Adebayo and Okon are partners sharing profits and losses in the ratio 3:2. On the dissolut… — JAMB UTME

Adebayo and Okon are partners sharing profits and losses in the ratio $3:2$ . On the dissolution of their partnership, the book value of non-cash assets transferred to the Realization Account was $₦180,000$ , while trade creditors stood at $₦40,000$ . The assets realized $₦195,000$ , and dissolution expenses of $₦5,000$ were paid. Creditors were settled at a $5\%$ discount. What is Adebayo's share of the profit on realization in Naira ( $₦$ )?

Answer: 7200 NGN

Answer

Adebayo's share of the profit on realization is ₦7,200.

Total credit entries in the Realization Account comprise transferred liabilities (₦40,000) and asset proceeds (₦195,000), giving ₦235,000. Total debit entries comprise transferred asset book values (₦180,000), realization expenses (₦5,000), and cash paid to creditors (₦38,000 after 5% discount), giving ₦223,000. The excess credit of ₦12,000 represents total realization profit. Adebayo's 3/5 share equals ₦7,200.

Step-by-Step Solution

Determine the amount paid to discharge trade creditors

₦40,000 - (5% of ₦40,000) = ₦38,000

Creditors accepted a 5% discount on settlement, reducing cash paid.

Sum up all debit entries in the Realization Account

₦180,000 (Assets) + ₦5,000 (Expenses) + ₦38,000 (Creditors paid) = ₦223,000

Realization account is debited with book values of assets transferred, expenses paid, and payments to liabilities.

Sum up all credit entries in the Realization Account

₦40,000 (Creditors book value) + ₦195,000 (Asset proceeds) = ₦235,000

Realization account is credited with liabilities transferred and proceeds from asset sales.

Calculate total profit on realization

₦235,000 - ₦223,000 = ₦12,000

An excess of total credits over total debits represents profit on realization.

Calculate Adebayo's share of realization profit

(3 / 5) × ₦12,000 = ₦7,200

Profit is shared according to the profit-sharing ratio of 3:2.

Key Concept

Calculation of Net Realization Profit and Allocation to Partners upon Partnership Dissolution

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