24,900 6,280 18,620 30,320 20,320 10,000 30,320

Partners' Interest as schedule Long Term Liability Loan at 15%

Andrew, Guy and Martin Partnership Balance Sheet as at 31st December 2003
Fixed Asset at Cost Less: Depreciation Current Assets Stock Debtors Cash at Bank Current Liabilities Creditors 24,300 8,660 15,640 22,300 1,340 1,220 24,860 9,820 15,040 30,680

Andrew Capital Accounts As at 31.12.2003 Net Profit Drawings 12,020 10,201 22,221 4,800 17,421

Guy 7,001 10,769 17,770 7,100 10,670

Martin 1,000 7,189 8,189 5,600 2,589

Total 20,021 28,159 48,180 17,500 30,680

EXAMPLE:

17

Sele, Idrisa and Tango are partners in woodland, boards, business sharing profits in the ratio 5:3: 2 respectively. Their capital and Current accounts balances on 1st January 1992 were:
Sele Idrisa Tango Capital Account 24,000 8,000 13,000 Current Account 2,000 (1,000) 1,500

Interest at 10% p.a. is given on the fixed capitals, salaries of shs.8,000/= p.a. are credited to Idrisa and Tango. Expansion of the business was hindered by lack of Working Capital, so Sele made a personal loan of Tshs.20,000/= to the partnership on 1st July 1992. The loan was to be repaid in full on 30th June 1995 and loan interest at the rate of 15% p.a. is to be credited to Seles account every half year. The partnership profits before charging loan interest for the year ended 31/12/1992 was Tshs.63,000/= and the partnership had made drawings of Sele Tshs.16,000/=, Idrisa Tshs.16,500/=, Tango Tshs.19,000/= during the year. REQUIRED: Prepare the P&L appropriation account, the partners capital and Current account and the Partnership Balance Sheet in respect of the year ended 31/12/1992. SOLUTION: PARTNERSHIP PROFIT AND LOSS APPROPRIATION ACCOUNT
Profit before Interest Less: Loan Interest Net Profit (Adjusted) Salaries: Idrisa Tango Interest on Capital Sele Idrisa Tango Profit Sharing Sele Idrisa 40000x5/10 40000x3/10 40000x2/10 20,000 12,000 8,000 24000x10% 18000x10% 13000x10% 2,400 1,800 1,300 8,000 8,000 16,000 20000x15%x 0.5 63,000 1,500 61,500

5,500

21,500 40,000

40,000 -

PARTNERS CAPITAL ACCOUNTS

DR SELE IDRISA TANGO Balance b/f SELE 24,000 IDRISA 18,000 CR TANGO 13,000

PARTINERS CURRENT ACCOUNT

18

DR SELE Balance B/F Drawings 16,000 IDRISA 1,000 16,500 TANGO 19,000 Balance b/f Interest on Loan Salaries Interest on Capital Profit Sharing Balance c/d 9,900 25,900 Balance B/F 4,300 21,800 19,000 200 Balance b/f Balance c/f SELE 2,000 1,500 2,400 20,000 25,900 9,900 IDRISA 8,000 1,800 12,000 21,800 4,300

CR TANGO

1,500 -

8,000

1,300

8,000

200

19,000 -

PARTNERSHIP BALANCE SHEET

Net Assets FINANCED BY: Capitals: Sele Idrisa Tango Current Accouns: Sele Idrisa Tango Partner's Loan 89,000

24,000 18,000 13,000 9,900 4,300 (200)

55,000

14,000 20,000 89,000

PROBLEMS ARISING
RETIREMENT OR DEATH OF A PARTNER When there is a retirement or death of a partner, the following should be observed: a) Shares of retiring partner must be calculated and transferred either in cash or by agreement retained in the partnership as a loan. b) All assets including Goodwill and Liabilities must be valued at retirement date and appropriate adjustments made.

19

c)

d)

Where revised value are not to be incorporated in the books of the partnership, credit/debit partnership capital or current accounts in the OLD PROFIT SHARING RATIO with the surplus/deficit and debit/credit the remaining partners with the same total surplus/deficit in the profit sharing ratio. The basis for valuing Goodwill will usually be stated in the partnership deed.

ADMISSION OF A NEW PARTNER a) Old Partners will have to be credited with their entitlement to all profits made up to date of admission of the New Partner, including unrealized Surplus and Goodwill. b) Where these revised values are not to be incorporated into the accounts, surpluses are credited to OLD PARTNERS in OLD PROFIT SHARING RATIO and debited to new partners in new profit sharing ratio. c) Similar adjustment must be made for any unrealized losses. d) Any cash introduced by new partner including any amount paid for his share of Goodwill is debited to Cash and credited to his Capital account. EXAMPLE Maisha, Bora and Tumaini are in Partnership sharing profits and losses in the ratio 3:2:1 respectively. The balance sheet for the partnership as at 30/6/2004 is as follows:
FIXED ASSETS Premises Plant Vehicles Fixtures CURRENT ASSETS Stock Debtors Cash 62,379 34,980 760 98,119 242,119 90,000 37,000 15000 2,000 144,000

CAPITAL Maisha Bora Tumaini CURRENT ACCOUNT Maisha Bora Tumaini LOAN Tumaini Creditors Bank Overdraft

85,000 65,000 35,000 3,714 (2,509) 4,678

185,000

5,883 28,000 19,036 4,200 242,119

Tumaini decides to retire from the business on 30/6/2004 and Subira is admitted as a partner on that date. The following are agreed: a) Certain assets were revalued Premises 120,000 Plant 35,000 Stock 54,179 b) Provision is to be made for doubtful debts in the sum of Tshs.3,000/= 20

c) Goodwill is to be added in the books on the day Tumaini retires in the sum of Tshs.42,000/=. The Partners in the new firm do not wish to maintain a goodwill account so that account is to be written back against the new partners accounts. d) Maisha and Bora are to share profits in the same ratio as before and Subira is to have the same share of profits as Bora. e) Tumaini is to take his car at its book value of Tshs.3,900/= in part payment and the balance of all he is owed by the firm in cash, except Tshs.20,000/= which he is willing to leave as a loan account. f) The partners in the firm are to start on equal footing as capital and current accounts are concerned. Subira is to contribute cash to bring his capital and current accounts in the same amount as the original partner from the old firm who has the lower investment in the business. g) The original partner in the old firm who has the higher investment will draw out cash so that his capital and current account balances equal those of his new partners. REQUIRED Accounts for the above transactions, including Goodwill and retiring partners accounts. Draft Balance Sheet for the Partnership of Maisha, Bora, & Subira as at 30/06/2004. SOLUTION We need to open up revaluation account. DR. Premises a/c 30,000 CR. Revaluation a/c 30,000 DR. Revaluation a/c CR. Plant a/c DR. Revaluation a/c CR. Stock a/c 2,000 2,000 2,000 2,000

DR Plant Stock Provision for Doubtful Debts Maisha: Bora: Tumaini:

16,800x3/6 16,800x2/6 16,800x1/6

REVALUATION ACCOUNT 2,000 Premises 8,200 3,000 8,400 5,600 2,800

30,000

CR

30,000

30,000

21

DR Goodwill Retirement A/C Balance c/d MAISHA 18,000 88,000 106,000 Balance b/d Bank Balance c/d 21,000 67,000 88,000 BORA 12,000 67,000 79,000 67,000 67,000

PARTNERS CAPITAL ACCOUNT TUMAINI SUBIRA MAISHA 12,000 Balance b/f 85,000 Goodwill 21,000 42,000 Balance b/f 42,000 12,000 12,000 67,000 79,000 Balance c/d Balance b/f Bank 106,000 88,000 88,000 67,000

BORA 65,000 14,000 79,000 67,000 67,000 67,000

TUMAINI 35,000 7,000 42,000 -

CR SUBIRA 12,000 12,000 79,000 79,000 67,000

Recording of Goodwill DR. DR

Balance b/d Balance c/d MAISHA 12,114 12,11 4 9,02 3 3,09 1 12,11 4 BORA 2,509 3,091 5,60 0 TUMAINI 7,478 7,478 7,478 3,09 1 3,09 1 7,478

Goodwill A/C 42,000 CR. Capital A/Cs PARTNERS CURRENT ACCOUNT

SUBIRA 3,091 3,091 Balance c/d 12,11 4 3,09 1 3,09 1 3,09 1 7,47 8 3,09 1 3,09 1 Balance b/f Bank 12,11 4 12,11 4 5,60 0 3,09 1 7,47 8 7,47 8 3,09 1 Balance b/f Revaluation MAISHA 3,714 8,400 BORA 5,600 TUMAINI 4,678 2,80 0 CR SUBIRA -

Retirement Bank Balance c/d

Maisha Bora Tumaini Write-Off of Goodwill DR. Capital A/Cs Maisha Bora Subira CR. Goodwill 18,000 12,000 12,000

21,000 14,000 7,000

42,000
Tumaini Retirement Account 3,900 Partnership Current A/C CR. 7,478

DR. Car (Vehicle)

22

Bank

53,578 57,478

Partnership Capital A/C Loan Tumaini

42,000 8,000 57,478

Car taken by the retiring Partner (Tumaini): DR. Retirement A/C CR. Car Vehicle 3,900 3,900

Loan to the Partnership: DR. Loan A/C 8,000 CR. Retirement A/C 8,000

Capital brought in by the new partner - Subira: DR. Bank A/C 79,000 CR. Capital A/C - Subira 79,000

Capital withdrawn by Maisha to reduce his Capital to 67,000/=: DR. Capital Account - Maisha CR. Bank A/C 21,000 21,000

Capital withdrawn by Maisha to reduce his Current A/C to 3,091/=: DR. Current Account - Maisha CR. Bank A/C 9,023 9,023
Car Vehicle Account 15,000 Tumaini Retirement A/C Balance c/f 15,000 CR. 3,900 11,100 15,000

DR. Balance b/f

DR. Capital Subira Current A/C Balance c/f

Bank Account 79,000 Balance b/f 3,091 Capital A/C - Maisha 5,710 Current A/C - Mmaisha Retirement A/C 87,801

CR. 4,200 21,000 9,023 53,578 87,801

MAISHA, BORA AND SUBIRA PARTNERSHIP BALANCE SHEET AS AT 31ST DECEMBER 2005 23

FIXED ASSETS Premises Plant Vehicles Fixtures CURRENT ASSETS Stock Debtors Cash Less: CURRENT LIABILITIES Creditors Bank Overdraft NET CURRENT ASSETS

120,000 35,000 11,100 2,000

168,100

54,179 31,980 760

86,919

19,036 5,710

24,746 62,173 230,273 20,000 210,273

LESS: TUMAINI'S LOAN

FINANCED BY: CAPITAL ACCOUNT MAISHA BORA SUBIRA CURRENT ACCOUNT MAISHA BORA SUBIRA

67,000 67,000 67,000 3,091 3,091 3,091

201,000

9,273 210,273

CHANGES DURING THE PERIOD

24

If there is a change during the period, what is required is: To prepare profit and loss account in two stages Where sufficient details are not given to enable the profit to be calculated accurately it should be apportioned on a time basis. The appropriation account should reflect the different terms of apportionment of profits, salaries, etc. Where an employee is admitted to partnership during the year, his salary whilst on employment is an expense of the business for the first part of the year. Any salary subsequent to admission is an appropriation of profits and if paid out increases the partners drawings. Example Salary for an employee is 12,000/= p.a.; the employee has been introduced to the partnership 9 months. 9/12 x 12,000/ = 9.000/=. This is treated as normal expense 3/12 x 12,000/= 3,000/= this is treated as drawings.

AMALGAMATION
Amalgamation could occur if: 1. A sole trader is joining partnership 2. Two or more sole traders amalgamating with an existing partnership 3. Two or more partnerships amalgamating to form a new partnership. PROBLEMS ARISING ON AMALGAMATION 1. Revaluing assets, goodwill, establishing new profit shares, ascertaining amount of new capital introduced, etc. 2. The old firms assets and liabilities are realized by sale to the new firm and generally the books of the old firm are closed and net assets transferred to the new partnership. EXAMPLE UPENDO, FURAHA and AMANI were three small haulage contractors. Their assets and liabilities on 31st May 2004 were as follows:
Premises Vehicles Equipment Debtors Bank UPENDO 13,000 10,000 4,000 1,300 1,400 29,700 29,300 400 29,700 FURAHA 15,000 18,000 8,000 1,800 2,700 45,500 44,250 1,250 45,500 AMANI 8,000 6,000 3,000 600 800 18,400 18,220 180 18,400 TOTAL 36,000 34,000 15,000 3,700 4,900 93,600 91,770 1,830 93,600

Capital Creditors

The three decided to amalgamate into one partnership which took over all assets and liabilities. An independent valuer agreed the book values of all fixed assets, but considered a provision for doubtful debts should be made in each as follows: 25

UPENDO FURAHA AMANI

1% of debtors 2% of debtors Shs. 200/=

He valued the business as going concern as follows: UPENDO 35,000/= FURAHA 50,000/= AMANI 25,000/= The new partnership came into existence on 1st June 2004. REQUIRED Set out the opening Balance Sheet at that date.

SOLUTION Adjustments required should be dealt with Close the records of three sole traders Open the records of the new business (Partnership) SOLE TRADERS DR. DR. Creditors Business Consideration CR. CR. CR. Fixed Assets Current Assets Gain on disposal 1,830 110,000 85.000 8,351 18,479

PARTNERSHIP DR. DR. DR. Goodwill Fixed Assets Current Assets CR. Capital Accounts UPENDO FURAHA AMANI CR. Creditors 18,479 85,000 8,351 35,000 50,000 25,000 1,830

Analysis of Assets
Net Assets before Amalgamation Adjustments Provision for Doubtful debts Net Assets after amalgamation Consideration Goodwill UPENDO 29,300 13 29,287 35,000 5,713 FURAHA 44,250 36 44,214 50,000 5,786 AMANI 18,220 200 18,020 25,000 6,980 TOTAL 91,770 249 91,521 110,000 18,479

UPENDO, FURAHA, AMANI Partnership 26

Balance Sheet as at 30th June 2004

Goodwill Premises Vehicles Equipment Debtors Bank UPENDO 5,713 13,000 10,000 4,000 1,287 1,400 35,400 35,000 400 35,400 FURAHA 5,786 15,000 18,000 8,000 1,764 2,700 51,250 50,000 1,250 51,250 AMANI 6,980 8,000 6,000 3,000 400 800 25,180 25,000 180 25,180 TOTAL 18,479 36,000 34,000 15,000 3,451 4,900 111,830 110,000 1,830 111,830

Capital Creditors

DISSOLUTION OF PARTNERSHIP

27

Dissolution refers to the breaking of Partnership business, and this can 1. Take place by sale of firm to a company or by breaking up the business entirely. 2. All assets must be either sold or taken over by individual partners on agreed amount. 3. All outside Creditors must be paid in full after which any balances should be divided among the partners. Accounting Procedures 1. 2. 3. 4. 5. 6. 7. 8. 9. Complete Current Accounts up to dissolution, including all profits, losses and drawings. Transfer Current Account balances to Capital Account Record all assets disposal to the cash account and the realization Account Transfer all assets except cash to the realization account at book value Debit Partners Capital Accounts with agreed value of any asset taken over and Credit Realization Account. Settle Liabilities with available cash. Any discounts received are credited to realization account. Debit Realization Expenses to Realization Account. Balance on realization Account is Profit or Loss on Dissolution and should be transferred to the partners capital accounts in the profit sharing ratio. the cash due to Partners is distributed and all Accounts therefore closed: where a partner has a debit balance on his capital account, he must contribute cash to the partnership if the partner is insolvent and cannot contribute the necessary cash, the amount of deficiency on her capital account has to be borne by the other partners in the ratio of their last agreed CAPITAL ACCOUNT BALANCE i.e. Capital Account balances before the dissolution of the partnership agreement - GARNER Vs MURRAY RULE GARNER Vs MURRAY RULE PARTNERSHIP AGREEMENT can specifically exclude the Garner Vs Murray Rule and specify that the deficiency be shared on some other basis i.e. the Garners Vs Murray Rule applies by default, in the absence of a specific agreement.

WORKED EXAMPLE Anna, Betty and Charles were in Partnership sharing profits and losses 2:2:1. As a result of disagreement as to the future trading policies they decided to dissolve the partnership in 1st April 2005. After taking into account the profit and Partners drawings for the year ended on that day the balance Sheet of the Partnership was: Fixed Assets Freehold Premises Equipment Current Assets Stock Debtors Bank Less: Current Liabilities: Loan Partner Anna FINANCED BY: CAPITAL ACCOUNTS Anna: 20,000 11,000 2,500 3,000 8,000

31,000

13,500 10,500

3.000 34,000 9,000 25,000

10,000 28

Betty: Charles: CURRENT ACCOUNT Anna: Betty: Charles:

6,000 4,000 3,000 4,500 (2,500)

20,000

5,000 25,000

THE FREEHOLD PREMISES WERE SOLD FOR 28,000/=. Betty took over the Equipment (NBV) 4,000/= at an agreed valuation of shs. 2,000/=, while the remaining equipment was sold for shs. 6,000/=. Anna took over the stock at book value and the debtors realized shs. 2,800/=. Liabilities were paid as were dissolution expenses amounting to shs. 600/=. REQUIRED Show the realization Account, bank account and Partners accounts recording the partnership dissolution.

Example 1 Grace, Amani and Shukuru started in partnership as Office Cleaners on 1/1/2005. their verbal agreement was: 29

 5% interest on capitals 15% interest charged on drawings 10% commission on turnover to Grace to reflect her ability to get business A salary to Amani of 30,000/= to reflect her longer work time on partnership affairs. Balance of profits to be divided 2:2:1 Shukuru had made a loa to the partnership of 100,000/= at 10%. At the end of the first year turnover was found to be 400,000/= and net profit (after loan interest paid to Shukuru 146,400/= . Capital were:
Introduced Grace Amani Shukuru 1/1/05 20,000 60,000 50,000 Introduced 30/6/05 60,000 Withdrawn 30/6/05 10,000

Drawings were:
1/1/05 Grace Amani Shukuru 5,000 8,000 9,000 30/6/05 9,000 8,000 2,000 30/6/05 10,000 7,000 9,000

Required: The Partnership appropriation account for the year ending 31/12/2005. The Partners capital and current accounts for the same period. Recast (a) and (b) on the basis that the interest on capital was 7%, interest on drawings was 20%, and interest on loan was 5%. Example 2 Adili & Akili have formed two separate partnerships. The profit sharing agreements and other information are:
Partnership 1 Partnership 2

Interest on Capital
Interest on Loan Salary Adili Salary Akili Capital Adili Capital - Akili Profit 2006 after loan interest Profit 2006 before loan interest Loan from Adili Drawings 2006 - Adili Drawings 2006 - Akili Residual profits share Adili Akili

10%
15% 2,000,000 15,000,000 7,000,000 26,500,000 20,000,000 6,500,000 3,000,000 3/5 2/5

15%
12% 4,000,000 6,000,000 2,000,000 6,000,000 4,700,000 4,100,000 2/5 3/5

Required: Appropriation Account for 2006 for each partnership Capital Account for each partner. No current Account are kept. Example 3

30

The Partnership of Amani and Baraka at 31/12/2004 showed:

Capital Accounts Amani Baraka Current Accounts Amani Baraka Creditors 10,000 9,000 1,900 1,700 3,100 25,700 Fixed Assets Current Assets Stock Debtors Cash 14,000 6,800 4,750 150 11,700 25,700

The partnership was dissolved at 31/01/2005 1. The motorcars included in Fixed assets were taken by the partners at agreed values as Amani 2,000/= Baraka 3,000/= 2. The remainder of the fixed assets were sold for 12,000/= 3. The stock was sold at auction for 4,300/= 4. Debtors realized 4,600/= 5. The creditors were paid off less a 5% discount 6. Expenses of realization were 250/= 7. The profit sharing formula is 10% interest on capital, balance 3:2 Required: Show relevant Accounts in the Dissolution (Realization, Cash, Capital, Assets Accounts)

Example 4 Tom, Rodger and James are in Partnership sharing profits equally. Their balance sheet at 31st May 2004 was:
Tom Rodger James 3,500 3,500 416 6,250 9,640 23,306 Fixed Asset Stock Debtors 6,006 9,500 7,800

Creditors
Overdraft

23,306

On 1st June 2004 the Partnership was dissolved and the following happened: The assets were sold to ABB Ltd for 20,000/= The Creditors were settled for 6103/= James was declared bankruptcy with no assets. Required: Show the realization Account, Cash Account and Partners capital account to record the dissolution.

DR
Fixed Asset

REALISATION ACCOUNT 6,006 ABB Ltd 31

CR

20,000

Stock Debtors Cash paid to creditors

9,500 Creditors 7,800 Loss on Realisation

6103 Tom Rodger James 29,409

6250 1053 1053 1053 29,409

ABB Ltd

CASH ACCOUNT 20,000 Balance b/f Creditors Tom Rodger

20,000

9,640
6,103 2,583 1,674 20,000

T 1,05
Loss on Realisation Garner Vs Murray Cash

R 1,05 3 27 3

3 36 4
2,583 4,000

PARTNER'S ACCOUNT J 1,05 3 Balance b/f

Garner Vs Murray

T 4,00 0 0

R 3,00 6 7

J 41 63

1,674 3,000 1,053 4,000 3,000 1,053

PIECE MEAL REALIZATION

Usually the disposal of assets ad the payment of Creditors takes place over a period of time, and the partners often want to withdraw some cash as soon as it is available for distribution. It is necessary to limit individual withdrawals so that no partner receives more than would be his entitlement should the remaining assets prove to be worthless. Therefore technique to determine payments due to partners after all creditors and partners advances have been repaid: a) Calculate expected loss which could arise if all remaining assets proved worthless. b) Divide this loss in the profit sharing ratio between the partners. c) The remaining balance on each partners capital account can now be paid out in cash. d) Any debit balance arising must be apportioned between the other partners using Garner Vs Murray Rule or the Alternative agreed basis and the cash distributed by reference to the remaining balances. e) The procedure is repeated for subsequent realization.

Example

32

Alpha Beta and Gamma were in partnership sharing profits in the ratio 3:1:1 BALANCE SHEET AS AT 31ST DISSOLUTION
Sundry Assets Cash Capital Alpha Beta Gamma Creditors 8,000 4,000 1,000 14,000 1,000 15,000

13,000 2,000 15,000

Proceeds of the first four realization of the assets were: a) shs. 3,000/= b) shs. 2,000/= c) shs. 4,000/= d) shs 2,500/= Assume that Alpha Beta and Gamma partnership agreement does not exclude Garner Vs Murray and that the given capital balance are the last agreed capital balances. Show the partners distribution statement and the partners accounts. SOLUTION: Profit Sharing ratio Garner Vs Murray
Capital Balance b/f First Realization Creditors Capital Balance Gamma Deficiency Cash Distribution

3:1:1 8:4:1
BANK 1,000 3,000 (2,000) 2,000 TOTAL 13,000 (1,000) (3,000) 2,000 11,000 ALPHA 8,000 BETA 4,000 GAMMA 1,000

2,000

(6,600) 1,400 (800) 600

(2,200) 1,800 (400) 1,400

(2,200) (1,200) 1,200 -

CONVERSION TO A LIMITED COMPANY

33

The Partnership business can be either a) Taken over by a completely independent company which pays cash to the Partners leaving them with no further interest in the business. b) Taken over by a company formed specially for the purpose, with existing partners becoming shareholders of the New Company. The accounting approach is as follows: a) Record the disposal of the Partnership and closure of its records via realization account. (see Dissolution of Partnership). b) Record the acquisition of the net assets of the Partnership by the Company at their FAIR VALUE and record the CONSIDERATION paid. EXAMPLE Amani and Huruma are in Partnership selling beverages sharing profits in the ratio 3:2. their Draft Balance sheet as at 31st December 2004 is as follows:
FIXED ASSETS Premises Fixture and fittings Motor Vehicles CURRENT ASSETS Debtors Cash Less CURRENT LIABILITIES NET ASSETS FINANCED BY CAPITAL ACCOUNTS Amani Huruma CURRENET ACCOUNTS Amani Huruma LOAN FROM AMANI 30,000 1,000 3,000

34,000

20,000 600

20,600 12,600 8,000 42,000

20,000 2,500 3,000 500

22,500

3,500 16,000 42,000

AMAHURU is incorporated for the purpose of taking over the business. The company acquired the premises for 40,000/= and other assets (with exception of cash and motor vehicles) at book value. The company will also take over the current liabilities. The purchase consideration of 60,000/= is to be settled by 30,000/= ordinary share and cash of 30,000/= to be raised by the company by Bank loan. Huruma is to take over motor vehicle at a valuation of 2,500/= and the partners have agreed to divide the shares in their profit sharing ratio. Amani is to be repaid out of partnership cash. Required: Show the ledger Accounts recording the above transactions in the partnership books.

DR
Premises Furniture & Fittings

REALISATION ACCOUNT CR 30,000 Current Liability 12,600 1,000 AMAHURU Ltd (Purchase consideration) 60,000 34

Motor Vehicles Debtors

3,000 Capital Account - Hruma

20,000

2,500

Capital
Amani Huruma

12,660 8,440
75,100 75,100

DR
Balance b/f AMAHURU Ltd (Cash) Capital - Huruma

CASH ACCOUNT 600 Loan Amani 30,000 Capital - Amani 3,060

CR

16,000
17,660

33,660

33,660

Balance b/f Current Account Realization (Gain) AMAHURU Ltd Shares Motor Vehicle Cash - receipt Cash - payment

CAPITAL ACCOUNT AMANI HURUMA 20,000 3,000 12,660 35,660 (18,000) 17,660 (17,660) -

2,500 500 8,440 11,440 (12,000) (2,500) (3,060) 3,060 -

35