Comentarios y Recomendaciones

Amalgamation of Partnerships is a situation where two existing partnerships decide to join together and form one firm. That is where two or more partnerships combine together to form a new partnership.

Example 1

Abbey and Bekky are partners sharing profits or losses equally. Cossy and Dammy are partners in another firm. They also share profits equally. The two firms are to amalgamate with Abbey, Bekky, Cossy and Dammy sharing profits or losses in the ratio of 6:6:4:4. The statement prior to the amalgamation and before any of the necessary amalgamation adjustment was as follows:

AB CD

Non-Current Assets 550,000 481,250

Current Assets 275,000 220,000

825,000 701,250

Capital: Abbey 330,000

Bekky 330,000

Cossy 275,000

Dammy 275,000

Current Liabilities: Payables 165,000 151,250

825,000 701,250

The goodwill of AB & Co was agreed to be N275,000 and its Non-current assets were to be revalued by N137,500. The goodwill of CD & Co was agreed at N220,000 and its Non-current assets were also to be revalue by N137,500. The partners in the new firm have decided that the assets will be carried forward at their revalued amounts in the general ledger of the new firm but goodwill is to be eliminated.

Required:

a) Prepare partner’s capital account in columnar form, recording these transactions.

b) The opening statement of financial position Solution to Example 1

a. Dr Partners Capital Account Cr

Abbey Bekky Cossy Dammy Abbey Bekky Cossy Dammy

Capital 148,500 148,500 99,000 99,000 Balance b/f 330,000 330,000 275,000 275,000 Balance c/d 387,750 387,750 354,750 354,750 Goodwill 137,500 137,500 110,000 110,000 ______ ______ ______ ______ Revaluation 68,750 68,750 68,750 68,750 536,250 536,250 453,750 453,750 536,250 536,250 453,750 453,750 Balance b/d 387,750 387,750 354,750 354,750

Workings:

Goodwill (AB & Co) 275,000

Goodwill (CD & Co) 220,000

Total Goodwill 495,000

To eliminate total goodwill using new profit sharing ratio: Abbey 6; Bekky 6; Cossy 4;

Dammy 4

Abbey = x = 148,500

Bekky = x = 148,500

Cossy = x = 99,000

Dammy = x = 99,000

495,000

Dr Goodwill Account Cr

N N

Capital : Capital:

Abbey 148,500 Abbey 137,500

Bekky 148,500 Bekky 137,500

Cossy 99,000 Cossy 110,000

Dammy 99,000 Dammy 110,000

495,000 495,000

Dr Non-Current Assets Cr

N N

Balance b/f (AB & Co) 550,000 Balance c/d 1,306,250 Balance b/f (CD & Co) 481,250

Revaluation (137,500+137,500) 275,000 ________

1,306,250 1,306,250

Balance b/d 1,306,250

Opening Statement of Financial Position (New Firm) N

Assets: Non-current Assets 1,306,250

Current Assets (275,000 + 220,000) 495,000 1,801,250

Capital: Abbey 387,750

Bekky 387,750

Cossy 354,750

Dammy 354,750

Current Liabilities: Payables (165,000 + 151,250) 316,250 1,801,250 4.0 CONCLUSION

It can be concluded that the adequate knowledge of accounting treatments of partnership transaction will assist accountant in the preparation of the annual reports of partnership business. The accounts must be prepared in accordance with relevant accounting standards.

5.0 SUMMARY

This unit explores the statutory framework guiding the formation of partnership. Different scenarios as regards the changes in the constitution of partnership were clearly examined and simplified.

6.0 TUTOR MARKED ASSIGNMENT Question 1

Babu and Lukudi are in partnership sharing profits or losses in ratio 2:1 respectively. On October 31, 2014, the partners decided to dissolve the partnership. The statement of financial position at the date is set out below:

N’000 N’000 Non-Current Assets:

Plant and machinery 75,000

Motor vehicles 15,000

90,000 Current Assets:

Inventories 120,000

Account receivable 36,000

Bank balance 12,000 168,000

258,000 Capital

Babu 120,000

Lukudi 30,000

150,000

Account payables 108,000

258,000

Notes:

i. The plant and equipment were sold at N79m

ii. Babu took over one of the vehicles with a book value of N1.5m for N800,000. The remaining vehicles were sold for N12m.

iii. Inventories were sold for N92m while account receivable realised N34.3m.

iv. The account payable gave a discount of N0.10 on every N1 owed.

v. The realization expenses were settled for N4.5m.

You are required to prepare:

a. Realisation Account b. Capital Accounts c. Bank Account Question 2

Canz, Pand and Danz are in partnership sharing profits and losses in the ratio 3:2:1 respectively. The Statement of Financial Position of the Partnership is shown below:

Statement of Financial Position as at 31 December, 2014

N N N N

Capital accounts Non Current Assets

Canz 1,160 Premises 1,200

Pand 520 Motor van 700

Danz 715 2,395 Furniture & Fittings 30 1,930

Current Accounts Current Assets

Canz 210 Inventories 190

Danz 79 Trade receivables 210

Trade payables 375 664 Current account:

Pand 124

_____ Cash at bank 605 1,129

3,059 3,059

On 1 January 2015 Pand retired from the partnership on the following terms:

Goodwill was valued at N400,000. The current value of the premises and motor van were N1,400,000 and N60,000 respectively. The inventory was to be reduced by N16,000 and provision for doubtful debts was put at N10,000. No goodwill account was to be opened and the balances of the assets in the books were not to be altered. Any adjustments considered necessary are to be made through the Partner’s Capital Accounts. Pand’s balance should be left as loan in the partnership.

You are required to show the revised statement of financial position in vertical format as it would appear immediately after Pand’s retirement. (Show all workings).

Question 3

In the absence of agreement to the contrary, the partnership Act 1890 provides certain provision for the dissolution of partnership. State and explain briefly these provisions.

Question 4

Explain the Rules of Garner vs. Murray

7.0 REFERENCES/FURTHER READING

Akeju, J. B. (2011) “Financial Accounting for Beginners, JBA Associate Ltd, Shomolu Lagos.

Anao, A.R. (2009) “An Introduction to Financial Accounting” Longman Nigeria Plc, Ikeja, Lagos. 2^nd Edition.

Igben, R.O. (2009) “Financial Accounting Made Simple, Vol. 2, ROI Publishers, Isolo, Lagos. 3^rd Edition

Institute of Chartered Accountant of Nigeria, Financial Accounting, Study Pack Lagos.

The Institute of Cost Accountants of India (2013), Financial Accounting, Intermediate Study note, CMA Bhawan, 12, Sudder Street, Kolkata - 700 016

Jennings, A. R., (2001), Financial Accounting, London, Letts Educational

Wood, F. and Horner D. (2010), Business Accounting Basics, Pearson Education Limited, Edinburgh Gate Harlow, England

Salawu, R.O. (2017) “Financial Accounting for the Professionals”, OAU Press Limited, Ile-Ife.

UNIT 3: CONVERSION OF PARTNERSHIP INTO LIMITED COMPANY