PRINCETON COLLEGE

SURULERE LAGOS

SCHEME OF WORK &

LESSON NOTES
ON

FINANCIAL ACCOUNTING

GRADE 11

THIRD TERM 2023/2024

ACADEMIC SESSION

PREPARED BY:
MR. STEPHEN KUYE
 THIRD TERM SCHEME OF WORK

Week Topic Sub-Topic

1 Revision Revision of Last Term’s
Work
2 Accounts of Non-Profit Making Meaning, Differences
Organisations between receipt and
payment account and
income and expenditure
account
Features and sources of
income
3 Terminologies used in non-profit Treatment of subscription
making organizations and working in advance and arrears in
exercise the balance sheet and
calculation of accumulated
fund
4 Terminologies used in non-profit Working exercises on
making organizations and working receipt and payment and
exercise income and expenditure
accounts
5 Working exercise Working exercises on
receipt and payment and
income and expenditure
accounts
6 Partnership Account Definition, types of
partners, elements of
partnership business
Partnership deeds
7 Partnership Account Preparation of
Appropriation accounts,
partners current account
and capital account
8 Revaluation account Meaning and reasons for
revaluation
9 Revaluation account Working exercise
10 Dissolution Account Meaning, reasons for
dissolution and working
exercise
 REVISION

SS2 FINANCIAL ACCOUNTING MARKING GUIDE FOR SECOND TERM

EXAMS

1. The following shows the figures extracted from the books of John, a
manufacturer for the year ended 31st March 2017.
#
Sales 145,600
Purchases of raw materials 38,942
Manufacturing wages 52,860
Factory expenses 3,656
Office salary 1,450
Depreciation:
Factory equipment 6,500
Delivery van 1,250
Stock of work in progress:
January 1st 1,748
December 31st 1,894
Stock of finished goods:
January 1st 5,064
st
December 31 7,138
Stock of raw materials:
January 1st 3,216
st
December 31 2,964
Factory fuel 3,670
Advertising 1,034
Van running expenses 1,426
Sales men’s commission 4,630
Maintenance of factory equipment 2,160
Light and heat (3/4 factory, ¼ office) 1,600
Rent, rate and insurance (3/4 factory, ¼ office) 6,400
Salaries (#6,000 factory) 10,000
Prepare the manufacturing, trading, and profit and loss account for the year
ended 31st March, 2017.
 [10 marks]

SOLUTION

# #
Capital 18,400
Drawings 720
Stocks at January 2009:
Raw materials 8000
Work in progress 3,250
Finished goods 6,000
Manufacturing wages: Direct 6,450
Indirect 2,800
Miscellaneous expenses 260
Traveling expenses 2,400
Rent and rate – factory 600
Freehold premises 10,000
Plant and machinery – factory 16,000
Sales 98,260
Debtors and creditors 4,050 3,190
Salaries and wages 3,500
Bank 6,000
Cash 2,000
Selling and distribution expenses 2,850
Discount received 150
Discount allowed 120
Purchases of raw materials 45,000
120,000 120,000

2a. Define manufacturing account [2 marks]

Manufacturing account is defined as the account prepared to ascertain the

cost of goods manufactured during the financial year.

2b. Explain the following terminologies:

i. Prime cost
ii. Overhead cost
iii. Work in progress
iv. Transfer pricing [2 marks each]
 i. Prime cost is the cost that can be traced to a particular production unit.
They are directly related to the manufacturing process.
ii. Factory overheads is the cost incurred in running the factory which
cannot be traced to a particular production unit.
iii. Work – in – progress this is the partly finished goods or incomplete
work. The cost of production must be adjusted for work in progress at the
beginning and end of the year.
iv. Transfer pricing this is the amount at which goods are transferred to the
trading department. It shows profit on manufactured goods.

3a. Define Control account [2 marks]

Control account is defined as those accounts that are prepared to ascertain the total
debtors (sales) and total creditors (purchases) during the business transaction.

3b. State two [2] classifications of control account [2 mark]

Control accounts are classified into two;

1. Total Debtors Control Account or Sales Ledger Control Account

2. Total Creditors Control Account or Purchase Ledger Control Account

3c. Highlight four [4] advantages of control account [4 marks]

1. It helps in locating errors

2. It can provide a check on the accuracy of balances of the ledgers
3. Fraud will be become difficult
4. The balances of the total debtors and creditors can be easily calculated
5. They can be used to detect missing figures
6. They save time
7. They allow homogenous accounts to be grouped together
3d. Explain what is meant by a contra settlement [2 marks]

Contra entries occur when a supplier is also a customer. The firm can sell on credit
to a customer and buy on credit from the same person.

4. The following information were extracted from the books of Esan Enterprises
for the month of March 2019 #

Purchase ledger balance 59,820

Sales ledger balance 98,720

Totals for year ending March, 2019:

Sales journal 998,310

Purchase journal 772,810

Returns outwards 13,240

Returns inwards 22,780

Cheques paid to suppliers 730,500

Petty cash paid to suppliers 390

Cheques and cash received from customers 929,800

Discounts allowed 29,100

Discount received 10,670

Bad debts written off 1,980

Customer’s cheques dishonoured 150

Set off 5,180

Sales ledger balance Cr 72,650

Purchase ledgers balance Dr 108,290

You are required to prepare:

 i. Sales ledger control account [5 marks]
ii. Purchase ledger control account [5 marks

5.a Define ratio [2 marks]

Ratio is one number expressed in term of another. It is the relationship between

two figures.

5b. You are given the following figures extracted from the books of Estate
Enterprises for the month of August 2019 #

Debtors 30,000
Creditors 20,000
Opening stock 15,000
Closing stock 18,000
Wages 3,000
Salaries 10,000
Purchases 30,000
Sales 60,000

Calculate the following:

a. Gross profit percentage

b. Net profit percentage
c. Working capital
d. Stock turnover [8 marks]

Dr Trading, profit and loss account Cr

# #

Opening stock 800 Sales 20,000

Add purchases (note 2) 15,200

 16,000

Less closing stock 1,000

Cost of goods sold (note 1) 15,000

Gross profit 5,000

20,000 20,000

Cost of goods sold = Sales – gross profit

= #20,000 – 5,000 = # 15,000

Purchases; opening stock + purchases – closing stock = cost of goods sold

#800 +? – 1,000 = 15,000

Purchases = 15,000 + 1,000 – 800 = #15,200

Rate of turnover: This is the number of times the stock is turned over within
the period.
Formula: Cost of goods sold
(Opening stock + closing stock) / 2
Net profit as a percentage of sales = Net Profit X 100
Sales
Gross Profit as a percentage of sales = Gross Profit X 100
Sales

6. Boladele enterprises kept its book in a haphazard manner. However, the

positions of his business for the year 2001 and 2002 financial years are as follows:

2001 2002

# #
Bank overdraft 2,040 -----

Cash in hand 600 400

Debtors 8,495 6,250

Stock 4,930 5,720

Furniture and fittings 2,000 2,000

Creditors 5,500 7,550

Cash in bank ------ 1,050

Motor vehicle 5,000 5,000

Rent paid in advance 100 80

You are required to prepare the following:

a. A statement of affairs as at 31st December, 2001

b. A statement of profit or loss for the year ended 31st December, 2002

[10 marks]

WEEK 2

ACCOUNTS OF NON-PROFIT MAKING ORGANIZATION

SPECIFIC OBJECTIVES: By the end of the lesson, the students should be able
to:

1. Define Non-Profit Making Organization

2. Define receipts and payments account
3. Differentiate between income and expenditure and receipts and payments
account
4. State the features of income and expenditure account
5. List the characteristics of receipts and payments account

REFERENCES: Ibrahim R. A. & Kazeem R. A. (2018): Essential Financial

Accounting for Senior Secondary Schools, Tonad Publishers Limited, Ikeja, Lagos.
TEACHING AIDS: Pictures, Formats, and Videos

VIDEO LINK: https://www.youtube.com/watch?v=eYn9GoH10I4

INTRODUCTION

Commercial and industrial organizations are set up principally to make profit, but
non-profit making organizations like club, societies and charitable bodies are not
profit oriented, but to provide services to their members. In place of trading, profit
and loss account found in the trading concerns, such associations prepares the
following accounts to show the financial affairs to their members:

a. Receipts and Payment account

b. Income and Expenditure account
c. Balance Sheet
RECEIPTS AND PAYMENT ACCOUNTS

This is the account that shows the summary of the cash book over a particular
period of time. Here, capital receipts and payments, revenue receipts and payments
are included and it follows the same principle as the cashbook. Amount owing or
prepaid will not be shown in this account.

FEATURES OF RECEIPTS AND PAYMENTS ACCOUNT

1. Items are treated in the same way as cash book

2. All receipts and payments are recorded
3. Amount owing or prepaid are not shown

LIMITATIONS TO RECEIPTS AND PAYMENT ACCOUNT

1. There is no figure for net income or net expenditure

2. It is not a useful guide as to whether or not the organization is paying its way
3. Lack of comparability between successive years as income and capital items
are not separated

INCOME AND EXPENDITURE ACCOUNTS

This account is prepared to ascertain the surplus or deficit of a non-for-profit

making organizations. In fact, it is described as the equivalent of a profit and loss
account prepared by a trading business. The difference between the expenditure
and income gives either a debit or credit balance. When the organization is
operating a bar, the profit or loss will be transferred to income and expenditure
accounts. The rules are stated below:

i. Expenses are debited and income are credited

ii. Capital items are excluded
iii. All revenue items relating to the period are credited, whether actually
received or not
 iv. All expenditure items relating to the period are debited; whether actually
paid or not
v. All items relating to previous or next period are excluded
vi. The balance on the account represents the excess of income over
expenditure or vice versa

DIFFERENCES BETWEEN RECEIPTS, PAYMENTS ACCOUNT AND

INCOME EXPENDITURE ACCOUNT

Receipts and payments account Income and Expenditure account

i. Only cash transactions are There is adjustment for accruals and

Recorded prepayments
ii. It includes capital items It excludes capital items
iii. Balance represents cash in Balance represents surplus or deficit
Hand or bank overdraft

FORMAT OF INCOME AND EXPENDITURE

Dr Income and Expenditure Account Cr

Expenditure # Income #
Rent X Subscription X
Wages X Donations X
Postages X Rent received X
Secretary honorarium X Profit on bar X
Depreciation X
Lighting X
Surplus of income over exp. X
X X
In the income and expenditure account, adjustment for accruals, outstanding,
prepayment and depreciation must be made.
EVALUATION
1. State FIVE differences between receipt and payment & income and
expenditure
2. List SEVEN items in income and expenditure account

MULTIPLE CHOICE QUESTIONS

Instruction: Choose the correct answer from the questions below.

1. The opening accumulated fund of a not-for-profit organization is determined

by preparing (a) columnar cash book (b) going statement of affairs (c)
opening statement of affairs (d) profit and loss account
2. An equivalent term for owner’s equity in-not-for-profit concerns is (a)
capital (b) consolidated fund (c) accumulated fund (d) surplus fund
3. The loss made by a non-trading organization is called a. surplus b. deficit c.
drawings d. shortage
4. The excess of assets over liabilities of a non-trading organization is a.
working capital b. accumulated fund c. surplus fund d. owner’s equity
5. Receipt and payment account of non-profit making organization shows a.
cash balance over a period of time b. summary of the cash book over a
particular period of time c. the capital surplus d. the deficit of the
organization
6. In the receipt and payment account of a non-profit making concern, the
closing balance represents a. cash in hand b. net profit c. net surplus d. total
debtors
7. Subscription in arrears is treated in the balance sheet of a club as a. current
assets b. current liability c. fictitious assets d. goodwill
8. The loss made by a non-profit making organization is called the a. deficit b.
discount c. shortage d. surplus
9. Receipts and payments accounts in non-profit organization are the same as
the … in a sole trading business a. balance sheet b. cash book c. profit and
loss account d. revenue account
10. Gwari Social Club received #1,550 as subscription in advance. This will be
treated in the balance sheet as a. current asset b. current liability c. fictitious
asset d. intangible asset

WEEK 3 AND 4

TERMINOLOGIES AND WORKING EXERCISE

SPECIFIC OBJECTIVES: By the end of the lesson, the students should be able
to:

1. State the terminologies used in non-profit making organization

2. Solve practice questions on non-profit making organization

REFERENCES: Ibrahim R. A. & Kazeem R. A. (2018): Essential Financial

Accounting for Senior Secondary Schools, Tonad Publishers Limited, Ikeja, Lagos.
TEACHING AIDS: Pictures, Formats, and Videos

VIDEO LINK: https://www.youtube.com/watch?v=eYn9GoH10I4

TERMINOLOGIES USED IN NON PROFIT MAKING ORGANIZATION

ACCUMULATED FUND

This is the fund that corresponds to the capital of a partnership or sole trader and it
will be calculated using the statement of affairs. This is excess of the assets over
the liabilities of a non-profit making organization, which takes the place of the
capital found in a trading organization.

SUBSCRIPTION

This is the periodic contribution of members to the association or society.

Members are enjoined to pay their subscriptions as at when due and it ca be paid
monthly or quarterly. Subscriptions can be paid in advance or in arrears.
SUBSCRIPTION IN ARREARS
This is sum of money due from members, but remained unpaid. Subscriptions in
arrears are treated as debtors in the balance sheet.
SUBSCRIPTION IN ADVANCE
This is the sum of money paid for future years by the members. It is treated as
current liabilities item in the balance sheet.
A separate account can be prepared for subscription to adjust the arrears and
advance before being posted to the credit of income and expenditure account. This
will be illustrated below.
ILLUSTRATION
3SC Club charges its members an annual subscription. On 1st January 1997, some
members have not paid their subscriptions of #1,000 for the year 1996. In
December 1996, some members paid in advance #180 for 1997. During the year
1997, we received subscriptions of #10,000. At the close of the year 31 st December
1997, some members have not paid #150 subscriptions while some paid their
subscription in advance for next year #500.
Dr Subscription Account Cr
# #
Owing b/d 1,000 Prepaid b/d 180
Income and expenditure 8,830 Cash 10,000
Prepaid c/d 500 Owing c/d 150
10,330 10,330
ENTRANCE FEE
This is the money paid on application for membership of an association or club. It
is normally treated as income in the income and expenditure account. The amount
to be paid will be determined by the committee of the club.

DONATIONS
It can be referred to as gifts of money or goods from any member or outsider, to
the club.

Illustration 1
The secretary of the Lagos Island Club gives the following summary of his
Receipts and Payments for the year ended 31st December 1990

Dr Receipts and Payments Account Cr

# #
Bal b/f 730 Rent 2,340

Subscription (1990) 1,500 Insurance 180

Subscription (1991) 200 Printing 120

Fees 1,700 Secretary expenses 370

Donations 1,340 Postage 1,630

Equipment bought 260

Balance c/d 570

5,470 5,470

The following information were given: 31/12/89 31/12/90

Rent owing 720 540

Insurance prepaid 10 20

Printing owing -- 15

Secretary expenses prepaid 40 80

Subscription in arrears 140 120

The club had the following properties on January 1st 1990.

Equipment #300

Land and buildings #1,000

Depreciate the assets by 5%

You are required to prepare:

a. Income and expenditure account

b. Balance sheet as at 31st December 1990.

Illustration 2

The receipts and payment account of 3SC Club for the year ended 31 st December
1991 is as follows:

Dr Receipts and Payments Account Cr

 # #

Balance b/f 200 Bar supplies 2,850

Subscription for 1991 3,600 Wages (Bar) 350

Subscription for 1992 250 General expenses 400

Receipts from bar 4,500 Printing and Stationery 120

Receipts from dance 500 Equipment 350

Sundry receipts 400 Furniture 300

Repairs 200

Balance c/d 4,880

9,450 9,450

You are given the following additional information: 1/1/91 31/12/91

Equipment 2,500 2,850

Furniture and fitting 2,000 2,300

Stock – bar 1,200 3,200

Bar supplies 2,400 5,600

You are required to prepare:

a. Statement of affairs as at 1st January 1991

b. Bar trading account
c. Income and expenditure account for the year ended 31st December 1991

MULTIPLE CHOICES QUESTIONS

Instruction: Choose the correct answer from the questions below.

1. The opening accumulated fund of a not-for-profit organization is determined

by preparing (a) columnar cash book (b) going statement of affairs (c)
opening statement of affairs (d) profit and loss account
2. An equivalent term for owner’s equity in-not-for-profit concerns is (a)
capital (b) consolidated fund (c) accumulated fund (d) surplus fund
3. The loss made by a non-trading organization is called a. surplus b. deficit c.
drawings d. shortage
4. The excess of assets over liabilities of a non-trading organization is a.
working capital b. accumulated fund c. surplus fund d. owner’s equity
5. Receipt and payment account of non-profit making organization shows a.
cash balance over a period of time b. summary of the cash book over a
particular period of time c. the capital surplus d. the deficit of the
organization
6. In the receipt and payment account of a non-profit making concern, the
closing balance represents a. cash in hand b. net profit c. net surplus d. total
debtors
7. Subscription in arrears is treated in the balance sheet of a club as a. current
assets b. current liability c. fictitious assets d. goodwill
8. The loss made by a non-profit making organization is called the a. deficit b.
discount c. shortage d. surplus
9. Receipts and payments accounts in non-profit organization are the same as
the … in a sole trading business a. balance sheet b. cash book c. profit and
loss account d. revenue account
10. Gwari Social Club received #1,550 as subscription in advance. This will be
treated in the balance sheet as a. current asset b. current liability c. fictitious
asset d. intangible asset
 WEEK 5

WORKING EXERCISE ON INCOME AND EXPENDITURE AND

RECEIPT AND PAYMENT ACCOUNT

SPECIFIC OBJECTIVES: By the end of the lesson, the students should be able
to:

1. State the terminologies used in non-profit making organization

2. Solve practice questions on non-profit making organization

REFERENCES: Ibrahim R. A. & Kazeem R. A. (2018): Essential Financial

Accounting for Senior Secondary Schools, Tonad Publishers Limited, Ikeja, Lagos.
TEACHING AIDS: Pictures, Formats, and Videos

VIDEO LINK: https://www.youtube.com/watch?v=eYn9GoH10I4

Illustration 3
The following is the receipts and payment account of Progressive Social Club for
the year ended 31st December 1991

Dr Receipt and Payment Account Cr

# #

Balance b/f 1,390 Rent 900

Subscriptions 2,310 Printing 180

Dance 340 Wages 790

Annual socials 3,500 Refreshment 240

Donations 100 Games equipment 1,300

Postage 104

Electricity 336

Rates 150

Balance c/d 3,640

7,640 7,640

Additional information:

The following were the balances of assets and liabilities as at

1/1/91 31/12/91

Games equipment 4,480 5,180

Wages accrued 300 260

Subscription in arrears 500 200

Subscription in advance 280 320

Rent in arrears 180 240

Rate in advance 30 48

Prepare:
 a. Statement of affairs as at 1/1/91
b. Income and expenditure account for the year
c. Balance sheet as at 31st December 1991

Illustration 4

The following is the receipts and payment account of Alata Social Club for the
year ended 31st December 2000

Dr Receipts and payment account Cr

# #

Balance b/f 500 Electricity 475

Subscription 3,400 Postage 325

Fees 320 Printing 65

Donations 1,470 Repairs 745

General expenses 1,200

Balance c/d 2,880

5,690 5,690

The following information were given: 31/12/99 31/12/2000

Electricity accrued 35 45

Postage prepaid 73 62

Subscription in advance 250 350

The book value of the asset as at 31st December 1999 was as follows:

Motor van #3,000

Land and building #4,560

Depreciate the assets at 10% per annum

You are required to prepare:

a. Statement of affairs
 b. Income and expenditure account
c. Balance sheet as at 31st December 2000.

Illustration 5

The receipt and payment account of Abeokuta Club for the year ended 31 st
December 1998 are as follows:

Dr Receipt and Payment Cr

# #

Balance b/f 3,747 Rent 1,800

Subscription 1997 150 Postages 1,364

1998 18,450 Tables and chairs 15,000

1999 365 Anniversary dance 3,430

Donations 4,050 Raffle draw ticket 1,700

Raffle draw 11,500 Bank charges 180

General expenses 2,645

Balance c/d 12,143

38,262 38,262

Additional information:

a. Balances as at 1/1/98 31/12/98

Rent payable 60 90
Prepaid expenses 380 140
Stock of stationery 600 550
b. Tables and chairs are expected to last for five years without residual value

You are required to prepare:

1. Statement of affairs as at 1st January 1998

2. Income and expenditure account for the year ended 31st December 1998
3. Balance sheet as at that date
Evaluation:

1. Mention three features of non-profit making organization

2. Give similarities and two differences between a receipts and payment
account and income and expenditure account
3. Explain the following terms:
i. Subscription
ii. Accumulated fund
iii. Subscription in advance
4. List four features of an income and expenditure account

MULTIPLE CHOICES QUESTIONS

Instruction: Choose the correct answer from the questions below.

1. Which of the following is a debit item in income and expenditure account?

A. bar sales b. electricity c. subscription d. subvention
2. Cash book is for sole trader as … is for clubs and association a. accumulated
fund b. bank account c. income and expenditure d. receipts and payments
3. Income and expenditure account shows a. only the capital expenditure b.
both capital and revenue expenditure c. all income including that owned to
the organization as well as that actually paid d. the expenditures
4. Which of the following is the major source of income to a club or society?
A. annual levy b. donation c. registration d. subscription
5. A statement of affairs is equivalent to a. balance sheet b. trial balance c.
trading account d. profit and loss account
6. In a non-profit organization, the excess of income over expenditure is a.
added to capital b. deducted from accumulated fund c. added to accumulated
fund d. deducted from capital
7. Which of the following is the equivalent of the receipts and payments
account? A. income and expenditure b. cash book c. subscription account d.
profit and loss account
8. Subscriptions received in advance are (a) included in the income and
expenditure account b. not included in the receipts and payments account c.
shown as a current asset in the balance sheet d. shown in the balance sheet as
a current liability
9. Under which of the following is subscription in advance classified? A. fixed
assets b. current assets c. accumulated fund d. current liability
10. Which of the following is not a current asset item? A. bills payable b. bills
receivable c. rent prepaid d. subscription owing

WEEK 6

PARTNERSHIP ACCOUNT

SPECIFIC OBJECTIVES: By the end of the lesson, the students should be able
to:

1. Define Partnership Account

2. Narrate the formation of Partnership Business
3. State the content of deed of Partnership
4. State the types of Partners
5. List the content of Partnership deed
6. State the rights and duties of Partners
REFERENCES: Ibrahim R. A. & Kazeem R. A. (2018): Essential Financial
Accounting for Senior Secondary Schools, Tonad Publishers Limited, Ikeja, Lagos.
TEACHING AIDS: Pictures, Formats, and Videos

VIDEO LINK: https://www.youtube.com/watch?v=Ja2vpKR5ovs

INTRODUCTION

According to Section 1 of the Partnership Act 1890, Partnership can be defined as

the ‘relationship which subsists between persons carrying on a business in common
with a view of profit’. Partnership can be formed by two or twenty persons.

Sir Fredrick Pallock defines partnership as the ‘relationship which subsists

between persons who have agreed to share the profit of a business carried on by all
of them for the benefit of all of them’.

FORMATION OF PARTNERSHIP

Deed of partnership: This is a document drawn up by the partners which contains

the rules and regulations guiding the business. It will clarify the respective position
of the partners in a business. A partnership may be established without any
formality but it is better to have a written agreement.
CONTENT OF DEED OF PARTNERSHIP
The following are contained in the deed of partnership
 1. Proportion of capital to be contributed
2. Profit and loss sharing ratio
3. Rate of interest on drawings
4. Rate of interest on capital
5. How much salaries to be paid
6. Valuation of goodwill
7. Dissolution of partnership
8. The name of the partners
9. The firm’s name
10.Signatories to the account
11.Duration of the partnership
12.Rights and duties of the partners

WHERE THERE IS NO AGREEMENT

If no specific agreement is made by the partners, the following provisions of

Section 24 of the Partnership Act 1890 must be applied;

1. There is no interest on capital

2. No salary or remuneration for active partners
3. Profit and loss are to be shared equally
4. No interest is to be allowed on drawings
5. 5% interest a year on loans made by partners in excess of the agreed capitals
6. No partners may introduce a new person without the consent of all existing
partners

TYPES OF PARTNERSHIP

a. Limited Partnership: This is registered and formed under the Limited

Partnership Act. Partners cannot take equal part in management and running
of the business. There must be one general partner with unlimited liability
and one limited partner whose liability is limited to the amount invested.

b. General or Ordinary Partnership: Under this type of partnership, partners

have equal responsibility and risk in the business hence; they are liable to the
 full extent of the debts of the firm. All of them take active part in the day-to-
day running of the business.

KINDS OR TYPES OF PARTNERS

1. General Partner: This is a partner who is entitled to take full share in the
administration and management of the firm. He has unlimited liability.

2. Limited Partner: this is a partner who is prevented from taking any active
part in the management of the business. He is a partner whose liability is
limited to the extent of his shares.

3. Active Partner: This is a partner who participates actively in the

management and running of the firm.
4. Sleeping or Dormant Partner: This is a partner who contributes capital but
does not participate actively in the running of the business
5. Nominal Partner: This is a partner who contributes only his name to the
formation of the business in order to enhance the goodwill and reputation of
the firm. He must not take part in the management of the business.

RIGHTS AND DUTIES OF PARTNERS

1. The firm must indemnify every partners for losses arising from the conduct
of the business of the firm
2. All general partners may take part in the management of the partnership
3. All are entitled to share from the profit
4. No person shall be introduced as a partner without the consent of all existing
partners
5. All decisions may be decided by a majority of the partners
6. All partners must have access to and inspect and copy any of the books of
the firm
ACCOUNTING ENTRIES

1. Capital Account: The amount contributed by each partner into the business
will be credited to his capital account. The firm can maintain or use either a
fixed capital or fluctuating capital.

a. Fluctuating capital account: The partners can maintain a fluctuating capital

account. Profit, interest on capital and salaries will be credited to the capital
account and drawings and interest on drawings debited.

Dr Capital Account Cr
A B C A B C
# # # # # #
Drawings X X X Balance b/f X X X
Int. on drawings X X X Current a/c X X X
Balance c/d X X X Share of profit X X X
Int. on capital X X X
Salary X X X
XX XX XX XX XX XX
Balance b/d X X X

Fixed capital account with current account: Here, the amount put into the
business by each partners will not change. The capital will remain fixed, in order to
preserve the capital intact, a current account will be prepared. The current account
will be debited with interest on drawings, drawings and credited with interest on
capital, share of profit and partners salary.

Dr Fixed Capital Account Cr

A B C A B C
# # # # # #
Balance b/f X X X

Dr Current Account Cr
A B C A B C
 # # # # # #
Drawings X X X Balance b/f X X X
Interest on drawings X X X Int. on capital X X X
Balance c/d X X X Share of capital X X X
Salary X X X
XX XX XX XX XX XX
Balance b/d X X X

Illustration 1

Aina and Ojo are in partnership as furniture manufacturers, sharing profits and
losses in the ratio 3:1 respectively. As of December, their capital and current
account balance were:

Current account Capital account

Aina 1,800(cr) 18,000

Ojo 3,000(dr) 20,000

Under the terms of agreement, Aina is to be credited with a salary of #5,000 per
annum. The interest on drawings is 10% and interest to be charged on capital at 5%
per annum. The net profit for the year 31st December 1997 was #18,500 before
charging interest on capital, drawings and salaries. The account shows that each
partner made drawings of #1,500.

You are required to prepare:

a. The appropriation account,

b. Current accounts as at 31st December 1997.

Illustration 2
Bala and Boye are partners sharing profit in proportion to their capitals. At the
close of their financial year on 31st December, 1999 the following balances stood
to the credit of the partners: #

Capital accounts: Bala 50,000

Boye 12,500

Current accounts: Bala 2,650

Boye 7,000

The partnership agreement provides:

a. Boye shall receive a salary of #2,500 per annum

b. Boye shall be entitled to 10% of the net profit after charging his salary and
interest on capital, current and drawings.
c. Interest of 5% per annum to be allowed on capital and current accounts. The
net profit for the year before adjustments was #56,455. The partner’s
drawings were Bala #25,000, Boye #7,500 on which the following amount
of interest are to be charged #825 for Bala and #200 for Boye.

You are required to prepare the necessary accounts in the partnership.

Illustration 3

Ike, Chris and Bode are in partnership sharing profit and losses in the ratio 3:2:1
respectively. The following balances were extracted from the books.

Capital account: Ike 100,000

Chris 70,000

Bode 60,000

Current account: Ike 7,000(cr)

 Chris 4,500(dr)

Bode 3,250(cr)

It was agreed that;

a. Chris and Bode should be paid salaries of #2,500 and #2,700 respectively
b. Interest should be charged on drawings and capital at the rate of 10% per
annum
c. Drawings of #3,200 were made by each of the partners. The net profit for the
year 31st December 2000 was #85,000 before charging interest on capital,
drawings and salaries.

You are required to prepare:

1. Appropriation account
2. Current account

Illustration 4

Bada, Gunju and Tunbosun are running a particular partnership whose terms are:

a. Payment of commission of #3,000 and salary of #6,020 yearly to Bada and

Gunju respectively
b. Interest at 5% per annum on partnership capital at the beginning of the year
c. Equal share of profit

The trial balance as at 31st December 2019 was:

Dr Cr
# #
Capital 1st January 2019: Bada 30,000
Gunju 30,000
Tunbosun 25,000
Drawings: Bada 2,500
Gunju 2,000
Tunbosun 1,000
 Purchases and Sales 100,000 160,000
Stock 1st January 5,000
Debtors and creditors 27,500 15,780
Bad debts 500
Electricity 300
Postage and stamps 100
Provision for doubtful debts 1st January 3,000
Premises at cost 70,000
Salaries and wages 10,000
Leasehold property at cost 25,000
Motor vehicle at cost 42,000
3% bank loan 25,000
Furniture 3,200
Provision for depreciation of furniture 320
289,100 289,100
Additional information:

a. Closing stock #3,000

b. Provision for doubtful debts is to be adjusted to 10% of debtors
c. Expenses accrued were: electricity #100, postage and stamps #50
d. The leasehold to be written off over ten years
e. Depreciation of the furniture is at 10% per annum
f. Bank loan interest for the year is outstanding

Prepare:

1. Partnership, Trading, Profit and Loss Account and Appropriation Account

for the year ended 31st December 2019
2. Partner’s current account
3. Balance sheet at as 31st December 2019.

EVALUATION:

Sola and Olotu are in partnership sharing profits and losses in the ratio 2:3
respectively. He following balances was extracted from the partnership books on
31st December 2019. #
Capital account: Sola 15,500

Olotu 18,070

Current account: Sola 29,800

Olotu 9,500

Drawings: Sola 1,100

Olotu 1,760

Motor vehicles 54,000

Office furniture 23,800

Advertisement 5,900

Sales 149,500

Returns inwards 3,000

Purchases 70,600

Returns outwards 5,500

Opening stock 24,600

Carriage inwards 3,300

Discount received 2,300

Rent and rates 3,950

Salaries and wages 16,000

Carriage outwards 5,600

Electricity 2,300
Provision for depreciation: Motor vehicle 13,500

Office furniture 7,140

Bills payable 7,500

Creditor 28,000

Bills receivable 6,600

Debtors 48,000

Cash 12,400

Discount allowed 3,400

Additional information:

a. Closing stock #18,000

b. Salaries and wages accrued #60
c. Interest on capital is #2,425 for Sola and $1,475 for Olotu
d. The partners maintain fixed capital accounts
e. Salaries payable to partner: Sola #1,400, Olotu #1,600
f. Provision for depreciation: Motor vehicles 25% on cost , office furniture
15% on cost

Prepare:

1. The Trading, Profit and Loss and Appropriation Account for the year ended
31st December 2019.
2. A Balance Sheet at as that date.

MULTIPLE CHOICE QUESTIONS

Instruction: Choose the correct answer from the questions below.

1. Association of two or more persons permanently engaged in a single
business for the purpose of making profit is called a. limited liability
company b. clubs and societies c. joint venture d. partnership
2. In partnership account the following accounts are prepared except
….account a. appropriation b. income and expenditure c. trading d. profit
and loss
3. Partnership agreement is otherwise referred to as a. incomplete records of
partners b. partners narration c. memorandum of association d. partnership
deed
4. Which of the following is debited to partner’s current account? a. capital b.
interest on capital c. drawings d. share of profit
5. Where there is no partnership agreement, a partner who lends money to the
partnership business get interest at the rate of …. percent per annum a. 10 b.
71/2 c. 5 d. 21/2
6. A nominal partner is one who (a) earns salary for his active participation b.
does not take part in operation of a business c. allows the business capital to
be shared among members d. allows the partnership to use his goodwill to
promote partnership business
7. Partnership is a/an a. trade association b. limited liability business c. public
enterprise d. unlimited liability business
8. A partner whose liability goes beyond his capital is known as a. dormant
partner b. limited partner c. general partner d. nominal partner
9. Where fixed capitals are maintained, partner’s drawings are transferred to
the a. credit of capital accounts b. debit of capital accounts c. credit of
partner’s current accounts d. debit of partner’s current accounts
10. The rate of interest allowed on partner’s capital contribution where there is
partnership agreement is a. as agreed by the partners b. percentage in
proportion to capital contributed c. 10% d. 5%
 WEEK 7

GOODWILL ACCOUNTS

SPECIFIC OBJECTIVES: By the end of the lesson, the students should be able
to:

1. Define Goodwill
2. State the reasons for a Goodwill account
3. List the types of Goodwill
4. Mention the changes in partnership

REFERENCES: Ibrahim R. A. & Kazeem R. A. (2018): Essential Financial

Accounting for Senior Secondary Schools, Tonad Publishers Limited, Ikeja, Lagos.
TEACHING AIDS: Pictures, Formats, and Videos

VIDEO LINK: https://www.youtube.com/watch?v=SoZpDwoyEJ8

INTRODCTION
Goodwill is an asset, but it cannot be seen or touched, hence it is referred to as
intangible asset.

Goodwill can also be defined as the excess of the purchase consideration over the
total value of assets less liabilities. It arises as a result of connection, reputation
and efficiency of a business concern.

REASONS FOR GOODWLL

1. Quality of goods and services sold: The purchaser can pay for goodwill
when the products are durable and of standard quality
2. Personality of the owner: Personal reputation of the owner arising through
his skill and influence can also bring goodwill
3. Value of labour force: Possession of efficient, effective and well trained
employees may constitute another reason
4. Favourable location: A purchaser may pay for goodwill as a result of the
location of the business in a conducive environment
5. Possession of patents and trade mark
6. Monopoly power: The business may enjoy some form of monopoly which
may be due to some form of government license
7. Cost of research and development: Product research and development
may bring about cheaper methods of production
8. Good public relation: Public relation is the image building done by an
organization to give the public favourable impression about its aims and
policies

TYPES OF GOODWILL

There are two types of goodwill. These are as follows;

1. Inherent Goodwill: This is a type of goodwill which does not arise from
acquisition of a business by another but its generated internally
2. Purchased Goodwill: This arises as a result of acquisition of one business
by another. It is the excess of purchase price over the net realizable value of
the assets.

CHANGES IN PARTNERSHIP

The circumstances giving rise to the ascertainment of goodwill are;

1. Admission of a new partner

2. Change in profit sharing ratio
3. Death or retirement of a partner
4. The business has been purchased
5. Dissolution of a business
6. Amalgamation of partnership business

CHARACTERISTIC OF GOODWILL

1. It may fluctuate from day to day

2. The value is subjective
3. It cannot be sold separately apart from other assets of the business

TREATMENT OF GOODWILL ON ADMISSION OF NEW PARTNER

A new partner can be introduced into the business on agreement of the partners. On
the introduction of a partner, the old partners will give up part of their profit. In
other to compensate them, he will bring in goodwill and this will be dealt with as
follows;

1. When Goodwill is brought and retained into the books: A goodwill

account will be opened and the amount debited to it. It will be credited to the
capital account in their old profit-sharing ratio.
2. When Goodwill is written off: The goodwill brought into the books may be
written off. This will be done in their new profit-sharing ratio in the
partner’s capital account.

Illustration 1

Oyebode and Olapade are in partnership they shared profit equally. It was decided
to admit Ireti and she brought cash 10,000 as capital. It was agreed that the
goodwill was worth #20,000 the new profit-sharing ratio is to be Oyebode 3,
Olapade 2, and Ireti 2. The balance before Ireti was introduced was as follows;

Balance sheet

# #

Capital: Oyebode 30,000 Net asset 60,000

Olapade 30,000

60,000 60,000

Show the balance sheets on 1st January 2019 after goodwill has been taken into
account if;
 i. Goodwill is opened
ii. Goodwill was not opened

When Goodwill account is opened (not written off)

Dr Capital Account Cr

Details Oyebode Olapade Ireti Details Oyebode Olapade Ireti

# # # # # #
Bal c/d 40,000 40,000 10,000 Bal b/f 30,000 30,000
Cash 10,000
Goodwill 10,000 10,000
40,000 40,000 10,000 40,000 40,000 10,000

Dr Goodwill account Cr

# #

Capital: Oyebode 10,000 Balance c/d 20,000

Olapade 10,000

20,000 20,000

Balance Sheet

# #

Capital: Oyebode 40,000 Net asset 60,000

Olapade 40,000 Cash 10,000

Ireti 10,000 Goodwill 20,000

90,000 90,000

Goodwill written off

New ratio 3:2:2 = 3+2+2 = 7

Oyebode = 3/7 X 20,000 = 8571.40

Olapade = 2/7 X 20,000 = 5714.30

Ireti = 2/7 X 20,000 = 5714.30

 20,000

Dr Capital Account Cr

Details Oyebode Olapade Ireti Details Oyebode Olapade Ireti

# # # # # #
Goodwill 8571.40 5714.30 5714.30 Bal b/d 30,000 30,000
written
off
Cash 10,000
Bal c/d 31428.60 34285.7 4285.60 Goodwill 10,000 10,000
0
40,000 40,000 10,000 40,000 40,000 10,000

Balance sheet

# #

Capital: Oyebode 31428.60 Net asset 60,000

Olapade 34285.70 Cash 10,000

Ireti 4285.70

70,000 70,000

EVALUATION:

1. Define Goodwill
2. State FIVE reasons for goodwill
3. Briefly explain the types of goodwill

MULTIPLE CHOICE QUESTIONS

Instruction: Choose the correct answer from the questions below.

1. Goodwill is taken into account in partnership when a. the business has a

good customer relations b. the business is making huge profit c. a new
partner is determine d. a partner become dormant
2. Goodwill is a fictitious asset because it a. cannot be sold for cash b. does not
exist physically c. is bought on credit d. is worthless
3. The expenses that are incurred on good purchased are called a. discount
received b. carriage inward c. carriage outward d. return outwards
4. Which of the following items is an intangible asset? A. furniture b. goodwill
c. premises d. reserves
5. A nominal partner is one who (a) earns salary for his active participation b.
does not take part in operation of a business c. allows the business capital to
be shared among members d. allows the partnership to use his goodwill to
promote partnership business
6. Partnership is a/an a. trade association b. limited liability business c. public
enterprise d. unlimited liability business
7. A partner whose liability goes beyond his capital is known as a. dormant
partner b. limited partner c. general partner d. nominal partner
8. Where fixed capitals are maintained, partner’s drawings are transferred to
the a. credit of capital accounts .b debit of capital accounts c. credit of
partner’s current accounts d. debit of partner’s current accounts
9. The rate of interest allowed on partner’s capital contribution where there is
partnership agreement is a. as agreed by the partner’s b. percentage in
proportion to capital contributed c. 10% d. 5%

WEEK 8 AND 9

REVALUATION ACCOUNT

SPECIFIC OBJECTIVES: By the end of the lesson, the students should be able
to:

1. Define Revaluation Account

 2. State reasons for revalue an assets

REFERENCES: Ibrahim R. A. & Kazeem R. A. (2018): Essential Financial

Accounting for Senior Secondary Schools, Tonad Publishers Limited, Ikeja, Lagos.
TEACHING AIDS: Pictures, Formats, and Videos

VIDEO LINK: https://www.youtube.com/watch?v=pD-FAywybrg

INTRODUCTION

Under this method, assets are value at the beginning of the year and at the end of
the year they are revalued, any difference being regarded as depreciation.

REASONS FOR REVALUATION OF ASSETS

Revaluation of assets occurs in any of the following circumstances:

a. Admission of a new partner

b. When a partner retires
c. Changes in the profit-sharing ratio.
The assets of the business may be revalued to show the current value. It is pertinent
to state that experts may be employed to revalue the assets to show the current
replacement value. Revaluation of assets is necessary because some assets may
have appreciated in value whilst others may have been over or under depreciated.
A revaluation account must be opened and differences in values are posted. When
there is increase in assets value, the revaluation account will be credited. Any
decrease in value of assets will be debited to the revaluation account. In each of the
occasion mentioned above, goodwill must be adjusted or payments are required.
The surplus or deficit is posted to the partner’s capital account in their old profit-
sharing ratio.

Illustration 1

James, Luke and John are in partnership sharing profits and losses equally. The
following is the balance sheet of the business as at 31st December, 20019.

Balance Sheet

# #

Capital: Fixed Assets

James 200,000 Premises 320,000

Luke 200,000 Furniture and fittings 157,000

John 200,000 600,000 Motor Vehicle 70,000

Current account: Plant and Machinery 25,500

James 15,000 572,500

Luke 20,000 Current Assets:

John 17,000 52,000 Stocks 14,000

Creditors 53,000 Debtors 26,000

Accruals 7,500 Bank 100,000 140,000

712,500 712,500
Additional information: It was agreed as follows;

a. On 31st December 2019, Tunde was admitted into the partnership.

b. Profit and losses would be shared equally
c. Tuned shall bring #145,000 as capital
d. Goodwill shall be valued at #35,000 and it is to retained in the book
e. The following assets were revalued. #
Premises 300,000
Furniture and fittings 152,000
Motor vehicle 63,000
Plant and machinery 45,000
Stock 16,000
f. A provision of #3,500 is to be made for bad debts

You are required to prepare:

i. Revaluation account
ii. Current account
iii. Balance sheet after admission of Tunde

Dr Revaluation Account Cr

# #

Decrease in value of assets Increase in value of assets

Premises 20,000 Goodwill 35,000

Furniture and fittings 5,000 Plant and Machinery 19,500

 Motor van 7,000 Stock 2,000

Provision for bad debts 3,500

Share of profit

James (1/3 X 21,000) 7,000

Luke (1/3 X 21,000) 7,000

John (1/3 X 21,000) 7,000 21,000

56,500 56,500

Dr Current account Cr

James Luke John Tunde James Luke John Tunde

# # # # # # # #
Balance c/d 22,000 27,000 24,000 Bal b/f 15,000 20,000 17,000
Profit 7,000 7,000 7,000
22,000 27,000 24,000 22,000 27,000 24,000
Bal b/d 22,000 27,000 24,000

Dr Capital Account Cr

James Luke John Tuned James Luke John Tuned

# # # # # # # #
Balc/d 200,000 200,000 200,000 145,000 Bal b/f 200,000 200,000 200,000
Bank 145,000
200,000 200,000 200,000 145,000 200,000 200,000 200,000 145,000
Bal b/d 200,000 200,000 200,000 145,000

Balance Sheet

# #

Capital account: Fixed Assets:

James 200,000 Premises 300,000

Luke 200,000 Furniture & fittings 152,000

 John 200,000 Motor Vehicle 63,000

Tuned 145,000 745,000 Plant and Mach. 45,000 560,000

Current account: Current Assets

James 22,000 Stock 16,000

Luke 27,000 Debtors 26,000

John 24,000 73,000 Provision 3,500 22,500

Current liabilities: Bank 245,000

Creditors 53,000 Goodwill 35,000

Accruals 7,500

878,500 878,500

Dr Premises Account Cr

# #

Balance b/f 320,000 Reduction 20,000

Balance c/d 300,000

320,000 320,000

Dr Furniture and fittings Cr

# #

Balance b/f 157,000 Reduction 5,000

Balance c/d 152,000

157,000 157,000

Dr Motor vehicle account Cr

# #

Balance b/f 70,000 Reduction 7,000

Balance c/d 63,000

 70,000 70,000

Dr Plant and Machinery account Cr

# #

Balance b/f 25,500 Balance c/d 45,000

Increase 19,500

45,000 45,000

Dr Stock Account Cr

# #

Balance b/f 14,000 Balance c/d 16,000

Increase 2,000

16,000 16,000

Dr Bank Account Cr

# #

Balance b/f 100,000 Balance c/d 245,000

Capital: Tunde 145,000

245,000 245,000

Illustration 2

Ayo and Biodun are in partnership sharing profits and losses equally. The
following is the balance sheet of the business as at 31st December 2018.

Balance sheet

# #
Capital: Fixed assets

Ayo 18,000 Freehold premises 12,000

Biodun 18,000 36,000 Motor vehicle 16,000

Current account: Furniture and fittings 6,000

Ayo 1,200 34,000

Biodun 700 Current assets:

Current liabilities: Stock 6,440

Creditors 13,000 Debtors 9,180
Accruals 420 13,420 Bank 1,700 17,320
51,320 51,320

Additional information
a. On 31st December 2018, Dapo was admitted into the partnership
b. Profit and losses would still be shared equally
c. Dapo introduced capital of #15,000
d. The following assets were revalued: #
Freehold premises 24,000
Motor vehicle 18,000
Furniture and fittings 3,000
Stock 5,000
e. Goodwill was valued at #10,000 and it is to be retained in the books
You are required to:
i. Record the transaction in the books of the partnership
ii. Prepare the balance sheet after admission on 31st December 2018.

Illustration 3
Lawal, Ojo and Ayo were in partnership sharing profit and losses in the ratio 3:5:2.
Their balance sheet at 31st December 2017 was as follows;
Balance sheet
 # #
Capital: Lawal 6,000 Buildings 5,400
Ojo 8,000 Equipment 2,130
Ayo 4,000 Motor vehicle 3,970
Creditors 2,700 Stock 5,100
Debtors 3,750
Bank 350
20,700 20,700
st
Talabi was admitted into the partnership at 1 January 2017. The profit-sharing
ratio was Lawal 4: Ojo 2: Ayo 3: Talabi 3. Talabi brought in #5,000 as capital. The
assets were valued as Building #10,000, Equipment #1,950, Motor vehicle #3,500,
Stock #4,800 and a bad debt provision made of #350. Goodwill was agreed to be
#12,000 and a goodwill account was opened and closed immediately after the
admission of the new partner.
Required;
a. Revaluation account
b. Capital account
c. Balance sheet after admission of a new partner.

EVALUATION:
Kunle and Kelechi are in partnership sharing profit and losses equally. On 1 st
January 2010, they decided to admit Adeolu as a partner on which date their
balance sheet was as follows
Balance Sheet

# #
Capital account: Assets
Kunle 80,000 Premises 75,000
Kelechi 80,000 Plant and machinery 60,000
Current account: Stock 38,500
Kunle 12,510 Debtors 15,350
Kelechi 8,340 cash at bank 11,650
Creditors 19,650
200,500 200,500
It was agreed that;
a. Adeolu shall bring #40,000 as capital for one fifth share of profit
b. Goodwill shall be brought into the books at #10,000
c. Assets are revalued at; #
Premises 100,000
Plant and machinery 45,000
Stock 32,500
d. A provision of #1,800 is to be made for bad debts
You are required to prepare:
i. Revaluation account
ii. Partners current account
iii. Revised balance sheet as at 1/1/2010

WEEK 10

DISSOLUTION OF PARTNERSHIP

SPECIFIC OBJECTIVES: By the end of the lesson, the students should be able
to:

1. Define dissolution of partnership

2. State the reasons for dissolution of partnership
3. List rules for dissolution of assets

REFERENCES: Ibrahim R. A. & Kazeem R. A. (2018): Essential Financial

Accounting for Senior Secondary Schools, Tonad Publishers Limited, Ikeja, Lagos.
TEACHING AIDS: Pictures, Formats, and Videos

VIDEO LINK: https://www.youtube.com/watch?v=q1OdyCt9Tp4

INTRODUCTION

This is the coming to an end of a partnership agreement. It is the break-up of a

partnership business. It is the process whereby a partnership is automatically
dissolved or brought to an end by the happenings of any event which makes it
unlawful to carry on the business. Dissolution means cessation of business,
disposal of assets, settlement of debts and division of cash balance among
members.

REASONS FOR DISSOLUTION OF A PARTNERSHIP BUSINESS

1. The bankruptcy of a partner

2. Death of a partner
3. Insanity of a partner
4. Withdrawal or retirement of partner
5. Admission of a new partner
6. Insolvency of the business
7. Joint decision to discontinue the business
8. Expiration of the time given
9. Illegality of object of the business
10.Non-performance of the business
RULES FOR DISSOLUTION OF ASSETS

These assets are disposed of and the proceeds are applied in discharging the
liabilities of the partnership. Section 44 of the Partnership Act states that subject to
agreement, the following procedures must be followed.

1. Losses must be paid out of capital

2. Payment of debts and liabilities to outside creditors
3. Payment of partner’s loan
4. Settlement of partner’s capital
5. Any profit on the realization must be divided in their profit-sharing ratio.

WHEN PROFIT IS MADE ON DISSOLUTION

When there is profit on dissolution the books of account will appear thus:

Illustration 1

Joy and Gad trading in partnership agree to dissolve the partnership on 31 st

December 2010. The balance sheet as at that date was as follows:

Balance Sheet

# #

Capital: Joy 10,000 Plant and mach. 10,000

Gad 20,000 30,000 F&F 5,500

Current liability Stock 4,500

Creditor 15,000 Debtors 12,000

Cash 13,000

45,000 45,000
The profit and losses are to be shared equally. The sundry debtors realized
#11,000, Plant and machinery #12,000, Stock #7,000, Furniture and fittings
#5,000. The cost of dissolution was #500 and the creditors were settled with
#12,000.

Required:

Prepare the necessary accounts for dissolution.

Dr Realization Account Cr

Book value of assets # Cash realized from sales #

Plant and mach. 10,000 Plant and mach. 12,000

Furniture and fittings 5,500 Stock 7,000

Stock 4,500 Debtors 11,000

Debtors 12,000 Furniture and fittings 5,000

Cost of dissolution 500 Discount from creditor 3,000

Share of profit

Joy (1/2 X 5,500) 2,750

Gad (1/2 X 5,500) 2,750

38,000 38,000

Dr Capital Account Cr

Joy Gad Joy Gad

# # # #
Cash 12,750 22,750 Balance b/f 10,000 20,000
Share of profit 2,750 2,750
12,750 22,750 12,750 22,750

Dr Cash Book Cr

# #
Balance b/f 13,000 Creditors 12,000

Realization- P & M 12,000 Cost of dissolution 500

Furniture and fittings 5,000 Capital:

Debtors 11,000 Joy 12,750

Stocks 7,000 Gad 22,750 35,500

48,000 48,000

LOSS ON REALIZATION NECESSITATING A PARTNER TO BRING IN

CASH TO SETTLE HIS ACCOUNTS

A, B and C are partners sharing profit or loss in the ratio 2:2:1 respectively. The
balance sheet as at 31st December 2019 was as follows when it was dissolved.

Balance Sheet

# #
Capital: Furniture & fittings 3,000
A 2,900 Plant & mach. 1,500
B 2,900 Motor van 600
C 430 6,230 Stock 700
Debtors 300
Creditors 1,000 Bank 1,130
7,230 7,230
The following were realized on furniture and fittings #1,000, plant and machinery
#1,100, debtor #250, motor van #700, stock #750. The creditors were paid in full
and dissolution costs were #300.
Prepare the following accounts:
a. Bank account
b. Realization account
c. Capital account

Dr Realization Account Cr

Book value of assets # Cash realized #

Furniture and fittings 3,000 Furniture and fittings 1,000
Plant and machinery 1,500 Plant and machinery 1,100
Motor van 600 Debtors 250
Stock 700 Motor van 700
Debtors 300 Stock 750
Cost of dissolution 300 Share of loss
A (2/5 X 2,600) 1,040
B (2/5 X 2,600) 1,040
C (1/5 X 2,600) 520 2,600
6,400 6,400

Dr Capital Account Cr
A B C A B C
# # # # # #
Share of loss 1,040 1,040 520 Balance b/f 2,900 2,900 430
Cash 1,860 1,860 Cash 90
2,900 2,900 520 2,900 2,900 520

Dr Cash Book Cr
# #
Balance b/f 1,130 Cost of dissolution 300
Furniture and fittings 1,000 Creditors 1,000
Plant and machinery 1,100 Capital: A 1,860
Debtors 250 B 1,860 3,720
Motor van 700
Stock 750
Capital C 90
5,020 5,020

PARTNERS TAKING OVER OF ASSETS AND LIABILITIES ON

DISSOLUTION
The partners can take over assets and liabilities of the partnership. Where a partner
takes over the assets and liabilities upon dissolution the following rules must apply.
1. On taking over of assets
Debit: Capital account
Credit: Realization account
2. On taking over liabilities
Debit: Realization account
Credit: Partner’s account

Soji, Biodun and Ojo are into retail business sharing profit or loss equally. They
agreed to dissolve the business. The balance sheet as at 31st December, 2019.
Balance Sheet
# #
Capital: Motor car 5,000
Soji 20,000 Buildings 10,000
Biodun 10,000 Investment 25,000
Ojo 6,000 36,000 Stock 6,000
Goodwill 6,000
Current account Cash 3,000
Soji 6,000
Biodun 4,000
Ojo 2,000 12,000
Creditors 7,000
55,000 55,000

The partners agreed that the partnership should be dissolved based on the
following terms.
1. One motor car to be taken over by Soji at a value of #3,000 and the other to
be taken over by Ojo at #4,000
2. The investment were all sold for #7,000
3. The building realized #20,000, stock #3,000
4. The creditors were settled in full
5. Goodwill was realized as #3,000
6. Cost of dissolution #1,000 was paid
You are required to prepare:
a. Realization account
b. Partner’s capital account
c. Cash book

Dr Realization Account Cr
Book value of assets # Cash realized #
Motor car 5,000 Investment 7,000
Investment 25,000 Building 20,000
Building 10,000 Stock 3,000
Stock 6,000 Goodwill 3,000
Goodwill 6,000 Taken over by:
Cost of dissolution 1,000 Soji: Motor car 3,000
Ojo: Motor car 4,000 7,000
Share of loss:
Soji (1/3 X 13,000) 4,333
Biodun (1/3 X 13,000) 4,333
Ojo (1/3 X 13,000) 4,333
53,000 53,000
Dr Capital Account Cr
Soji Biodun Ojo Soji Biodun Ojo
# # # # # #
Share of loss 4,333 4,333 4,333 Balance b/f 20,000 10,000 6,000
Motor car 3,000 4,000 Current a/c 6,000 4,000 2,000
Cash 18,667 9,667 Cash 334
26,000 14,000 8,334 26,000 14,000 8,334

Dr Cash Account Cr
# #
Balance b/f 3,000 Cost of dissolution 1,000
Investment 7,000 Creditors 7,000
Building 20,000 Capital: Soji 18,667
Stock 3,000 Biodun 9,667 28,334
Goodwill 3,000
Capital: Ojo 334
36,334 36,334

Illustration 1
Bayo and Sayo are in partnership. They agreed to dissolve the partnership on 31 st
December 2000 and to sell the business.
The balance sheet on that date was as follows:
# #
Capital account: Goodwill 10,000
Bayo 74,882 Plant and machinery 14,216
Sayo 5,102 79,984 Stock 49,164
Debtors 36,152
Loan-Bayo 20,000 Cash 17,644
Creditors 27,192
127,176 127,176
Profit and losses are shared between the two partners in the proportions 3/5 and 2/5
to Bayo and Sayo respectively.
The assets realized as follows: #
Debtors 32,042
Stock 41,155
Plant and machinery 17,165
Goodwill 3,500
Liquidation cost 473
You are required to prepare the necessary accounts to effect the dissolutions.

Illustration 2
Joke and Jonah are equal partners in a retail business. They decided to retire and
sell their business on 31st December 2019. The position of the business was as
follows:
Balance Sheet
# #
Capital: Fixture and fittings 1,000
Joke 6,000 Plant and machinery 2,000
Jonah 4,000 Stock 5,000
Debtors 1,900
Creditors 900 Bank 1,000
10,900 10,900
The machinery was sold for #3,000, fixture for #1,100 and stock for #4,600. The
book debts realized #1,800. The creditors were paid #860 in full settlement. The
expenses on winding up were #64.
Required:
Prepare the following accounts.
a. Realization account
b. Cash account
c. Capital accounts of the partners
Illustration 3
Bayo, Victor and Tunde are in partnership sharing profit in the ratio 3:4:2. The
balance sheet as at 31st December 2019 was as follows:
Balance Sheet
# #
Capital: Fixed assets 24,780
Bayo 13,800 Stock 13,552
Victor 25,000 Debtors 30,000
Tuned 16,075 Cash 2,780
Creditors 14,567
Loan 1,670
71,112 71,112

On 1st January 2019 they dissolved the partnership and the following events
occurred. #
Bayo took one of the fixed assets (motor car) at a value of 800
The remainder of the fixed assets realized 20,000
The debtors realized 28,000
The creditors were paid off 13,500
Liquidation cost were paid 750
Stock realized 13,000
The loan was settled
Required:
a. Realization account
b. Cash account
c. Capital account of partners

Illustration 4
Michael and Mary had been in partnership for several years sharing profits and
losses equally. They decided to dissolve the partnership on 31 st December 2018 on
which date their balance sheet as follows:
 Balance Sheet
# #
Capital account: Goodwill 10,000
Michael 40,000 Equipment 50,000
Mary 30,000 70,000 60,000
Current account:
Michael 7,935 Stock 17,140
Mary (1,345) 6,590 Debtors 18,960
Prepaid expenses 400
Creditors 13,110
Bank overdraft 6,800
96,500 96,500

Additional information:
a. Assets realized as follows: #
Equipment 62,000
Stock 14,500
Debtors 16,800
b. Creditors were settled for #12,900
c. Dissolution expenses amounted to #1,300
You are required to prepare:
i. Realization account
ii. Partner’s capital account
iii. Bank account

MULTIPLE CHOICE QUESTIONS

Instruction: Choose the correct answer from the questions below.

1. The winding up and settlement of the affairs of a partnership is termed a.

goodwill b. discharged c. dissolution d. liquidation
2. The decision to dissolve and terminate the activities of a partnership is called
a. appropriation b. dissolution c. liquidation d. termination
3. Partnership agreement is otherwise referred to as a. incomplete records of
partners b. partners narration c. memorandum of association d. partnership
deed
4. The cash realized from the sale of assets on the dissolution of a partnership
is a. credited to the cash account and debited to the asset account b. credited
to the asset account and debited to cash account c. credited to the cash
account and debited to the realization account d. debited to the cash account
and credited to realization account
5. A nominal partner is one who (a) earns salary for his active participation b.
does not take part in operation of a business c. allows the business capital to
be shared among members d. allows the partnership to use his goodwill to
promote partnership business
6. Partnership is a/an a. trade association b. limited liability business c. public
enterprise d. unlimited liability business
7. A partner whose liability goes beyond his capital is known as a. dormant
partner b. limited partner c. general partner d. nominal partner
8. Where fixed capitals are maintained, partner’s drawings are transferred to
the a. credit of capital accounts b. debit of capital accounts c. credit of
partner’s current accounts d. debit of partner’s current accounts
9. The rate of interest allowed on partner’s capital contribution where there is
partnership agreement is a. as agreed by the partner’s b. percentage in
proportion to capital contributed c. 10% d. 5%