【正文】 = $1500 PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 55 Williams, Capital 19 000 Wu, Capital 1 500 White, Capital 1 500 Cash 16 000 (Withdrawal of Williams and bonus to remaining partners) Death of a partner ? Death of a partner dissolves the partnership ? Provision usually made for surviving partners to continue operations by purchasing deceased partner’s equity from their personal assets ? To determine partner’s equity at the date of death: – Determine profit or loss for year to date – Close the books, and – Prepare financial statements PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 56 Death of a partner continued ? The surviving partners will agree to either – purchase the deceased partner’s equity from their personal assets, or – use partnership assets to settle with the deceased partner’s estate ? In both instances, the entries to record the withdrawal of the partner are similar to those presented earlier PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 57 LIQUIDATION OF A PARTNERSHIP ? The liquidation of a partnership terminates the business ? In a liquidation, it is necessary to: 1 Sell noncash assets for cash and recognise a gain or loss on realisation 2 Allocate gain/loss on realisation to the partners based on their profitandloss ratios 3 Pay partnership liabilities in cash 4 Distribute remaining cash to partners on the basis of their capital balances PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 58 LO7 LIQUIDATION OF A PARTNERSHIP continued ? Creditors must be paid before partners receive any cash distributions ? Each step must be recorded by an accounting entry ? No capital deficiency means that all partners have credit balances in their capital accounts ? Capital deficiency means at least one partner’s account has a debit balance PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 59 ? Please refer to text book P. 550, The Ace Partnership balance sheet shown on figure Assets Liability amp。 equity $143 000 Payment from partnership assets continued 1. Withdrawal of the carrying amount of the partner’s owners equity ? Example – Williams would be entitled to receive cash equal to balance of her capital account, which is $19 000 PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 51 Williams, Capital 19 000 Cash 19 000 (Withdrawal of Williams from partnership) Payment from partnership assets continued 2. Bonus to retiring partner ? May be paid where – There is unrecorded goodwill resulting from superior earnings record – Remaining partners anxious to remove partner ? Example – Williams retires and receives payment of $25 000 from the firm PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 52 Payment from partnership assets continued – Process involves ? Determining amount of bonus $25 000 $19 000 = $6000 ? Allocating bonus to remaining partners on basis of profitandloss ratio Wu $6000 x 189。s drawing account and CR each partner’s drawing account for the same amount PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 16 Dividing profit or loss continued – Example ? Partnership profit for year is $32 000 ? Partners share profit and loss equally PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 17 L. Cooke, Current 8 000 D. Kam, Current 6 000 L. Cooke, Drawings 8 000 D. Kam, Drawings 6 000 (To close drawings accounts to current accounts) Profit and Loss Summary 32 000 L. Cooke, Current ($32 000 x 50%) 16 000 D. Kam, Current ($32 000 x 50%) 16 000 (To transfer profit to partners’ current accounts) Dividing profit or loss continued Profitandloss ratios Typical profitand loss ratios include: 1 A fixed ratio – expressed as a proportion (6:4), a percentage (70% and 30%), or a fraction (2/3 and 1/3) 2 A ratio based on either: – capital balances at beginning of year or – average capital balances during year PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 18 Dividing profit or loss continued 3 Salaries to partners and the remainder on a fixed ratio 4 Interest on partners’ capital balances and the remainder on a fixed ratio 5 Salaries to partners, interest on partners’ capitals, and the remainder on a fixed ratio PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 19 Dividing profit or loss continued Salaries, interest and remainder on a fixed ratio ? Example – M. Kings and S. Lee agree on ? Salary allowances of $8400 to Kings and $6000 to Lee ? Interest allowances of 10% on beginning capital balances ? Remainder shared equally – Beginning capital balances ? Kings $28 000 and Lee $24 000 – Profit for year is $22 000 PowerPoint presentation by Dr Anne Abraham, University of Western Sydney 20 Dividing profit or loss continued Division of profit Kings Lee Total Salary allowance $ 8 400 $6 000 $14 400 Interest allowance Kings ($28 000 x 10%) 2 800 L