Peter, Paul and Mary have been in partnership for several years sharing profits and losses in the ratio 1 : 2 : 3. Their last statement of financial position is as follows:

The partnership had become very dependent on one customer, Jefferson, and in order to keep his custom the partners had recently increased his credit limit until he owed them £36,000. Jefferson has just been declared bankrupt and the partnership is unlikely to get any money from him. Reluctantly, the partners have agreed to dissolve the partnership on the following terms:
1. The inventory is to be sold for £8,000.
2. The non-current assets will be sold for £16,000 except for certain items with a book value of £10,000, which will be taken over by Mary at an agreed valuation of £14,000.
3. The trade receivables, except for Jefferson, are expected to pay their accounts in full.
4. The costs of dissolution will be £1,600 and discounts received from trade credit suppliers are expected to be £1,000.
5. Peter is unable to meet his liability to the partnership out of his personal funds.
Required
Prepare the:
a. realization account
b. partners' capital accounts recording the dissolution of the partnership.

Transcribed Image Text:

Peter, Paul and Mary Statement of financial position as at 30 June 20X2 ASSETS 40,000 12,000 28,000 Current assets 10,000 42,000 52,000 80,000 Trade receivobles Total assets EQUITY AND LIABILITIES Owners equity Copital accounts - Peter 4,000 8,000 8,000 20,000 Total equity Current liabilities Trade poyables Total current liabilities Total equity and liabilities 26,000 34,000 60,000 0,000