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:

ASSETS Non-current assets Current assets Inventories Trade receivables Total assets EQUITY AND LIABILITIES Owners' equity Capital accounts - Peter Paul - Peter, Paul and Mary Statement of financial position as at 30 June 20X9 £ £ 40,000 12,000 - Mary Total equity Current liabilities Bank Trade payables Total current liabilities Total equity and liabilities £ 28,000 10,000 42,000 52,000 80,000 4,000 8,000 8,000 20,000 26,000 34,000 60,000 80,000