URGENT
A and B sharing profits and losses in the ratio of 3:2 agreed upon the dissolution of the firm on 31st March 2001 on which date their Balance Sheet was as under:-

Liabilities
Rs
Assets
Rs
Trade Creditors
B/P
Loan from A
Loan from Mrs. A
E.P.F
Workmen Compensation Reserve
Joint Life Policy Reserve
Investment Fluctuation Reserve
General Reserve
Profit and Loss a/c
A’ s Capital
B’s Capital
80,000
20,000
5,000
15,000
5,000
2,000
5,000
3,000
24,000
11,000
84,000
26,000
Cash
Bank
Stock
Book Debts 60,000
Less: Provision 6,000
Plant & Machinery
Land & Building
Joint Life Policy(at Surrender Value)
Investments (face value Rs 2,000)
Goodwill
Prepaid Insurance
Deferred Revenue Advt. Expenditure
6,000
30,000
80,000
60,000
30,000
33,000
5,000
10,000
15,000
1,000
10,000
2,80,000
2,80,000

Note: There is a bill for Rs 1,000 under discount. The bill was received from Z.
The firm was dissolved on the given date and following transactions took place:
a) B undertook to pay Mrs. A’s Loan;
b) A took over 50% of the stock at a discount of 20%;
c) Remaining stock was sold off at a profit of 30% on cost;
d) Rs 12,000 of the book debts proved bad;
e) Land and Building sold for Rs 1,50,000 through a broker who charged 2%;
f) Half the Trade Creditors accepted plant and machinery at an agreed valuation of 10% less than the book value and cash of Rs 5,000 in full settlement of their claims;
g) Remaining Trade Creditors were paid Rs 38,000 in final settlement;
h) B/P falling due on 30th April 2001 were discharged at a discount of 18% p.a.;
i) Realisation expenses were Rs 5,550;
j) W an old customer whose account was written off as bad in the previous year, paid Rs 500 which is not included in the above stated book debts;
k) Z proved insolvent and a first and final dividend of 25% was received from his estate;
l) The JLP was surrendered for Rs 5,000 and Investments realized 150% of their face value.
Required: (a) Give Journal entries to close the books of the firm, (b) Prepare Realisation Account, Bank Account and Partners’ Capital Accounts.
Doubts (bolded points in the question) :
1. Do we include the bill that’s in the note in the realisation a/c?
2. Does it mean that Book debts realized Rs. 48,000? Do we do anything with the provision?
3. I don’t know how to calculate the amount for creditors.
4. Do we take in consideration the month given or should we ignore it?
5. How is the entry for this recorded?
6. What other items should be paid off or sold which aren’t stated in the adjustments?
And can I have the totals of all the 3 accounts? Just the totals, cuz my bank account is having a difference of 60,000 or something I don’t know why. /:

1. Bill discounted amounting Rs 1,000 will not be recorded in the Realisation A/c.

2. Book value of Book Debts amounts Rs 60,000. Since, Rs 12,000 of the book debts proved bad it means that now remaining Book Debts will be realized in full i.e. Rs, 48,000 will be recovered from Book Debts. Provision will be transferred to the Credit side of Realization A/c.

3. Half the Creditors = 80,000 x ½ = 40,000

Creditors amounting Rs 40,000 accepted Plant and Machinery and Rs 5,000 in cash.

No calculation or entry is required for transferring Plant and Machinery to Creditors.

Only Rs 5,000 will be paid to the Creditors and the entry posted will be:  Realization A/c – Dr. 5,000

To Cash A/c   5,000

4. B/P Rs 20,000 was due on 30th April, 2001 but since the firm underwent dissolution on 31st March, 2001, the B/P would be discounted @18% p.a.

Discount = 20,000 x 18% x 1/12

= 300

Hence, amount paid against B/P = 20,000 – 300 = 19,700

5. Since the bill from Z amounting Rs 1,000 was under discount, it means that the amount for same was already received from the party/ bank to whom it was discounted. Now, when Z became insolvent and 25% was received from him. It means only 25% of Rs 1,000 was recoverable i.e. Rs 250 were recovered from Z.

Sine, the party to whom the bill was discounted paid only Rs 250. The remaining Rs 750 [1,000 – 250] would be paid by us to the party from whom the bill was discounted i.e. an unrecorded liability would be paid off. Entry :- Realization A/c  - Dr.  750

To Cash A/c  750

6.  Other items to pay off or sold which aren’t stated in the adjustments are:

a) Book Debts realized = Rs. 48,000

b) Loan from A paid = Rs. 5,000

c) EPF paid = Rs. 5,000

 

The Balance Sheet posted in the question is wrong as the balance of Debtors in the Balance Sheet would be Rs 54000 [60,000 – 6,000 (Provision)]

Therefore, the total of Credit Side of the Balance Sheet exceeds the Debit side by Rs 6,000.

Hence, the Cash A/c will not tally.

However, the total of Realization A/c = Rs. 4,21,500

The total of Partner’s Capital A/c : A’s Capital A/c = Rs 1,65,300

B’s Capital A/c = Rs 95,200

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Just incase the B/S wasn't clear enough. /:

Liabilities
Rs
Assets
Rs
Trade Creditors
80,000
 
 
 
Cash
 
6,000
 
 
 
 
 
B/P
20,000
 
Bank
 
30,000
 
Loan from A
5,000
 
Stock
 
80,000
 
Loan from Mrs. A
15,000
 
Book Debts  60,000
Less: Provision  6,000
 
60,000
 
E.P.F
5,000
 
Plant & Machinery
 
30,000
 
Workmen Compensation Reserve
2,000
 
Land & Building
 
33,000
 
Joint Life Policy Reserve
5,000
 
Joint Life Policy(at Surrender Value)
 
5,000
 
Investment Fluctuation Reserve
3,000
 
Investments (face value Rs 2,000)
 
10,000
 
General Reserve
24,000
Goodwill
 
15,000
Profit and Loss a/c
11,000
Prepaid Insurance
 
1,000
A’ s Capital
B’s Capital
84,000
26,000
Deferred Revenue Advt. Expenditure
10,000
 
2,80,000
 
2,80,000

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