TOPIC 7 - PARTNERSHIPS

DPA 20033 FINANCIAL ACCOUNTING 2/Aleza/2020

7.1 NATURE OF PARTNERSHIP BUSINESS ACCORDING TO PARTNERSHIP
ACT 1961

7.1.1 Definition :
Partnership is a business that is established by a minimum of 2 members and not more than 20
person. Partnership is defined by the Partnership Act 1961, as the relationship which exists
between person carrying on a business in common with a view to make profits.

7.1.2 Characteristics of Partnership business
The Partnership Agreement is a written agreement which include the terms of the partnership
to avoid any problem occurred. However, the partnership can be form without the above
agreement but to rely on Partnership Act 1961.
Important details to be mention in the Partnership Agreement are:

a. Name of firm/partnership together with partner’s name.
b. Type of business and business address
c. The amount of capital contributed by each partner
d. Ratio of profit/loss allocation between partners
e. Salary for active partners
f. Interest on capital and interest on loan allowed by partner
g. Interest on amount of drawing that withdraw by partnership.

If partners do not make any partnership agreement, therefore partnership agreement will be base
on regulations under Partnership Act 1961 stated as follows:

i) Profits are to be shared equally between partners
ii) Partners are not entitled to receive any interest on the capital invested in the business.
iii) No Partner shall be entitled to remuneration (salary) for acting in the partnership business.
iv) Partners are entitled to receive interest 8 % per annum on any loans advance to business.
v) Any business decision may be decide by majority of the partners.
vi) All Partner may take part in the management of the business and has access to the books of

accounts.
vii) Accounts and books must be keep at the principal place of business and be make available

to all partners. All partners are allow to keep a copy of the accounts.

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DPA 20033 FINANCIAL ACCOUNTING 2/Aleza/2020

7.1.3 Types of Partnerships

1. General Partnership
A general partnership is a partnership with only general partners. Each general partner must
actively participate in managing the business and any partner may sign a contract on behalf of
the partnership. The partners must agree to major decisions, acting as a corporate board of
directors.
Since general partners are actively participate, they all must take personal responsibility for the
liabilities of the business and for debts incurred by other partners. If one partner is sued, all
partners are held liable. General partnerships are the least desirable for this reason.

2. Limited Partnerships

A limited partnership includes both general partners and limited partners. In many cases, only
one general partner who manages the business and a number of limited partners. A limited
partner does not participate in the day-to-day management of the partnership and his/her
liability is limited to his/her investment in the business.
In many cases, the limited partners are merely investors who do not wish to participate in the
partnership other than to provide capital and to receive a share of the profits. Since limited
partners do not participate in management, they are consider passive investors. This means they
cannot take partnership losses off their income tax return if they do not have other income to
offset it.

3. Limited Liability Partnerships

A limited liability partnership (LLP) is different from a limited partnership or a general
partnership but is closer to a limited liability company (LLC). In the LLP, all partners have
limited liability. LLP's are often form by groups of professionals who want to pool their
resources and save money by sharing space.
An LLP combines characteristics of partnerships and corporations. As in a corporation, all
partners in an LLP have limited liability, from errors, omissions, negligence, incompetence, or
malpractice committed by other partners or by employees. If any partners involved in wrongful
or negligent acts, are still personally liable, but other partners are protect from liability for
those acts.

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DPA 20033 FINANCIAL ACCOUNTING 2/Aleza/2020

Personal injury law firms commonly make use of this type of business partnership. Other
businesses that can benefit from forming a limited liability partnership include:

 Accounting firms
 Architectural business
 Healthcare practices

Ownership/ members:
 2 – 20 members for common business.
 2 – 10 members for banking.
 2 – more than 20 members for professional firm such as Legal firm, Audit firm.

7.1.4 Advantages and Disadvantages of Partnership

7.2 Types of Accounts for Partnership

Generally similar to the accounts of sole traders. But due to the existence of more than one
partner, the appropriation of profit needed to show for each partner. The sequence of partnership
accounting records are as follow :

1.Statement of Comprehensive Income
2.Appropriation of Statement of Comprehensive Income
3.Current Account and Capital Account
4.Statement of Financial Position

Capital Account record any fixed capital contribution to partnership by partner. xxx

Capital Account – Partner A
Jan. 1 Bank

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DPA 20033 FINANCIAL ACCOUNTING 2/Aleza/2020

Current Account - prepared to separate any capital contribution from any transaction due to
partner’s drawing, interest on drawing, interest on capital, interest on loan, salary, bonus and

profit shared.

Current Account – Partner A

Drawing xxx Bal b/d xxx
Interest on drawing
Bal c/d xxx Interest on capital xxx

xxx Interest on loan xxx

Salary (accrued only) xxx

Bonus (accrued only) xxx

Profit shared xxx

xxxx xxxx

Appropriation of Statement of Comprehensive Income

Any other allocation of profits to the partners will be recorded in the appropriation Statement of
Comprehensive Income. It is the final part of the income statement for partnership business.

Appropriation of Statement of Comprehensive Income for the year ended ……….

Net Profit for the year RM RM
xxx

Add:

Interest on Drawings

Partner A xx

Partner B xx xxx

xxx

Less: xx
Interest on Capital :

Partner A

Partner B xx (xxx)

Salary (xxx)

Bonus (xxx)
Profit to be shared xxx

Profit shared : xx
Partner A xx xxx
Partner B

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DPA 20033 FINANCIAL ACCOUNTING 2/Aleza/2020

Interest on capital

Interest on capital is compensation given to partners based on the capital they have contributed
will be deducted from the net profit before the profit is distributed among partners. The
partnership agreement will state the interest rate of each partner.

Salaries and bonus

It is compensation for the active partner’s service contribution in partnership business and will
charged to the Appropriation of Statement of Comprehensive Income.

Interest on Drawing

Interest on drawing is charged on partners who withdraw money or goods from partnership
business for personal used. Interest on drawing is revenue to partnership business and is added
to profit before distributing the profit among partners.

Statement of Financial Position

Similar to the sole trader Statement of Financial Position . The difference is due to to the way
capital balance of each partner is reported in the Statement of Financial Position .

Statement of Financial Position as at ……

Non Currrent Asset

Owner’s Equity XXX
Capital A XXX
Capital B XXX
Capital C
XXX
Current Account A XXX
Current Account B XXX
Current Account C

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DPA 20033 FINANCIAL ACCOUNTING 2/Aleza/2020

Example

Bong, Cheng and Kaw were partners of BCKs Partners sharing profits and losses equally. Their
partsnership agreement includes:

a) Salary to Cheng is RM 7,200 per annum
b) Interest on capital is at 5% per annum
c) Interest on drawings is at 10% per annum
d) The Interest rate on the loan by partner is 8% per annum

Partnership books show the following balances as at 31/12/2019

Bong Capital Account Current Account Loan Account
Cheng RM RM RM
Kaw 35,000 925
30,000 772 10,000
20,000 225 (debit) 5,000

-

On 1/7/2019, Kaw was inject additional capital by cash RM10,000. Net profit for the year ended
31/12/2019 was RM 38,100. Total salary paid to Cheng during the year was RM 6,000.

Drawing by partners during the year were as follow:

RM

Bong 16,630

Cheng 17,240

Kaw 8,130

You are required to prepare:

a) Appropriation Statement of Comprehensive Income for the year ended 31/12/2019
b) Current account for each partner.
c) Statement of Financial Position extract as at 31/12/2019.

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DPA 20033 FINANCIAL ACCOUNTING 2/Aleza/2020

Answers

Bong, Cheng and Kaw
Appropriation Statement of Comprehensive Income for the year ended 31/12/2019

Net profit for the year RM RM
(+) 38,100
Interest on drawings:
Bong 1,663 4,200
Cheng 1,724 42,300
Kaw
813
(-)
Interest on capital: 1,750 (4,500)
Bong 1,500 (7,200)
Cheng 1,250 30,600
Kaw
Salary - Cheng 10,200 30,600
PROFIT TO BE SHARED 10,200
10,200
Profit shared:
Bong
Cheng
Kaw

Bal b/d Bong Cheng Current a/c Bong Cheng Kaw
Drawings RM RM Kaw RM RM RM
Interest on - RM 925 772
drawings - 225 Bal b/d -
16,630 17,240 8,130
Bal c/d 1,663 1,724 813 Interest on 1,750 1,500 1,250

Bal b/d _____ _____ capital 800 - 400
18293 18964 Interest on loan - 1,200 -
4,618 5,292 Salary 10,200
Profit shared 10,200 5,292 10,200
2,682 Bal c/d 4,618 18964 _____
11,850 18293 11,850
Bal b/d 2,682

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DPA 20033 FINANCIAL ACCOUNTING 2/Aleza/2020

Bong, Cheng and Kaw RM
Statement of Financial Position as at 31/12/2019

RM

Owner’s Equity 35,000
Capital: 30,000
Bong 30,000
Cheng
Kaw (4,618)
(5,292)
Current Account: 2,682
Bong
Cheng
Kaw

Exercise 1

Syira and Aina agreed to establish a business based on partnership. They agreed to share profit
and loss equally. Their agreement stated the following:

1. RM 500 montly salary to be paid to Aina.
2. Interest of 10% per year paid on capital contributed by partners.
3. Interest of 5% is charge on drawing.

Capital account and current account showed the following balances on 1 January 2018

Capital Account(RM) Current Account(RM)

Syira 100 000 2 920 (Cr)

Aina 60 000 2 250(Cr)

Profit and loss account on 31 December 2018 showed net profit of RM 77 000.

Total drawings by partners on 31 December 2018 are as follows:

Drawing (RM)

Syira 33 000

Aina 34 400

You are required to prepare:
1. Appropriation Statement of Comprehensive Income for year ended 31/12/2018
2. Current Account of each partner.

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DPA 20033 FINANCIAL ACCOUNTING 2/Aleza/2020

Exercise 2

Luqman, Hakim and Amir are in partnership sharing profits in the ratio 3:2:1. The partnership
agreement includes:

1. Interest on capital is at 12% per annum
2. Salary to Amir is RM 8,000 per annum
3. Interest on drawings is at 6% per annum
4. The interest rate on the loan by Luqman is 6% per annum

Additional Information:
a. Net profit for the year ended 31 December 2019 was RM 26,530

b. Capital balances as at 31 December 2019 were:

RM

Luqman 22,000

Hakim 10,000

Amir 8,000

c. Current accounts balances as at 31 December 2019

RM

Luqman 5,500

Hakim (2,700)

Amir 3,800

d. Drawings by the partners during the year were:

RM

Luqman 8,000

Hakim 6,000

Amir 9,000

e. Loan from Luqman RM 8,000

You are required to prepare:
a) Appropriation Statement of Comprehensive Income for the year ended 31/12/2019
b) Current account for each partner.
c) Statement of Financial Position extract as at 31/12/2019.

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DPA 20033 FINANCIAL ACCOUNTING 2/Aleza/2020

Exercise 3

Afiq and Anas are partners of a trading firms sharing profits and losses in the ratio of 2:3. The
agreement between them provides that:

a. Afiq and Anas are entitled to salaries of RM 3,000 and RM 2,000 per annum
respectively

b. Interest on drawings is at 2% per annum.
c. Interest on capital is at 5% per annum

The capital and current accounts for partners as at 1 January 2017 are as follows:

Capital Account(RM) Current Account(RM)

Afiq 20,000 ( 2,110) Dr

Anas 25,000 3,450 Cr

Drawings made by the partners were as follows:

Afiq RM 4,350

Anas 5,100

Net profit for the year ended 31 December 2017 was RM 24,400. Total salary paid to Afiq
during the year was RM 2,500.

You are required to prepare:
1. Appropriation Statement of Comprehensive Income for year ended 31/12/2017
2. Current Account of each partner.

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DPA 20033 FINANCIAL ACCOUNTING 2/Aleza/2020

7.3 Accounting Treatments on Admission New Partners and Retirement or Death
of Partners

When a partnership changes (admission/retirement), it is appropriate to calculate the current
value of the net assets. This will allow each partner know the current worth of their share of the
net assets.

Normally all asset will be revalue except for cash and bank. Revaluation Account will be
balance and it balance transferred to member’s capital account based on profit and loss sharing.

i) Increase : Dr Asset Account
Cr Revaluation Account

ii) Decrease : Dr Revaluation Account
Cr Asset Account

.
A) Journalize

1) Dr Asset Account 2) Dr Revaluation Account
Cr Revaluation Account Cr Asset Account

( Increasing in asset value) (Decreasing in asset value)

3) Dr Goodwill Account 1) Dr RevaluationAccount
Cr Revaluation Account Cr Doubtful debt

(Goodwill exist) (Doubtful debt exist)

5) Dr Cash /Bank Account
Cr New Partner Account

(Capital contributes by new partner)

B) Revaluation Account

RM RM

Any Asset that being decrease Any Asset that being increase

In it’s value xx In it’s value xx

Doubtful Debt xx Goodwill xx

Profit on Revaluation:

Capital A x

Capital Z x xx

______ ______
xxx
xxx =====

=====

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DPA 20033 FINANCIAL ACCOUNTING 2/Aleza/2020

If goodwill being written off Capital Account RM
RM xx
xx Bal b/d xx
Profit on revaluation
Cr(RM)
Journal Entries x
x
Particulars Dr(RM) x

1. Asset x x
Revaluation x x
x
(Asset value being increase) x
2. Revaluation x

Asset
(Asset value being decrease)
3. Goodwill

Revaluation
(Goodwill being valued)
4. Revaluation

Doubtful Debt
(Doubtful Debt exist)
5. Bank

New partner capital
(Capital contributes by new partner)

7.3.1 GOODWILL

Goodwill may be referred to as an excess amount of the value of the business as a whole and the
total value of the tangible net assets. Goodwill might have existed due to various factors such as
good business location, staff customer relationship and ability to earn profits.

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DPA 20033 FINANCIAL ACCOUNTING 2/Aleza/2020

Computation of Goodwill

Simple average method
On 1 January 2018, the goodwill value is equal to three years’ of average profit that was

calculated 5 years ago. The following are profits in the period of 5 years:

2004 – RM 60 000 2007 - RM 100 000

2005 - RM 80 000 2008 - RM 130 000

2006 - RM 90 000

Calculate the goodwill value.

Total profits of 5 years = RM(60 000+80 000+90 000+100 000+130 000)
= RM 460 000

Average Profit = RM 460 000 / 5 Goodwill value = RM 92 000 x 3
= RM 92 000 = RM 276 000

Based on Super Profits
Super profits are what left of the net profits after allowances have been made for any salary to
the partners and interests that would have been earned if their capital had been invested
elsewhere. The annual super profits is then multiplied by an agreed number.
Example
Assume total salaries paid to Along, Angah and Alang was RM30,000. Their capital employed
were RM550,000 and return on capital employed was 20% per annum. Net profit for the year
ended 31 December 2016 was RM200,000. Goodwill was taken as equal to 4 years purchase of
annual super profit on retirement of Angah. Required to calculate the amount of goodwill.

Solution RM RM
200,000
Annual net profit 30,000
(-) 110,000 (140,000)
Salary of partners 60,000
Interest on capital 13
(20%xRM550,000) =======

DPA 20033 FINANCIAL ACCOUNTING 2/Aleza/2020

Goodwill = RM 60,000 x 4 = RM240,000

Example 1
Ahmad and Shakir are partners in partnership. Profits and losses are to be share in the ratio 3:2.
The following is a summarized balance sheet of the partnership as at 31 December 2017

Statement of Financial Position as at 31 December 2017 RM
25,000
Non-Current Asset RM RM 8,500
Motor Vehicles
Furniture & Fitting

Current Assets 8,900 22,800
Stock 10,000 9.300
Debtor 3,300
Bank
35,400
Current liabilities
Creditor (18,900)
Short term loan
Working capital 16,500
50,000

Owner’s Equity 30,000
Capital : Ahmad 20,000
50,000
Shakir

On 1 January 2018, they agreed to admit a new partner, Muru with the following agreement
terms:

a) Motor vehicles was revalue at RM 20,000. Furniture & fitting was revalue at RM 8,000
and Stock was revalued at RM 24,000.

b) Goodwill is valued at RM 5,000.
c) Provision for doubtful debt is valued at 5% from total debtor.
d) Murugadas contribute RM 30,000 as capital.
e) Shortterm loan will be paid after admission of Murugadas.

You are required to prepare:
(a) Journal transaction.
(b) Revaluation Account, Capital Account and Bank Account
(c) Statement of Financial Position after admission of a new partner.

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DPA 20033 FINANCIAL ACCOUNTING 2/Aleza/2020

Solution:

General Journal DR(RM) CR(RM)
Particulars 1200 1200

1 Stock
Revaluation

2 Revaluation 5500

Motor Vehicle 5000

Furniture & Fitting 500

3 Goodwill 5000
Revaluation 5000

4 Revaluation 465
Prov. Doubtful Debt
465

5 Bank 30000
Murugadas 30000

Motor vehicle Revaluation a/c RM
Furniture&Fitting RM 1,200
Prov.Doubtful debt 5,000 Stock 5,000
Profit on revalue:
Ahmad 141 500 Goodwill 6,200
Shakir 94 465

235
6,200

Ahmad Shakir Capital A/c Ahmad Shakir Murugadas
RM RM Murugadas
RM RM RM
RM
Bal b/d 30000 20000

Revaluation: 141 94 -
Profit on revalue
30141 20094 30000
Bal c/d 30141 20094 30000 Bank 30141 20094 30000
30141 20094 30000
30000
Bal b/d
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DPA 20033 FINANCIAL ACCOUNTING 2/Aleza/2020

Bal b/d Bank a/c RM
Capital-Murugadas RM 10,000
3,300 Shortterm 23,300
30,000 Bal c/d 33,300
33,300

Ahmad, Shakir dan Murugadas
Statement of Financial Position as at 1 January 2018

Non-Current Asset RM RM RM
Motor Vehicles 20,000
Furniture & Fitting 8,000
5,000
Goodwill
47,235
Current Assets 24,000 80,235
Stock 8,835 30,141
Debtor 23,300 20,094
Bank 56,135 30,000
80,235
Current liabilities (8,900)
Creditor
Working capital

Owner’s Equity
Capital : Ahmad

Shakir
Murugadas

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DPA 20033 FINANCIAL ACCOUNTING 2/Aleza/2020

Example 2
Adam, Aryan dan Aina are in partnership sharing profits and losses in the ratio 3:2:1
respectively. The balance sheet for the partnership as at 31 December 2014 is as follows:

Statement of Financial Position as at 31 December 2014

Non-Current Assets RM RM RM
Vehicle 27 872
Furniture 5 920 14 600
21 952 22 200
Current Assets 36 800
Inventory
Accounts receivable

Current Liabilities 7 400 16 672 11 200
Accounts payable 9 272 48 000
Bank Overdraft

Owner’s Equity 20 000 44 000
Capital : Adam 16 000
8 000
Aryan
Aina

Current account 4 000 4 000
Adam (2 000) 48 000
Aryan 2 000
Aina

On 1 January 2015, Aryan decided to retire from partnership and accepted Auni as a new
partner. Auni had to pay RM14,000 as her capital.

The following matters were agreed:
1. Goodwill was valued at RM12,000 and Goodwill account has to be opened.
2. Vehicle were revalued at RM19,400.
3. Aryan took over furniture at net book value RM5,600 and brings out cash for
RM5,000. The remaining balance in the current account is transferred to Loan
account.

You are required to:
a. Show relevants journal
b. Revaluation Account
c. Provide Bank Account
d. Prepare Partner’s Capital and Current Account
e. Prepare Statement of Financial Position as at 1 January 2015.

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DPA 20033 FINANCIAL ACCOUNTING 2/Aleza/2020

Solution: DR(RM) CR(RM)
4,800 4,800
General Journal
Particulars 12,000

1 Vehicle 12,000
Revaluation
14,000
2 Goodwill
Revalution 14,000

3 Bank
Capital- Auni

Profit on revalue: Revaluation a/c RM
Capital- RM 4,800
Adam 12,000
Aryan Vehicle
Aina Goodwill 16,800
8,400
5,600
2,800
16,800

Capital Auni Bank a/c Bal b/d RM
Bal c/d RM Capital Aryan 9,272
14,000 5,000
Bal b/d 14,272
272
14,272 272

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DPA 20033 FINANCIAL ACCOUNTING 2/Aleza/2020

Capital a/c Adam Aryan Aina Auni

Adam Aryan Aina Auni

RM RM RM RM RM RM RM RM

Furniture 5,600 Bal b/d 20,000 16,000 8,000 -

Bank 5,000 Profit 8,400 5,600 2,800 -
on
revalue

Current 2,000 Bank 14,000
a/c

Loan 9,000

Bal c/d 28,400 - 10,800 14,000

28,400 21,600 10,800 14,000 28,400 21,600 10,800 14,000

Bal b/d 28,400 - 10,800 14,000

Bal b/d Adam Aryan Current a/c Adam Aryan Aina
Bal c/d RM RM RM RM RM
2,000 Aina 4,000 2,000
- RM -
- 4,000 2,000 2,000
4,000 2,000 - Bal b/d 4,000 2,000
4,000 Capital 2,000
-
2,000
2,000

Bal b/d

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DPA 20033 FINANCIAL ACCOUNTING 2/Aleza/2020

Adam, Aina dan Auni

Statement of Financial Position as at 1/1/2015

Non-Current Asset RM RM
Building 19,400
Furniture 5,920 27,872 16,600
Goodwill 21,952 7,672 12,000
48,000
Current Assets 7,400
Inventory 272 20,200
A/c Receivable 68,200
28,400
Current Liabilities 10,800 53,200
A/c Payable 14,000
Bank Overdraf 6,000
Working capital 4,000
2,000 9,000
Financed by: 68,200
Capital - Adam
Aina
Auni

Current Account - Adam
Aina

Non Current Liabilities
Loan

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DPA 20033 FINANCIAL ACCOUNTING 2/Aleza/2020

EXERCISE 1

King and Kong are in partnership sharing profits and losses in the ratio of 2:1. The balance
Sheet as at 31 December 2010 is as follows:

Statement of Financial Position as at 31 December 2010

RM RM RM

Non-Current Assets

Premises 50 000

Motor vehicles 20 000

Current Assets 13 000
Stock 8 000
Debtors 1 000
Bank
22 000

Current Liabilities 17 000 5 000
Creditors 75 000

Owner’s Equity 50 000
Capital : King 25 000
75 000
Kong

As at this date, they decided to admit Kang as their partner and contributed capital of
RM 32 000. It was agreed that goodwill be valued at RM 9 000. In addition to this, in order to
reflect a fairer value, it was agreed to revalue the assets as shown below:

Premises RM 68 000
Motor vehicle 15 500
Stock 11 500

You are required to prepare:
1. Journal transaction.
2. Revaluation Account, Capital Account and Bank Account
3. Statement of Financial Position after admission of a new partner.

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EXERCISE 2

Param, Pany and Pakiam shared profit and loss ratio to 1:2:2 in a partnership. Their Statement
of Financial Position as at 31 May 2017.

Non- Current Assets RM
Premises 85 000

Current Assets 18 000
Stock 12 000
Debtor 10 000
Cash 125 000

Owner Equity 25 000
Capital: Param
50 000
Pany
Pakiam 50 000
125 000

Pakiam decided to retire from the partneship business on 1st June 2017 and the following
agreement was achieved:

a) The following assets were revalued:
 Premises is valued at RM 100 000
 Stock is valued at RM 22 000
 Debtors is valued at RM 10 000

b) Goodwill is valued at RM 8 000
c) The partnership business paid Pakiam RM 4 000 and the balance will keep in the

business as loan with interest 10% per annum.
d) Param and Pany agreed the goodwill to be written off immedietly after Pakiam

retirement.

You are required to prepare:
1. Revaluation Account, Capital Account and Bank Account
2. Statement of Financial Position after Pakiam retirement.

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EXERCISE 3

Aman, Bakar and Cheng shared profit and loss equally in a partnership. Their Statement of
Financial Position as at 31 October 2018.

Aman, Bakar and Cheng
Statement Financial Position as at 31 October 2018

Non-Current Assets RM RM
Land and Building 116 000
18 000
Current Assets 12 000 64 000
Stock 50 000 180 000
Debtors 80 000 ======
Bank (16 000)
60 000
Current Liabilities 60 000
Creditors 60 000
Working Capital 180 000
=======
Financed by:

Owner’s Equity
Capital : Aman

Bakar
Cheng

Additional Information:

On 1st November 2018, Cheng decided to retire from their partnership and the following
agreement was achieved:

1. The following assets in the partnership must be revalued:
 Land and building is valued at RM 130 000
 Stock is valued at RM 16 000
 Debtors is valued at RM 10 000
 Goodwill is valued at RM 20 000

2. Aman and Bakar are required to contribute RM 16 000 in cash each in the partnership
bank account.

3. The total amount to be paid to Cheng on his retirement is settled by check.
4. Aman and Bakar agreed that goodwill to be write off in their new partnership.

You are required to prepare:
1. Ledger entries to record all the above transactions

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DPA 20033 FINANCIAL ACCOUNTING 2/Aleza/2020

2. Statement of Financial Position as at 1st November 2018.

EXERCISE 4

Ani, Su and Yati are partners in partnership. Profits and losses are to be share in the ratio 3:2:1.
The following is a Balance Sheet of the partnership as at 30/6/2019 adalah :

Statement of Financial Position as at 30/6/2019

Non Current Asset RM
Premises 120,000
Motor Vehicles
Office equipment 86,000
32,000
Current Assets 238,000
Stock
Debtor 12,500 15,000
2,500

Current Liabilities 3,400 6,600
Creditor 3.200
Bank Overdraf
8.400
Net Current Asset 246.400

Financed by:

Capital - Ani 90,000
Su 70,000
Yati 50,000 210,000

Current Account - Ani 19,000 31.400
Su 14,600 241,400
Yati (2,200)
5.000
Non Current Liabilities 246.400
Loan- Yati

Yati decided to retire from the partnership on 1/7/2019. Ani and Su agreed to continue the
partnership and shared profit and loss in the ratio 3:2. The following agreement between them
provide that :

1) The assets were revalued as follows :

Premises RM180,000

Motor Vehicles RM 65,000

Office equipment RM 28,000

Stock RM 13,600

2) Provision for doubtful debt is valued at 4% from total debtor.

3) Goodwill is valued at RM 18,000 but not maintain in the partnership’s books.
4) They agreed to transfer the Loan Account to Yati’s Capital Account. The Partnership agreed

to paid RM 20,000 for Yati and any balance due to her Capital Account will be treated as

loan to the partnership.

5) Ani and Su are required to contribute RM 12,000 respectively as additional capital.

You are required to prepare:
a) Revaluation Account
b) Goodwill Account

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DPA 20033 FINANCIAL ACCOUNTING 2/Aleza/2020

c) Partners’ Capital Accounts
d) Statement of Financial Position after retirement of Yati

7.4 DISSOLUTION OF PARTNERSHIP

7.4.1 RULE OF GARNER vs MURRAY

Rule of Garner vs Murray is used as a guideline in partnership bankruptcy process. If a partner
is found bankrupt and cannot settle any decrease in current capital account, the partnership is
dissolved.
According to Garner vs Murray Rule: The loss on account of insolvency of a partner is a
CAPITAL loss which should be borne by the solvent partners in the ratio of their capitals
standing in the Statement of Financial Position on the date of dissolution of the firm.

Example

Jon, Juan dan Johan are partners in the partnership sharing profit and losses equally. The
following is the Statement of Financial Position as at 31 December 2016.

Statement of Financial Position as at 31 December 2016

Non-Current Assets RM RM
Office Equipment 35,000

Current Assets 8,000 10,000
Stock 6,000 45,000
Debtors 2,000
Bank 16,000

Current Liability 6,000
Creditors

Owner’s Equity 24,000
Capital : Jon 16,000
5,000
Juan 45,000
Johan

They decided to dismiss their partnership on 31 December 2016. The office equipment and
stocks were sold RM26,000 and debtors were realized RM4,000. The expenses of dissolution
were RM2,000. Ehsan is insolvent and therefore unable to contribute anything

You are required to prepare:

a) Realization Account
b) Partners’ Capital Accounts
c) Bank Account

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DPA 20033 FINANCIAL ACCOUNTING 2/Aleza/2020

Answer

Realisation A/c

RM RM

Office Equipment 35,000 Bank - Office equipment 26,000
Stock 4,000
Debtors 8,000 and stock
Bank - Dissolution 7,000
6,000 Bank -Debtors 7,000
7,000
2,000 Loss on Realisation: 51,000

Capital Jon

Capital Juan

Capital Johan

51,000

Bal b/d Jon Juan Capital a/c Jon Juan Johan
RM RM RM RM RM
Realisation Johan 24,000 16,000 5,000
- -
Capital - 7,000 7,000 RM 16,000 1,200
Johan 1,200 800 800
- Bal b/d
8,200 7,000
16,000 7,000

Capital –
Jon
Juan

Bank 15,800
24,000
7,000 24,000

Bal b/d Bank A/c RM
Realisation - RM 6,000
Office Equipment
& stock 2,000 Creditor 2,000
Debtors Realisation -
15,800
26,000 Dissolution 8,200
4,000 Capital - 32000

Jon
Juan
32000

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DPA 20033 FINANCIAL ACCOUNTING 2/Aleza/2020

EXERCISE 1

Azam, Kamal and Ehsan are partners in the partnership sharing profit and losses in the ratio of
3:2:1 respectively. They decided to dismiss their partnership on 30 June 2019. The following is
the Statement of Financial Position as at 30 June 2019.

Statement of Financial Position as at 30 June 2019

Non-Current Assets RM RM
Office Equipment 35,000 27,000
(-) Acc. Depreciation
8,000

Current Assets 18,000 7,000
Stock 15,000 34,000
Debtors
Cash 5,000 15,000
38,000 17,800
Current Liability 1,200
Creditors 31,000 34,000

Owner’s Equity
Capital : Azam

Kamal
Ehsan

Cash received from sold of assets and collection from debtor amounted to RM 42,000. All
liabilities were paid. Ehsan is insolvent and therefore unable to contribute anything.

You are required to prepare:

d) Realisation Account
e) Partners’ Capital Accounts
f) Cash Account

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DPA 20033 FINANCIAL ACCOUNTING 2/Aleza/2020

7.4.2 Realization Account and Record the closure the Books of Partnership
A partnership is legally dissolve when any partner leaves due to retirement or death or a new
partner is admitt into the business. When a business ceased to exist, the partners are entitled to a
repayment of the capital contributed to set up the business

The Step to record dissolution are as follows:

No Transaction DEBIT CREDIT

1 Close all Asset Account Realisation Asset
Liability Cash/Realisation-Discount
2 Close all liability Account
Cash / Capital/ Share Realisation
3 To record amount realised
from sold of asset

4 To record realisation expenses Realisation Cash

5 Transfer the balance of
Realisation Account:

i) If Profit Realisation Capital
ii) If Loss Capital Realisation
6 Close Capital Account Capital
Cash

Realization Account

Realization Account

RM RM
xx
All assets from Balance Sheet xx Accumulated Depreciation xx
Cash/ Bank- realization expenses xx Creditors- discount
xx
Profit on realization: Whether
Capital : Cash/ Bank from sales of xx
Ax Assets xx
Bx ______
xx Or =====
Assets being took over by

Any Partner

Or

Paid by shares

______

=====

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DPA 20033 FINANCIAL ACCOUNTING 2/Aleza/2020

Assets being took over Partner Capital Account’s- A RM
Cash / Bank RM xx
xx Bal b/d xx
xx Profit on realization xx
Creditor being took over

______ ______
===== =====

Cash / Bank Account

RM RM
xx
Bal b/d xx Realization expenses xx

Realization – Sales on assets xx Creditor ______
=====
Capital :

A

B

_____

=====

Example
Alya and Arif, who share profits and losses equally, decide to dissolve their partnership as at
30th June 2016. The following extracts taken from the Statement of Financial Position prior to
dissolution of the partnership.

Non-Current Assets RM RM
80 000
Buildings 8,400 2 900
Furniture 600 82,900
9,000
Current Assets 4,900
Debtors (4,100) 87,800
Cash =====

Current Liability 52,680
Creditors 35,120
87,800
Owner Equity Alya =====
Capital account: Arif

Additional information:

a) The debtors were realized RM 8,200; the buildings RM 66,000 and furniture RM 1,800.

b) The expenses of dissolution were RM 400.

c) Discounts totaling RM 300 were receive from Creditors.

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DPA 20033 FINANCIAL ACCOUNTING 2/Aleza/2020

You are required to prepare Realization Account, Capital Partners Account and Cash
Account.

EXERCISE 1

Azah, Ana and Aini are partners in the textile company. They share their profit and loss at the
rate 3:2:1. At 31st December 2017, they decided to terminate their partnership. Below are the
partnership’s Statement of Financial Position at the date of termination:

Statement of Financial Position as at 31st December 2017

Non-Current Assets RM RM

Premises 50,000

Fittings 20,000

(-) Acc.Depreciation 4,000 16,000

Vehicles 22,000 14,000
(-) Acc. Depreciation 8,000 80,000

Current Assets 2,000 20,000
Stock 16,500 100,000
Debtors
Bank 8,500
27,000
Current Liability
Creditors 7,000

Owner’s Equity 50,000
Capital : Azah 30,000
20,000
Ana 100,000
Aini

Followings are the partnership’s termination process:

a. Fittings were taken over by Azah at RM 14,000, while Ana took over vehicles at
RM 12,000

b. Premises were sold at RM 60,000 and stock was sold at RM 3,500.
c. The collection from debtors were RM 15,000
d. The total payment to creditors were reduced up to 5% discount.
e. Realization expenses were RM 2,000

You are required to prepare:

1) Realization Account
2) Capital Account for each partner
3) Bank Account

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DPA 20033 FINANCIAL ACCOUNTING 2/Aleza/2020

EXERCISE 2

Dewi and Ratna are partners in the partnership, sharing profits and losses equally. The
Statement of Financial Position as at 31 December 2018 was as follows.

Statement of Financial Position as at 31 December 2018

Non-Current Assets RM RM RM

Office Equipment 3,200
Machinery 12,100
15,300
Current Assets
Stock 2,320 7,400
Debtors (20)
(-) Prov DD 2,300
Bank 12,300

Current Liability 22,000 21,300
Creditors 700 36,600

Owner’s Equity 18,600
Capital : Dewi 17,000

Ratna 800
Current Account: 200
36,600
Dewi
Ratna

On 1 January 2019, due to disagreement over business matters, the partnership had to be
dissolve. The following matters were agreed.

1) The following assets were realised :
a) Office Equipment - RM 10,000.
b) Machinery - RM 12,300
c) Debtor - RM 2,240
d) Stock - RM 7,60

2) All liabilities was paid in full including accrued advertising expense amounted RM 200
which not record in any books. Discount totalled RM 20 was received from creditors.

3) Dissolution expenses amounted to RM 3,200.

You are required to prepare:

a) Realisation Account
b) Partners’ Capital Accounts

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DPA 20033 FINANCIAL ACCOUNTING 2/Aleza/2020

c) Bank Account
EXERCISE 3

Jaja and Poozi were partners in a partnership sharing profit and losses in the ratio of 1:3. The
Statement of Fiancial Position as at 31 December 2018 was as follows:

Statement of Financial Position as at 31 December 2018

Non-Current Assets RM RM

Land and Building 1,220,000

Vehicles 310,000

(-) Accumulated Depreciation (130,000) 180,000

Current Assets 38,000 78,000
Inventories 65,000 1,478,000
Debtors 27,000 =======
Bank 130,000
930,000
Current Liabilities (52,000)
Creditors
370,000
Capital Account: 560,000
Jaja
Poozi

Current Account: 328,000 548,000
Jaja 220,000 1,478,000
Poozi
=======

On 1st January 2019, Jaja and Poozi decided to dissolve the partnership. The following matters
were agreed:

A. Land and building were realized for RM 1,380,000 and vehicles were realized for
RM 92,000

B. Jaja took over the inventories at the agreed price of RM 29,000
C. Amount collected from debtors was RM56,000
D. Trade creditors had agreed to receive RM50,000 as settlement.
E. Dissolution expenses amounted to RM 2,000

You are required to prepare:

1. Realisation Account
2. Partners’ Capital Accounts
3. Bank Account

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DPA 20033 FINANCIAL ACCOUNTING 2/Aleza/2020

33