Priyanka paid realisation expenses 15000 out of her pocket. She was to get remuneration of 18000 for completing the dissolution process. In the answer her capital is being credited with 33,000 (18000+15000). We are already paying her for remuneration expenses 18000, then why we have also credited her account with 15000 as the realisation compensation of 18000 included for all the expenses she had to incur for dissolution. Shouldn't we pay only 18000 to her rather than 33000.
Hi Darshil,
Let me give you with some important tips with respect to 'realisation expenses'. I'm sure these tips will make tackling questions from this topic really easier for you.
(1) Realisation A/c is debited:
(a) When firm is bearing the expenses, no matter who is paying
(b) When partner is allowed remuneration for carrying out the dissolution work
(2) Cash/Bank A/c is credited: When firm is paying the expenses, no matter who is bearing
(3) Partner's Capital A/c is debited: When expenses are borne by partner but paid by firm
(4) Partner's Capital A/c is credited:
(a) When expenses are borne by firm but paid by partner
(b) When partner is allowed remuneration for carrying out the dissolution work
Now, coming to your question, Priyanka paid dissolution expenses of Rs 15,000 out of her pocket (this means borne by firm but paid by partner). So, for this Realisation A/c has to be debited (since borne by firm) and Priyanka's A/c has to be credited (since paid by her on behalf of firm). Apart from this, Priyanka is also allowed a remuneration of Rs 18,000 for carrying out the dissolution work. For this, Realisation A/c should be debited (since it is an expense for the firm) and Priyanka's Capital A/c should be credited (since this is an income for her).
Note: The remuneration allowed to Priyanka is for carrying out the dissolution work (like fulfilling the legal formalities, getting into contracts with third parties for sale of assets etc.). In addition to his, she paid firm's expenses, so the firm is liable to compensate her for the total amount (her remuneration + expenses paid on behalf of the firm).
Hope, this helps :)
Let me give you with some important tips with respect to 'realisation expenses'. I'm sure these tips will make tackling questions from this topic really easier for you.
(1) Realisation A/c is debited:
(a) When firm is bearing the expenses, no matter who is paying
(b) When partner is allowed remuneration for carrying out the dissolution work
(2) Cash/Bank A/c is credited: When firm is paying the expenses, no matter who is bearing
(3) Partner's Capital A/c is debited: When expenses are borne by partner but paid by firm
(4) Partner's Capital A/c is credited:
(a) When expenses are borne by firm but paid by partner
(b) When partner is allowed remuneration for carrying out the dissolution work
Now, coming to your question, Priyanka paid dissolution expenses of Rs 15,000 out of her pocket (this means borne by firm but paid by partner). So, for this Realisation A/c has to be debited (since borne by firm) and Priyanka's A/c has to be credited (since paid by her on behalf of firm). Apart from this, Priyanka is also allowed a remuneration of Rs 18,000 for carrying out the dissolution work. For this, Realisation A/c should be debited (since it is an expense for the firm) and Priyanka's Capital A/c should be credited (since this is an income for her).
Note: The remuneration allowed to Priyanka is for carrying out the dissolution work (like fulfilling the legal formalities, getting into contracts with third parties for sale of assets etc.). In addition to his, she paid firm's expenses, so the firm is liable to compensate her for the total amount (her remuneration + expenses paid on behalf of the firm).
Hope, this helps :)