NCERT Solutions for Class 12 Accountancy Accountancy Part I Chapter 4: Dissolution of Partnership Firm

Chapter at a glance

Questions for Practice – Short Answer Questions

Question SA – Q1

State the difference between dissolution of partnership and dissolution of partnership firm.

Answer

Dissolution of partnership only changes the relationship and the business continues; dissolution of the firm ends the business, and the assets are realised and the books closed.

Question SA – Q2

State the accounting treatment at the time of dissolution of a firm for: i. Unrecorded assets ii. Unrecorded liabilities

Answer

(i) Unrecorded assets

• Sold for cash: Cash/Bank A/c Dr → To Realisation A/c.
• Taken over by a partner: Partner’s Capital A/c Dr → To Realisation A/c.
• Given to a creditor in settlement: no entry for the asset (the creditor’s claim is reduced).

(ii) Unrecorded liabilities

• Paid in cash: Realisation A/c Dr → To Cash/Bank A/c.
• Paid by a partner: Realisation A/c Dr → To Partner’s Capital A/c.

Unrecorded asset realised or taken over is credited to Realisation A/c; unrecorded liability paid is debited to Realisation A/c.

Question SA – Q3

On dissolution, how will you deal with partner’s loan if it appears on the (a) assets side of the balance sheet, (b) liabilities side of balance sheet.

Answer

(a) Assets side (loan given by the firm to the partner) – it is not transferred to Realisation Account. It is transferred to his capital account: Partner’s Capital A/c Dr → To Loan to Partner A/c.

(b) Liabilities side (loan given by the partner to the firm) – it is not transferred to Realisation Account. It is paid after outside liabilities but before capitals: Partner’s Loan A/c Dr → To Cash/Bank A/c.

A loan to a partner (assets side) is debited to his capital; a loan from a partner (liabilities side) is paid in cash after outside liabilities and before capitals – neither goes to Realisation A/c.

Question SA – Q4

Distinguish between firm’s debts and partner’s private debts.

Answer

Firm’s debts are paid first out of firm’s property and private debts first out of the partner’s private property; only the surplus of each can go to the other.

Question SA – Q5

State the order of settlement of accounts on dissolution.

Answer

As per Section 48 of the Indian Partnership Act, 1932, the assets (including partners’ contributions for deficiency) are applied in the following order:

1. Paying the debts of the firm to outsiders (third parties).
2. Paying each partner the advances (loans) made by him, as distinct from capital.
3. Paying each partner the amount due on account of capital.
4. The residue, if any, is divided among the partners in their profit-sharing ratio.

Losses (including deficiency of capital) are met first out of profits, then out of capital and finally by partners individually in PSR.

Outside liabilities first, then partners’ loans, then partners’ capitals, and any surplus in the profit-sharing ratio.

Question SA – Q6

On what account realisation account differs from revaluation account.

Answer

Realisation Account is prepared on dissolution with all assets and liabilities and actual realisation; Revaluation Account is prepared on reconstitution only for changes in values, and the books continue.

Questions for Practice – Long Answer Questions

Question LA – Q1

Explain the process of dissolution of partnership firm?

Answer

1. Close the books – the books are balanced on the date of dissolution.
2. Realisation Account – all assets (other than cash, bank, fictitious assets) are transferred to its debit and outside liabilities and provisions to its credit.
3. Realisation of assets – sale proceeds, or the agreed value of assets taken by partners, are credited to it.
4. Payment of liabilities – amounts paid to creditors and other outside liabilities, and realisation expenses, are debited to it.
5. Unrecorded assets and liabilities are brought in as they are realised or paid.
6. Profit or loss on realisation is transferred to the partners’ capital accounts in PSR.
7. Accumulated profits, reserves and losses are transferred to the capital accounts.
8. Partners’ loans are paid.
9. Capital accounts are settled – partners with a credit balance are paid; partners with a debit balance bring in cash.
10. The cash/bank account closes automatically.

Transfer assets and liabilities to Realisation A/c, record realisation and payments, transfer profit/loss and reserves to capitals, pay partners’ loans and finally settle capitals in cash.

Question LA – Q2

What is a Realisation Account?

Answer

A Realisation Account is a nominal account opened at the time of dissolution of a firm to record the sale of assets and the payment of liabilities, and to ascertain the net profit or loss arising from them. Assets are debited at book value and liabilities credited at book value; amounts realised are credited and amounts paid are debited. The balance – profit or loss on realisation – is transferred to the partners’ capital accounts in their profit-sharing ratio.

A Realisation Account is a nominal account prepared on dissolution to record the realisation of assets and payment of liabilities and to find the resulting profit or loss.

Question LA – Q3

Reproduce the format of Realisation Account.

Answer

Realisation Account

Debit: assets, liabilities paid, expenses and profit; credit: provisions, outside liabilities, assets realised or taken over and loss.

Question LA – Q4

How deficiency of creditors is paid off at the time of dissolution of firm.

Answer

If the firm’s assets are insufficient to pay the creditors in full:

1. The firm’s assets are applied first to pay the outside creditors.
2. The partners are personally (unlimitedly) liable; they must contribute from their private assets in their profit-sharing ratio to make good the deficiency (Sec. 48).
3. Partners’ private property is first used for their private debts; only the surplus is available for firm’s debts (Sec. 49).
4. If all partners are insolvent, creditors receive whatever is available proportionately, and the rest of their claim is lost.

Entry: Cash A/c Dr → To Partners’ Capital A/cs (cash brought in); Creditors are then paid: Realisation A/c Dr → To Cash A/c.

Firm’s assets are applied first; any deficiency is made good by partners from their private assets (after their private debts) in the profit-sharing ratio, owing to their unlimited liability.

Questions for Practice – Numerical Questions

Question Num – Q1

Journalise the following transactions regarding realisation expenses: [a] Realisation expenses amounted to ₹ 2,500. [b] Realisation expenses amounting to ₹ 3,000 were paid by Ashok, one of the partners. [c] Realisation expenses ₹ 2,300 borne by Tarun, personally. [d] Amit, a partner was appointed to realise the assets, at a cost of ₹ 4,000. The actual amount of realisation expenses amounted to ₹ 3,000.

Answer

1. Realisation Dr → Cash ₹ 2,500; (b) Realisation Dr → Ashok’s Capital ₹ 3,000; (c) no entry; (d) Realisation Dr → Amit’s Capital ₹ 4,000.

Question Num – Q2

Record necessary journal entries in the following cases: [a] Creditors worth ₹ 85,000 accepted ₹ 40,000 as cash and Investment worth ₹ 43,000, in full settlement of their claim. [b] Creditors were ₹ 16,000. They accepted Machinery valued at ₹ 18,000 in settlement of their claim. [c] Creditors were ₹ 90,000. They accepted Buildings valued ₹ 1,20,000 and paid cash to the firm ₹ 30,000.

Answer

1. Realisation Dr → Cash ₹ 40,000; (b) no entry; (c) Cash Dr → Realisation ₹ 30,000.

Question Num – Q3

There was an old computer which was written-off in the books of accounts in the previous year. The same has been taken over by a partner Nitin for ₹ 3,000. Journalise the transaction when the firm has been dissolved.

Answer

Nitin’s Capital A/c Dr ₹ 3,000 → To Realisation A/c.

Question Num – Q4

What journal entries will be recorded for the following transactions on the dissolution of a firm: [a] Payment of unrecorded liabilities of ₹ 3,200. [b] Stock worth ₹ 7,500 is taken over by a partner Rohit. [c] Profit on Realisation amounting to ₹ 18,000 is to be distributed between the partners Ashish and Tarun in the ratio of 5:7. [d] An unrecorded asset realised ₹ 5,500.

Answer

1. Realisation Dr ₹ 3,200; (b) Rohit’s Capital Dr ₹ 7,500; (c) profit: Ashish ₹ 7,500, Tarun ₹ 10,500; (d) Cash Dr ₹ 5,500.

Question Num – Q5

Give journal entries for the following transactions: 1. To record the realisation of various assets and liabilities, 2. A Firm has a Stock of ₹ 1,60,000. Aziz, a partner took over 50% of the Stock at a discount of 20%, 3. Remaining Stock was sold at a profit of 30% on cost, 4. Land and Building (book value ₹ 1,60,000) sold for ₹ 3,00,000 through a broker who charged 2% commission on the deal, 5. Plant and Machinery (book value ₹ 60,000) was handed over to a Creditor at an agreed valuation of 10% less than the book value, 6. Investment whose face value was ₹ 4,000 was realised at 50%.

Answer

Aziz’s Capital Dr ₹ 64,000; Cash Dr ₹ 1,04,000 (stock), ₹ 2,94,000 (land and building, net of ₹ 6,000 commission) and ₹ 2,000 (investment); no entry for the plant given to a creditor.

Question Num – Q6

How will you deal with the realisation expenses of the firm of Rashim and Bindiya in the following cases: 1. Realisation expenses amount to ₹ 1,00,000, 2. Realisation expenses amounting to ₹ 30,000 are paid by Rashim, a partner. 3. Realisation expenses are to be borne by Rashim and he will be paid ₹ 70,000 as remuneration for completing the dissolution process. The actual expenses incurred by Rashim were ₹ 1,20,000.

Answer

1. Realisation Dr → Cash ₹ 1,00,000; (2) Realisation Dr → Rashim’s Capital ₹ 30,000; (3) Realisation Dr → Rashim’s Capital ₹ 70,000, with no entry for the actual expenses.

Question Num – Q7

The book value of assets (other than cash and bank) transferred to Realisation Account is ₹ 1,00,000. 50% of the assets are taken over by a partner Atul, at a discount of 20%; 40% of the remaining assets are sold at a profit of 30% on cost; 5% of the balance being obsolete, realised nothing and remaining assets are handed over to a Creditor, in full settlement of his claim. You are required to record the journal entries for realisation of assets.

Answer

• Atul: 50,000 – 20 % = ₹ 40,000.
• Sold: 40 % of 50,000 = 20,000 + 30 % = ₹ 26,000.
• Balance 30,000: 5 % (₹ 1,500) obsolete, no entry; ₹ 28,500 given to a creditor, no entry.

Atul’s Capital Dr ₹ 40,000 and Cash Dr ₹ 26,000 (both to Realisation A/c); no entry for the obsolete assets or those given to the creditor.

Question Num – Q8

Record necessary journal entries to realise the following unrecorded assets and liabilities in the books of Paras and Priya: 1. There was an old furniture in the firm which had been written-off completely in the books. This was sold for ₹ 3,000, 2. Ashish, an old customer whose account for ₹ 1,000 was written-off as bad in the previous year, paid 60% of the amount, 3. Paras agreed to takeover the firm’s goodwill (not recorded in the books of the firm), at a valuation of ₹ 30,000, 4. There was an old typewriter which had been written-off completely from the books. It was estimated to realise ₹ 400. It was taken away by Priya at an estimated price less 25%, 5. There were 100 shares of ₹ 10 each in Star Limited acquired at a cost of ₹ 2,000 which had been written-off completely from the books. These shares are valued @ ₹ 6 each and divided among the partners in their profit sharing ratio.

Answer

Cash Dr ₹ 3,000 and ₹ 600; Paras Dr ₹ 30,000; Priya Dr ₹ 300; shares ₹ 600 debited to partners in PSR (₹ 300 each if equal) – all credited to Realisation A/c.

Question Num – Q9

All partners wish to dissolve the firm. Yastin, a partner wants that her loan of ₹ 2,00,000 must be paid off before the payment of capitals to the partners. But, Amart, another partner wants that the capitals must be paid before the payment of Yastin’s loan. You are required to settle the conflict giving reasons.

Answer

Yastin is right. Under Section 48 of the Indian Partnership Act, 1932, the firm’s assets are applied in this order: (i) debts to third parties, (ii) advances (loans) made by partners, distinct from capital, (iii) capital of partners, (iv) residue in PSR. So Yastin’s loan of ₹ 2,00,000 must be paid after outside creditors but before any partner’s capital is repaid.

Yastin’s loan is paid before capitals, because Section 48 places partners’ loans ahead of the return of capital (after outside liabilities).

Question Num – Q10

What journal entries would be recorded for the following transactions on the dissolution of a firm of Arti and Karim after various assets (other than cash) and the third party liabilities have been transferred to Realisation account: 1. Arti took over the Stock worth ₹ 80,000 at ₹ 68,000. 2. There was unrecorded Bike of ₹ 40,000 which was taken over by Mr. Karim. 3. The firm paid ₹ 40,000 as compensation to employees. 4. Sundry creditors amounting to ₹ 36,000 were settled at a discount of 15%. 5. Loss on realisation ₹ 42,000 was to be distributed between Arti and Karim in the ratio of 3:4.

Answer

Arti Dr ₹ 68,000; Karim Dr ₹ 40,000; Realisation Dr ₹ 40,000 and ₹ 30,600 (cash paid); loss: Arti ₹ 18,000, Karim ₹ 24,000.

Question Num – Q11

Rose and Lily shared profits in the ratio of 2:3. Their Balance Sheet on March 31, 2017: Liabilities – Creditors 40,000; Lily’s loan 32,000; Profit and Loss 50,000; Capitals Lily 1,60,000, Rose 2,40,000 (total 5,22,000). Assets – Cash 16,000; Debtors 80,000 less Provision 3,600 = 76,400; Inventory 1,09,600; Bills receivable 40,000; Buildings 2,80,000 (total 5,22,000). Rose and Lily decided to dissolve the firm on the above date. Assets (except bills receivables) realised ₹ 4,84,000. Creditors agreed to take ₹ 38,000. Cost of realisation was ₹ 2,400. There was a Motor Cycle in the firm which was bought out of the firm’s money, was not shown in the books of the firm. It was now sold for ₹ 10,000. There was a contingent liability in respect of outstanding electric bill of ₹ 5,000 which was paid. Bill Receivable taken over by Rose at ₹ 33,000. Show Realisation Account, Partners Capital Account, Loan Account and Cash Account.

Answer

Realisation Account

Partners’ Capital Accounts

Lily’s Loan Account: Balance b/d ₹ 32,000 → paid in cash ₹ 32,000.

Cash Account

Realisation profit ₹ 15,600; Rose paid ₹ 2,33,240 and Lily ₹ 1,99,360 (plus her loan of ₹ 32,000); Cash Account total ₹ 5,10,000.

Question Num – Q12

Shilpa, Meena and Nanda decided to dissolve their partnership on March 31, 2017. Their profit sharing ratio was 3:2:1 and their Balance Sheet: Liabilities – Capitals Shilpa 80,000, Meena 40,000; Bank loan 20,000; Creditors 37,000; Provision for doubtful debts 1,200; General reserve 12,000 (total 1,90,200). Assets – Land 81,000; Stock 56,760; Debtors 18,600; Nanda’s capital 23,000; Cash 10,840 (total 1,90,200). The stock of value of ₹ 41,660 are taken over by Shilpa for ₹ 35,000 and she agreed to discharge bank loan. The remaining stock was sold at ₹ 14,000 and debtors amounting to ₹ 10,000 realised ₹ 8,000. Land is sold for ₹ 1,10,000. The remaining debtors realised 50% at their book value. Cost of realisation amounted to ₹ 1,200. There was a typewriter not recorded in the books worth ₹ 6,000 which were taken over by one of the Creditors at this value. Prepare Realisation Account.

Answer

Creditors: ₹ 6,000 is settled by the typewriter, so cash paid = 37,000 – 6,000 = ₹ 31,000. Remaining debtors = 18,600 – 10,000 = 8,600, realised at 50 % = ₹ 4,300.

Realisation Account

Profit on realisation = ₹ 20,940 (Shilpa ₹ 10,470, Meena ₹ 6,980, Nanda ₹ 3,490).

Question Num – Q13

Surjit and Rahi were sharing profits (losses) in the ratio of 3:2, their Balance Sheet as on March 31, 2017: Liabilities – Creditors 38,000; Mrs. Surjit loan 10,000; Reserve 15,000; Rahi’s loan 5,000; Capitals Surjit 10,000, Rahi 8,000 (total 86,000). Assets – Bank 11,500; Stock 6,000; Debtors 19,000; Furniture 4,000; Plant 28,000; Investment 10,000; Profit and Loss 7,500 (total 86,000). The firm was dissolved on March 31, 2017 on the following terms: 1. Surjit agreed to take the investments at ₹ 8,000 and to pay Mrs. Surjit’s loan. 2. Other assets were realised as follows: Stock ₹ 5,000; Debtors ₹ 18,500; Furniture ₹ 4,500; Plant ₹ 25,000. 3. Expenses on realisation amounted to ₹ 1,600. 4. Creditors agreed to accept ₹ 37,000 as a final settlement. You are required to prepare Realisation account, Partner’s Capital account and Bank account.

Answer

Realisation Account

Partners’ Capital Accounts

Bank Account

Loss on realisation ₹ 6,600; Bank Account total ₹ 64,500; Surjit paid ₹ 12,540 and Rahi ₹ 8,360.

Question Num – Q14

Rita, Geeta and Ashish were partners in a firm sharing profits/losses in the ratio of 3:2:1. On March 31, 2017 their balance sheet: Liabilities – Capitals Rita 80,000, Geeta 50,000, Ashish 30,000; Creditors 65,000; Bills payable 26,000; General reserve 20,000 (total 2,71,000). Assets – Cash 22,500; Debtors 52,300; Stock 36,000; Investments 69,000; Plant 91,200 (total 2,71,000). On the above date the firm was dissolved: 1. Rita was appointed to realise the assets. Rita was to receive 5% commission on the sale of assets (except cash) and was to bear all expenses of realisation, 2. Assets were realised as follows: Debtors ₹ 30,000; Stock ₹ 26,000; Plant ₹ 42,750. 3. Investments were realised at 85% of the book value, 4. Expenses of realisation amounted to ₹ 4,100, 5. Firm had to pay ₹ 7,200 for outstanding salary not provided for earlier, 6. Contingent liability in respect of bills discounted with the bank was also materialised and paid off ₹ 9,800. Prepare Realisation account, Capital Accounts of Partners and Cash Account.

Answer

Sales = 30,000 + 26,000 + 42,750 + 58,650 (85 % of 69,000) = ₹ 1,57,400; Rita’s commission = 5 % = ₹ 7,870 (the expenses of ₹ 4,100 are borne by her – no entry).

Realisation Account

Partners’ Capital Accounts

Cash Account

Loss on realisation ₹ 1,15,970; Cash Account total ₹ 1,79,900; paid Rita ₹ 39,885, Geeta ₹ 18,010, Ashish ₹ 14,005.

Question Num – Q15

Anup and Sumit are equal partners in a firm. They decided to dissolve the partnership on March 31, 2017, when the balance sheet is: Liabilities – Sundry Creditors 27,000; General Reserve 10,000; Loan 40,000; Capitals Anup 60,000, Sumit 60,000 (total 1,97,000). Assets – Cash at bank 11,000; Sundry Debtors 12,000; Plants 47,000; Stock 42,000; Lease hold land 60,000; Furniture 25,000 (total 1,97,000). The Assets were realised as follows: Lease hold land ₹ 72,000; Furniture ₹ 22,500; Stock ₹ 40,500; Plant ₹ 48,000; Sundry Debtors ₹ 10,500. The Creditors were paid ₹ 25,500 in full settlement. Expenses of realisation amount to ₹ 2,500. Prepare Realisation Account, Bank Account, Partners Capital Accounts to close the books of the firm.

Answer

Realisation Account

Partners’ Capital Accounts

Bank Account

Realisation profit ₹ 6,500; Bank Account total ₹ 2,04,500; Anup and Sumit paid ₹ 68,250 each.

Question Num – Q16

Ashu and Harish are partners sharing profit and losses as 3:2. They decided to dissolve the firm on March 31, 2017. Their balance sheet: Liabilities – Capitals Ashu 1,08,000, Harish 54,000; Creditors 88,000; Bank overdraft 50,000 (total 3,00,000). Assets – Building 80,000; Machinery 70,000; Furniture 14,000; Stock 20,000; Investments 60,000; Debtors 48,000; Cash in hand 8,000 (total 3,00,000). Ashu is to take over the building at ₹ 95,000 and Machinery and Furniture is taken over by Harish at value of ₹ 80,000. Ashu agreed to pay Creditors and Harish agreed to meet Bank overdraft. Stock and Investments are taken by both partners in profit sharing ratio. Debtors realised for ₹ 46,000, expenses of realisation amounted to ₹ 3,000. Prepare necessary ledger accounts.

Answer

Stock and investments ₹ 80,000 taken 3 : 2 → Ashu ₹ 48,000, Harish ₹ 32,000.

Realisation Account

Partners’ Capital Accounts

Cash Account

(The textbook key says “paid to Harish ₹ 5,600”. Working it through shows Harish’s capital has a debit balance, so he brings in ₹ 5,600. That is the only way the cash total comes to ₹ 59,600.)

Profit on realisation ₹ 6,000; cash total ₹ 59,600; Ashu is paid ₹ 56,600 and Harish brings in ₹ 5,600.

Question Num – Q17

Sanjay, Tarun and Vineet shared profit in the ratio of 3:2:1. On March 31, 2017 their balance sheet: Liabilities – Capitals Sanjay 1,00,000, Tarun 1,00,000, Vineet 70,000; Creditors 80,000; Bills payable 30,000 (total 3,80,000). Assets – Plant 90,000; Debtors 60,000; Furniture 32,000; Stock 60,000; Investments 70,000; Bills receivable 36,000; Cash in hand 32,000 (total 3,80,000). On this date the firm was dissolved. Sanjay was appointed to realise the assets. Sanjay was to receive 6% commission on the sale of assets (except cash) and was to bear all expenses of realisation. Sanjay realised the assets as follows: Plant ₹ 72,000, Debtors ₹ 54,000, Furniture ₹ 18,000, Stock 90% of the book value, Investments ₹ 76,000 and Bills receivable ₹ 31,000. Expenses of realisation amounted to ₹ 4,500. Prepare Realisation Account, Capital Accounts and Cash Account.

Answer

Sales = 72,000 + 54,000 + 18,000 + 54,000 + 76,000 + 31,000 = ₹ 3,05,000; commission 6 % = ₹ 18,300.

Realisation Account

Partners’ Capital Accounts

Cash Account

Loss on realisation ₹ 61,300; Cash Account total ₹ 3,37,000; paid Sanjay ₹ 87,650, Tarun ₹ 79,567, Vineet ₹ 59,783.

Question Num – Q18

The following is the Balance Sheet of Gupta and Sharma as on March 31, 2017: Liabilities – Sundry Creditors 38,000; Mrs. Gupta’s loan 20,000; Mrs. Sharma’s loan 30,000; General Reserve 6,000; Provision for doubtful debts 4,000; Capitals Gupta 90,000, Sharma 60,000 (total 2,48,000). Assets – Cash at bank 12,500; Sundry Debtors 55,000; Stock 44,000; Bills receivable 19,000; Machinery 52,000; Investment 38,500; Fixtures 27,000 (total 2,48,000). The firm was dissolved on December 31, 2017 and assets realised and settlements of liabilities as follows: (a) Sundry Debtors ₹ 52,000; Stock ₹ 42,000; Bills receivable ₹ 16,000; Machinery ₹ 49,000; Fixtures ₹ 20,000. (b) Investment was taken over by Gupta at agreed value of ₹ 36,000 and agreed to pay off Mrs. Gupta’s loan. (c) The Sundry Creditors were paid off less 3% discount. (d) The realisation expenses incurred amounted to ₹ 1,200. Journalise the entries to be made on the dissolution and prepare Realisation Account, Bank Account and Partners Capital Accounts.

Answer

Profit-sharing ratio is not given, so it is taken as equal. This reproduces the textbook’s payments to the partners.

Journal

Realisation Account

Partners’ Capital Accounts

Bank Account

(The loss is ₹ 16,560. The key’s “₹ 36,560” is a misprint; its payments of ₹ 68,720 and ₹ 54,720 agree only with a loss of ₹ 16,560.)

Loss on realisation ₹ 16,560 (₹ 8,280 each); Bank Account total ₹ 1,91,500; Gupta paid ₹ 68,720 and Sharma ₹ 54,720.

Question Num – Q19

Ashok, Babu and Chetan are in partnership sharing profit in the proportion of 1/2, 1/3, 1/6 respectively. They dissolve the partnership on December 31, 2017, when the balance sheet of the firm is: Liabilities – Sundry Creditors 20,000; Bills payable 25,500; Chetan’s loan 30,000; Capitals Ashok 70,000, Babu 55,000, Chetan 27,000; Current accounts Ashok 10,000, Babu 5,000, Chetan 3,000 (total 2,45,500). Assets – Bank 7,500; Sundry Debtors 58,000; Stock 39,500; Machinery 48,000; Investment 42,000; Freehold property 50,500 (total 2,45,500). The machinery was taken over by Babu for ₹ 45,000, Ashok took over the Investment for ₹ 40,000 and Freehold property taken over by Chetan at ₹ 55,000. The remaining Assets realised as follows: Sundry Debtors ₹ 56,500 and Stock ₹ 36,500. Sundry Creditors were settled at discount of 7%. An Office computer, not shown in the books of accounts realised ₹ 9,000. Realisation expenses amounted to ₹ 3,000. Prepare Realisation Account, Partners Capital Account, Bank Account.

Answer

Realisation Account

Partners’ Capital Accounts (current accounts transferred)

Bank Account

In practice Chetan’s debit balance of ₹ 24,600 is set off against his loan of ₹ 30,000, so the net amount paid towards his loan is ₹ 5,400. (Ashok’s balance works out to ₹ 41,200; the key’s ₹ 41,800 is a misprint – the bank account balances only at ₹ 41,200.)

Profit on realisation ₹ 2,400; Bank Account total ₹ 1,34,100; Ashok paid ₹ 41,200, Babu ₹ 15,800, and net ₹ 5,400 paid towards Chetan’s loan.

Question Num – Q20

The following is the Balance sheet of Tanu and Manu, who share profit and losses in the ratio of 5:3, on March 31, 2017: Liabilities – Sundry Creditors 62,000; Bills payable 32,000; Bank loan 50,000; General Reserve 16,000; Capitals Tanu 1,10,000, Manu 90,000 (total 3,60,000). Assets – Cash at bank 16,000; Sundry Debtors 55,000; Stock 75,000; Motor car 90,000; Machinery 45,000; Investment 70,000; Fixtures 9,000 (total 3,60,000). On the above date the firm is dissolved and the following agreement was made: Tanu agreed to pay the bank loan and took away the sundry debtors. Sundry creditors accept stock and paid ₹ 10,000 to the firm. Machinery is taken over by Manu for ₹ 40,000 and he agreed to pay off bills payable at a discount of 5%. Motor car was taken over by Tanu for ₹ 60,000. Investment realised ₹ 76,000 and fixtures ₹ 4,000. The expenses of dissolution amounted to ₹ 2,200. Prepare Realisation Account, Bank Account and Partners Capital Accounts.

Answer

Realisation Account

Partners’ Capital Accounts

Bank Account

Loss on realisation ₹ 37,600; Bank Account total ₹ 1,06,000; Tanu paid ₹ 31,500 and Manu ₹ 72,300.

Topic checklist

• ☒ Dissolution of partnership vs firm; order of settlement (SA 1, 5; Num 9)
• ☒ Realisation expenses and unrecorded items (Num 1, 3, 4, 6, 8)
• ☒ Assets taken over / given to creditors (Num 2, 5, 7, 10)
• ☒ Complete dissolution – Realisation, Capital, Cash/Bank accounts (Num 11–20)
• ☒ Partner as realiser with commission (Num 14, 17)

Total questions answered: 30 of 30