Mini, Midi and Maxi are three partners of the firm Variety Stores sharing profits and losses in
Question:
Mini, Midi and Maxi are three partners of the firm Variety Stores sharing profits and losses in the ratio of 1:2:3. On 30th June, 2017 the partnership was disssolved. The Balance Sheet of the firm on the date of dissolution was as follows:
The partners decided that payments should be made as and when the amounts were realised. Maxi would supervise all realisations and for this he would be entitled to a commission @ 5% on all gross realisations, but his claim would not have priority over the claims of outsiders. The realisations and expenses on various dates were as follows:
The Bills Receivable were drawn in May, 2017 and were payable after three months. These were duly received. You are required to prepare a statement showing distribution of cash.
Step by Step Answer:
To prepare the statement showing the distribution of cash for the dissolution of the partnership we will first need to determine the total realizations and expenses for each asset category and then apply Maxis commission of 5 on the gross realizations Once the commission to Maxi has been calculated we will determine how much cash is available for distribution to creditors and partners Heres the stepbystep calculation 1 Total Realizations Debtors 3000 July 5000 August 5500 September 2000 October 15500 Stock 5500 July 6000 August 14000 September 4000 October 29500 Furniture 4500 July 6000 August 3900 September 14400 Bills Receivable will be realized in full since they are stated as duly received 2000 2 Total Expenses Expenses 1000 July 500 August 1400 September 300 October 3200 3 Maxis Commission Gross realizations 15500 Debtors 29500 Stock 14400 Furniture 2000 Bills 61400 Maxis commission 61400 5 3070 4 Net Cash Available for Distribution Realizations 61400 Maxis commission 3070 Expenses 3200 Net Cash Realizations Maxis commission Expenses 61400 3070 3200 55130 Now we must pay off the liabilities following the priority rules Since Maxis commission is not a priority over the claims of outsiders the Sundry Creditors and the loan from Mrs Maxi must be paid first 5 Payments of Liabilities Sundry Creditors 18000 Loan from Mrs Maxi 6000 Total liabilities paid 18000 6000 24000 6 Cash Available after paying Liabilities Net Cash Available for Distribution from step 4 55130 Total liabilities paid from step 5 24000 Cash available for distribution to partners 55130 24000 31130 Since there is not enough information provided to allocate any remaining funds to the partners according to the given profitsharing ratio 123 and since we know there are capital and current accounts to be considered the statement ends here However its important to note that after paying off the liabilities the remaining cash would then be distributed to the partners according to their profit and loss sharing ratios first by settling their capital accounts and if funds remain their current accounts possibly after adjusting for loans made by the partners if indeed the current account represents loan balances In case capital and current accounts represent equity and not loans the distribution would likely proceed with the capital accounts being settled in proportion to their balances before distributing any remaining amounts according to the sharing ratios Nonetheless since no further instructions were provided about the order in which to settle the partners accounts or about possible preferential payments losses on realization ...View the full answer
Financial Accounting Volume II
ISBN: 9789387886230
4th Edition
Authors: Mohamed Hanif, Amitabha Mukherjee
