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CURRENT ACCOUNT AND PARTNERSHIP DISSOLUTION

CONTENTS:

  1. Purpose of preparing current account
  2. Preparation of partnership account
  3. Dissolution of partnership

CURRENT ACCOUNT

In order to keep each partner’s capital fixed year by year in the capital account, the current account is prepared to take care of profits, interest on capital and salaries to which the partners may be entitled on the credit side while the drawings and interest on drawings are debited to it. The balance of the current account at the end of each financial year will then represent the amount undrawn or withdrawn profits. A credit balance will be undrawn profits while a debit balance will be drawings in excess of the profits to which the partner was entitled.

Preparation of Partnership Account

Example 1: Ogundele and Dapo are in partnership sharing profit and loss in the ratio 3:2.The following is the trial balance as at 31st December, 2005.

Additional information:

  1. Stock at close N15, 000
  2. Salaries and wages accrued N1, 000
  3. Electricity prepaid N20
  4. Interest on capital at 10%
  5. Interest on drawings at 5%
  6. Depreciate motor van 10% on cost
  7. Partnership salary: Ogundele N2, 000
  8. Provision for doubtful debt to be reduced to N200
  9. Ogundele withdrew N7, 000 goods for own use

You are required to prepare:

  1. Trading, profit and loss account
  2. Partners capital and current account
  3. Balance sheet as at 31st December 2005

Solution

Trading, profit and loss account of Ogundele and Dapo for the year ended 31st December, 2005

Appropriation Account

Current Account

Balance sheet as at 31st December, 2005

 

EVALUATION:

  1. Explain the purpose of current account in partnership

 

DISSOLUTION OF PARTNERSHIP

MEANING: Dissolution of Partnership is a situation where the partnership business is brought to an end or winds up by the happening of certain event which makes it unlawful to operate.

Lesson tags: Financial Accounting Lesson Notes, Financial Accounting Objective Questions, SS2 Financial Accounting, SS2 Financial Accounting Evaluation Questions, SS2 Financial Accounting Evaluation Questions First Term, SS2 Financial Accounting First Term, SS2 Financial Accounting Objective Questions, SS2 Financial Accounting Objective Questions First Term
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