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Page No 252:

Question 1:

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

Answer:

Basis of Difference

Dissolution of Partnership

Dissolution of Partnership firm

 

Meaning

It means change in the partnership deed (or the agreement) among the partners.

It means that the business is wound up and the firm is dissolved.

Discontinuation

Business is not discontinued.

Business is discontinued, as the firm is dissolved.

Closure of Books of Accounts

Books of accounts are not closed, as there is only change in the existing agreement between the partners.

Books of accounts are closed, as the business is discontinued.

 

Assets and Liabilities

In this case, the assets and liabilities are revalued.

In this case, all the assets are sold off in order to pay the liabilities of the business.

Role of Court

There is no intervention by the court.

Dissolution of a partnership firm may be done with the consent of the court.

 

Nature

It is voluntary in nature.

It may be voluntary (as per the discretion of the partners) or compulsory (as per the order of the court).

 

Effect

It may or may not involve dissolution of the firm.

It necessarily involves dissolution of both the partnership as well as of the partnership firm.

 

 

Page No 252:

Question 2:

State the accounting treatment for:

i. Unrecorded assets

ii. Unrecorded liabilities

Answer:

i) Accounting Treatment for Unrecorded Assets

 Unrecorded asset is an asset, the value of which has been written off in the books of accounts but the asset is still in usable position. The accounting treatment for unrecorded asset is:

a) When the unrecorded asset is sold for cash

Cash A/c

Dr.

 

To Realisation A/c

 

(Unrecorded assets sold for cash)

 

 

b) When the unrecorded asset is taken over by any partner

Partner's Capital A/c

Dr.

 

To Realisation A/c

 

(Unrecorded asset taken over by the partner)

 

 

ii) Accounting Treatment for Unrecorded Liabilities

 Unrecorded liabilities are those liabilities which are not recorded in the books of account. The accounting treatment for unrecorded liability is:

a) When the unrecorded liability is paid off

Realisation A/c

Dr.

 

To Cash A/c

 

(Unrecorded liability paid in cash)

 

 

b) When the unrecorded liability is taken over by a partner

Realisation A/c

Dr.

 

To Partner's Capital A/c

 

(Unrecorded liability  taken over by the partner)

 

 

 

Page No 252:

Question 3:

On dissolution, how you deal with partner’s loan if it appears on the

(a) Assets side of the Balance Sheet

(b) Liabilities side of the Balance Sheet

Answer:

a) If partner's loan appears on the assets side of the Balance Sheet then it implies that the partner has taken loan from the business and is liable to pay back to the business. In such case, the loan amount is transferred to his capital account. Thus the accounting entry will be:

Partner’s Capital A/c

Dr.

 

To Partner's Loan A/c

 

(Partner's loan transferred to Partner's Capital Account)

 

 

b) If partner's loan appears on the liabilities side of the Balance Sheet then it implies that the partner has forwarded loan to the firm and the firm is liable to pay back the amount to the partner. In such case, partner's loan is paid off after paying all the external liabilities. The partner's loan is not transferred to the Realisation Account, in fact, it is paid in cash. The following accounting entry is passed.-

Partner’s Loan A/c

Dr.

 

To Cash/Bank A/c

 

(Partner’s loan paid in cash)

 

 

 



Page No 253:

Question 4:

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

Answer:

 

Basis of Difference

Firm’s Debts

Partner’s Private Debts

 

Meaning

It refers to those debts that are borrowed against the name of the firm.

It refers to those debts that are borrowed personally by the partner.

 

Liability

All the partners of the firm are jointly and separately liable for the firm's debt.

The concerned partner is personally liable for his private debts.

Settlement of debts by private assets

If the firm's debt exceeds the firm’s assets, then private assets of the partners may be utilised to pay back the firm's debt, if only  the partner's  private assets exceeds his/her own private debts.

Private debts are settled against the partner's private assets. Subsequently, if any surplus exists then this may be utilised to settle the firm's debts.

Settlement of debts by firm's assets

Firm's debts are settled against the firm’s assets. Subsequently, if any surplus exists, then this is distributed among the partners.

After paying off firm's debts, the surplus of firm's assets, if any is distributed among the partners.  The personal share of the partner in this surplus can be utilised to settle his/her own private debts.

 

 

Page No 253:

Question 5:

State the order of settlement of accounts on dissolution.

Answer:

The following are the rules of settlement of accounts on dissolution as per the Section 48 of Partnership Act 1932.

 

1. Application of Assets: Amount received by the realisation (sale) of the assets shall be used in the following order:

a) First of all the external liabilities and expenses are to be paid.

b) Then, all loans and advances forwarded by the partners should be paid.

c) Then, the capital of each partner should be paid off. If there remains any surplus after the payment of (a), (b) and (c), then it should be distributed among the partners in their profit sharing ratio.

 

2. Treatment of Loss: In case of loss and any deficiency of capital this should be paid in the following order:

a) First these should be adjusted against firm's profits.

b) Then, against the total capital of the firm.

c)Even if  there exists any loss and deficiencies then it should be borne by all the partners individually in their profit sharing ratio.

 

 

Page No 253:

Question 6:

On what account realisation account differs from revaluation account.

Answer:

 

Basis of Difference

Realisation Account

Revaluation Account

 Meaning

It records the sale of various assets and payment of various liabilities.

 

It records the effect of revaluation of assets and liabilities on the eve of admission, retirement, death and change in the profit sharing ratio.

Time

It is prepared at the time of dissolution of firm.

 

It is prepared when admission/retirement/death or change in profit sharing ratio takes place.

Objective

To find profit or loss on realisation of assets and payment of liabilities.

To find out profit or loss on revaluation of assets and liabilities.

Amount

Assets and liabilities are shown at the book value.

Increase or decrease in the value of assets and liabilities are shown in this account.

Records

All assets and liabilities are recorded here.

 

Only those assets and liabilities are recorded here whose values have changed over a period of time.

Effect

All accounts of assets and liabilities are closed.

No account is closed on revaluation of assets and liabilities.

 

 

 

Page No 253:

Question 1:

Explain the process of dissolution of a partnership firm?

Answer:

Dissolution of partnership firm implies discontinuation of the business of the partnership firm. According to the Section 39 of Partnership Act, dissolution of partnership between all the partners of a firm is called dissolution of partnership firm. Dissolution involves winding up of business, disposal of assets and paying off the liabilities and distribution of any surplus or borne of loss by the partners of the firm. As per the Partnership Act 1932, a partnership firm may be dissolved in the following manners:

1) Dissolution by Agreement

A firm may be dissolved with:

a) the consent of all the partners, or

b) the contract between the partners

 

2) Compulsory Dissolution

A firm may be dissolved by:

a) the adjudication of all the partners or of all partners but one as insolvent

b) happening of an event or change in government policies that make the business unlawful.

 

3) Dissolution on the happening of Certain Contingencies

Subject to the contract between the partners, a firm is dissolved

a) if formed for a specific period then on the expiry of the period

b) if formed for a specific purpose then on completion of the purpose

c) on the death of partner/partners

d) on insolvency of a partner/partners

 

4) Dissolution by Notice

If partnership is at will then the partnership firm is dissolved if any partner giving notice in writing to all the other partners expressing his/her intention to dissolve the firm.

 

5) Dissolution by Court

The court may order to dissolve a partnership firm when:

a) a partner becomes insane or lunatic.

b) a partner becomes permanently incapable of performing the duties.

c)  a partner is guilty of misconduct and affects the business activities.

d) a partner repeatedly breaks the terms of agreement .

e) a partner transfers his interest to a third party without the consent of  other partners.

f) a business persistently incurs losses.

 

Besides these above mentioned circumstances, a partnership firm may be dissolved if the court at any stage finds dissolution of the firm to be justified and inevitable.

 

The following are the rules of settlement of accounts on dissolution as per the Section 48 of Partnership Act 1932.

 

1. Application of Assets: Amount received by the realisation (sale) of the assets shall be used in the following order:

a) First of all the external liabilities and expenses are to be paid.

b) Then, all loans and advances forwarded by the partners should be paid.

c) Then, the capital of each partners should be paid off. If there remains any surplus after the payment of (a), (b) and (c), then it should be distributed among the partners in their profit sharing ratio.

 

2. Treatment of Loss: In case of loss and any deficiency of capital, then this should be paid in the following order:

a) First these should be adjusted against firm's profits.

b) Then, against the total capital of the firm.

c) If still there exists any loss and deficiencies, then it should be borne by all the partners individually in their profit sharing ratio.

 

 

Page No 253:

Question 2:

What is a Realisation Account?

Answer:

On dissolution of a firm, all the books of account are closed, all assets are sold and all liabilities are paid off. In order to record the sale of assets and discharge of liabilities, a nominal account is opened named Realisation Account. The main purpose to open Realisation Account is to ascertain the profit or loss due to the realisation of assets and liabilities. Realisation profit (if credit side > debit side) or realisation loss (if debit side > credit side) are transferred to the Partner's Capital Account in their profit sharing ratio.

 

Concisely, following are the important objectives of preparing Realisation Account.

1) To close all the books of account.

2) To record transactions relating to the sale of assets and discharge of liabilities.

3) To determine profit or loss due to the realisation of assets and liabilities.

 

Accounting treatment of items related to Realisation Account

 

1) For transfer of assets

 

Realisation A/c

Dr.

 

To Sundry Assets A/c (Individually)

 

(All Assets transferred to realisation account, except

Cash/Bank, P and L debit balance, Loan to a Partner)

 

 

2) For transfer of liabilities

 

Sundry Liabilities A/c (Individually)

Dr.

 

To Realisation A/c

 

(All Liabilities transferred to Realisation account except

Partner's Capitals, P and L credit balance, Loan from Partner)

 

 

3) For sale of assets

 

Bank A/c (Amount received)

Dr.

 

To Realisation A/c

 

(Assets sold for cash)

 

 

4) For payment of liabilities

 

Realisation A/c

Dr.

 

To Bank A/c

 

(Liabilities paid in cash)

 

 

5) For payment of realisation expenses

 

Realisation A/c

Dr.

 

To Bank A/c

 

(Expenses paid)

 

 

6) For transfer of profit on realisation

 

Realisation A/c

Dr.

 

To Partner's Capital A/c

 

(Profit on realisation transferred to partner 's capital account)

 

 

7) For transfer of loss on realisation

 

Partner's Capital A/c

Dr.

 

To Realisation A/c

 

(Loss transferred to partner's capital account)

 

 

Format of Realisation Account

 

Dr.                                                                                                                                          

Cr.

 

Particulars

Amount

Rs

Particulars

Amount

Rs

 

 

Various Assets

(Excluding Cash/Bank, fictitious assets, Debit balance of P and L A/c, partner Capital A/c, Current A/c, Loan to Partner)

 

Cash/Bank

(Payment for realisation expenses)

 

 

Cash/Bank

(Payment to outside and unrecorded liabilities)

 

 

Partner's Capital A/c

(If any liability taken on expenses paid by him or remuneration payable to him)

 

Partner Capital A/c

(Profit on realisation distributed in the profit sharing ratio among all the partners)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Various Liabilities

(Excluding Partner Capital account, reserves, P and L A/c, Current A/c, Loan to Partner)

 

 

Provision on assets

(like, Provision for doubtful debts; Provision for depreciation)

 

Cash/Bank

(Amount received from realisation of assets and unrecorded assets)

 

Partner 's Capital A/c

(If any asset taken over by any partner)

 

 

Partner Capital A/c

(Loss on realisation borne by all the partners in their profit sharing ratio)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page No 253:

Question 3:

Reproduce the format of Realisation Account.

Answer:

     

Format of Realisation Account

 

 

Dr.                                                                                                                                          

Cr.

 

 

Particulars

Amount

Rs

Particulars

Amount

Rs

 

 

Various Assets

(Excluding Cash/Bank, fictitious assets, Debit balance of P and L A/c, partner Capital A/c, Current A/c, Loan to Partner)

 

Cash/Bank

(Payment for realisation expenses)

 

 

Cash/Bank

(Payment to outside and unrecorded liabilities)

 

 

Partner's Capital A/c

(If any liability taken on expenses paid by him or remuneration payable to him)

 

Partner Capital A/c

(Profit on realisation distributed in the profit sharing ratio among all the partners)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Various Liabilities

(Excluding Partner Capital account, reserves, P and L A/c, Current A/c, Loan to Partner)

 

 

Provision on assets

(like, Provision for doubtful debts; Provision for depreciation)

 

Cash/Bank

(Amount received from realisation of assets and unrecorded assets)

 

Partner 's Capital A/c

(If any asset taken over by any partner)

 

 

Partner Capital A/c

(Loss on realisation borne by all the partners in their profit sharing ratio)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
           

 

 

 

Page No 253:

Question 4:

How deficiency of creditors is paid off?

Answer:

At the time of dissolution of a firm, the amount received from the sale of firm's assets are utilised to pay the creditors. If the sale receipts fall short, then partners' private assets are used for settling the dues of the firm's creditors. Even if some portion of the amount due to creditors is left unpaid, then there arises deficiency of creditors. There are generally two procedures to be followed to treat the deficiency of creditors.

1. Transferring deficiency to the Deficiency Account

2. Transferring deficiency to the Partner's Capital Account

In the former procedure, a separate account is prepared for the firm's creditors. Then in order to ascertain the firm's cash balance accruing from the sale of the firm's assets and partners' private assets, Cash Account is prepared. After ascertaining the cash availability with the firm, the creditors and the external liabilities are paid proportionately (partially). The remaining unpaid creditors or the deficiency is transferred to the Deficiency Account.

In the latter procedure, creditors are paid by the cash available with the firm including the partners individual contribution. The deficiency or unpaid creditors amount is transferred to the Partner's Capital Account. Thus the deficiency of the creditors is borne by all the partners in their profit sharing ratio. If any partner becomes insolvent and is unable to bear the deficiency, then this will be regarded as a capital loss to the firm. If the partnership deed is silent about such capital loss in the facet of insolvency of a partner, then according to the Garner v/s Murray case, such capital loss need to be borne by the solvent partners in their capital ratio.

Page No 253:

Question 1:

Journalise the following transactions regarding Realisation expenses:

[a] Realisation expenses amounted to Rs 2,500.

[b] Realisation expenses amounting to Rs 3,000 were paid by Ashok, one of the partners.

[c] Realisation expenses Rs 2,300 borne by Tarun, personally.

[d] Amit, a partner was appointed to realise the assets, at a cost of Rs 4,000. The actual amount of Realisation amounted to Rs 3,000.

Answer:

 

 

Journal

 

 

 

Particulars

L.F.

Amount

Rs

Amount

Rs

(a)

Realisation A/c

Dr.

 

2,500

 

 

To Bank A/c

 

 

 

2,500

 

(Realisation expenses paid)

 

 

 

 

 

 

 

 

 

 

(b)

Realisation A/c

Dr.

 

3,000

 

 

To Ashok’s Capital A/c

 

 

 

3,000

 

(Realisation expenses paid by Ashok)

 

 

 

 

 

 

 

 

 

(c)

No entry, as all Realisation expenses are borne personally by Tarun

 

 

 

 

 

 

 

 

 

(d)

Realisation A/c

Dr.

 

4,000

 

 

To Amit’s Capital A/c

 

 

 

4,000

 

(Realisation expenses paid to Amit)

 

 

 

 

 

 

 

 

 

 

 

 

Page No 253:

Question 2:

Record necessary journal entries in the following cases:

[a] Creditors worth Rs 85,000 accepted Rs 40,000 as cash and Investment worth Rs 43,000, in full settlement of their claim.

[b] Creditors were Rs 16,000. They accepted Machinery valued at Rs 18,000 in settlement of their claim.

[c] Creditors were Rs 90,000. They accepted Buildings valued Rs 1,20,000 and paid cash to the firm Rs 30,000.

Answer:

 

Journal

 

 

 

Particulars

L.F.

Amount

Rs

Amount

Rs

(a)

Realisation A/c

Dr.

 

40,000

 

 

To Cash A/c

 

 

 

40,000

 

(Creditors worth Rs 85,000 accepted 40,000 as cash and investment

worth Rs 43,000 in their full settlement)

 

 

 

 

 

 

 

 

 

 

(b)

No Entry

 

 

 

 

 

(Creditors Rs 16,000 accepted Machinery Rs 18,000 in the full

settlement. No entry is required since both asset and liability are

already transferred to the Realisation Account)

 

 

 

 

 

 

 

 

 

 

(c)

Cash A/c

Dr.

 

30,000

 

 

To Realisation A/c

 

 

 

30,000

 

(Creditors worth Rs 90,000 accepted buildings worth Rs 1,20,000 and

returned Rs 30,000 as cash after settlement of claim to the firm)

 

 

 

 

 

 

 

 

 

 

Page No 253:

Question 3:

There was an old computer which was written-off in the books of Accounts in the pervious year. The same has been taken over by a partner Nitin for Rs 3,000. Journalise the transaction, supposing. That the firm has been dissolved.

Answer:

 

Journal

 

Particulars

L.F.

Amount

Rs

Amount

Rs

Nitin’s Capital A/c

Dr.

 

3,000

 

To Realisation A/c

 

 

 

3,000

(Unrecorded computer taken over by Nitin)

 

 

 

 

 

Page No 253:

Question 4:

What journal entries will be recorded for the following transactions on the dissolution of a firm:

[a] Payment of unrecorded liabilities of Rs 3,200.

[b] Stock worth Rs 7,500 is taken by a partner Rohit.

[c] Profit on Realisation amounting to Rs 18,000 is to be distributed between the partners Ashish and Tarun in the ratio of 5:7.

[d] An unrecorded asset realised Rs 5,500.

Answer:

 

Journal

 

Particulars

L.F.

Amount

Rs

Amount

Rs

(a)

Realisation A/c

Dr.

 

3,200

 

 

To Bank A/c

 

 

 

3,200

 

(Unrecorded liabilities paid)

 

 

 

 

 

 

 

 

 

 

(b)

(Rohit’s Capital A/c

Dr.

 

7,500

 

 

To Realisation A/c

 

 

 

7,500

 

(Stock is taken over by Rohit)

 

 

 

 

 

 

 

 

 

 

(c)

Realisation A/c

Dr.

 

18,000

 

 

To Ashish’s Capital A/c

 

 

 

7,500

 

To Tarun’s Capital A/c

 

 

 

10,500

 

(Profit on Realisation is transferred to Partners’ Capital Account)

 

 

 

 

 

 

 

 

 

 

(d)

Bank A/c

Dr.

 

5,500

 

 

To Realisation A/c

 

 

 

5,500

 

(Unrecorded asset sold)

 

 

 

 

 

 

 

 

 

 

 

 

Page No 253:

Question 5:

Give journal entries for the following transactions:

1. To record the Realisation of various assets and liabilities,

2. A Firm has a Stock of Rs 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 Buildging (book value Rs 1,60,000) sold for Rs 3,00,000 through a broker who charged 2%, commission on the deal,

5. Plant and Machinery (book value Rs 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 Rs 4,000 was realised at 50%.

Answer:

 

Journal

 

Particulars

L.F.

Amount

Rs

Amount

Rs

1)

 

 

 

 

 

(a)

For Transfer of Assets

 

 

 

 

 

Realisation A/c

Dr.

 

-

 

 

To Assets A/c (Individually)

 

 

 

-

 

(Assets transferred to Realisation Account)

 

 

 

 

 

 

 

 

 

 

(b)

For Transfer of Liabilities

 

 

 

 

 

Liabilities A/c (Individually)

Dr.

 

-

 

 

To Realisation A/c

 

 

 

-

 

(Liabilities transferred to Realisation Account)

 

 

 

 

 

 

 

 

 

 

(c)

For sale of Asset

 

 

 

 

 

Cash/Bank A/c

Dr.

 

-

 

 

To Realisation A/c

 

 

 

-

 

(Assets sold)

 

 

 

 

 

 

 

 

 

 

(d)

For liabilitiy paid

 

 

 

 

 

Realisation A/c

Dr.

 

-

 

 

To Cash/Bank A/c

 

 

 

-

 

(Liabilities paid)

 

 

 

 

 

 

 

 

 

 

2)

Aziz’s Capital A/c

Dr.

 

64,000

 

 

To Realisation A/c

 

 

 

64,000

 

(Aziz, a partner took over 50% of stock at 20% discount, the value

of the total stock  was Rs 1,60,000)

[1,60,000 × (50/100) × (80/100) = Rs 64,000]

 

 

 

 

 

 

 

 

 

3)

Bank A/c

Dr.

 

1,04,000

 

 

To Realisation A/c

 

 

 

1,04,000

 

(Stock worth Rs 80,000  sold at a profit of 30% on cost)

[80,000 × (130/100 = Rs 1,04,000)]

 

 

 

 

 

 

 

 

 

4)

Bank A/c

Dr.

 

2,94,000

 

 

To Realisation A/c

 

 

 

2,94,000

 

(Land and Building sold for Rs 3,00,000 and 2% commission

paid to the broker)

 

 

 

 

 

 

 

 

 

5)

No entry

 

 

 

 

 

(Plant and Machinery Rs 60,000 handed over to the creditors at a

discount of 10%.  No entry is required as both the asset and liability

are already transferred to the Realisation Account)

 

 

 

 

 

 

 

 

 

6)

Bank A/c

Dr.

 

2,000

 

 

To Realisation A/c

 

 

 

2,000

 

(Investments worth Rs 4,000 were realised at 50%)

 

 

 

 

 

 

 

 

 

NOTE: In this chapter, it has been assumed that all receiving and payments are made through bank.

 

 



Page No 254:

Question 6:

How will you deal with the Realisation expenses of the firm of Rashim and Bindiya in the following cases:

1. Realisation expenses amounts to Rs 1,00,000,

2. Realisation expenses amounting to Rs 30,000 are paid by Rashim, a partner.

3. Realisation expenses are to be borne by Rashim for which he will be paid Rs 70,000 as remuneration for completing the dissolution process. The actual expenses incurred by Rashim were Rs 1,20,000.

Answer:

 

 

Books of Rashim and Bindiya

 

Journal

 

 

 

Particulars

L.F.

Amount

Rs

Amount

Rs

1)

Realisation A/c

Dr.

 

1,00,000

 

 

To Bank A/c

 

 

 

1,00,000

 

(Realisation expenses paid)

 

 

 

 

 

 

 

 

 

 

2)

Realisation A/c

Dr.

 

30,000

 

 

To Rashim’s Capital A/c

 

 

 

30,000

 

(Realisation expenses borne by Rashim)

 

 

 

 

 

 

 

 

 

 

3)

Realisation A/c

Dr.

 

70,000

 

 

To Rashim’s Capital A/c

 

 

 

70,000

 

(Realisation expenses borne by Rashim and remuneration to him

for dissolution Rs 70,000)

 

 

 

 

 

 

 

 

 

 

Page No 254:

Question 7:

The book value of assets (other than cash and bank) transferred to Realisation Account is Rs 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:

 

 

Journal

 

 

Particulars

L.F.

Amount

Rs

Amount

Rs

Realisation A/c

Dr.

 

1,00,000

 

To Sundry Assets A/c

 

 

 

1,00,000

(Assets other than cash and bank transferred to Realisation Account)

 

 

 

 

 

 

 

 

 

Atul’s Capital A/c

Dr.

 

40,000

 

To Realisation A/c

 

 

 

40,000

(Atul took over 50% of assets worth Rs 1,00,000 at 20% discount)

[1,00,000 × (50/100) × (80/100)]

 

 

 

 

 

 

 

 

 

Bank A/c

Dr.

 

26,000

 

To Realisation A/c

 

 

 

26,000

(Assets worth Rs 20,000, i.e. 40% of assets of Rs 50,000 are sold

at a profit of 30%) [50,000 × (40/100) × (130/100)]

 

 

 

 

 

 

 

 

No entry is made for obsolescence of the assets and the assets given

to the creditors in the full settlement as these are already transferred to

the Realisation Account and adjusted)

 

 

 

 

 

 

 

 

 

 

Page No 254:

Question 8:

Record necessary journal entries to record 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 Rs 3,000,

2. Ashish, an old customer whose Account for Rs 1,000 was written-off as bad in the previous year, paid 60%, of the amount,

3. Paras agreed to take over the firm’s goodwill (not recorded in the books of the firm), at a valuation of Rs 30,000,

4. There was an old typewriter which had been written-off completely from the books. It was estimated to realize Rs 400. It was taken away by Priya at an estimated price less 25%,

5. There were 100 shares of Rs 10 each in Star Limited acquired at a cost of Rs 2,000 which had been written-off completely from the books. These shares are valued @ Rs 6 each and divided among the partners in their profit sharing ratio.

Answer:

 

 Books of Paras and Priya

 

Journal

 

 

 

Particulars

L.F.

Amount

Rs

Amount

Rs

1)

Bank A/c

Dr.

 

3,000

 

 

To Realisation A/c

 

 

 

3,000

 

(Unrecorded furniture sold)

 

 

 

 

 

 

 

 

 

 

2)

Bank A/c

Dr.

 

600

 

 

To Realisation A/c

 

 

 

600

 

(Bad Debt recovered which was previously written off as bad)

 

 

 

 

 

 

 

 

 

 

3)

Paras’s Capital A/c

Dr.

 

30,000

 

 

To Realisation A/c

 

 

 

30,000

 

(Unrecorded goodwill taken over by Paras)

 

 

 

 

 

 

 

 

 

4)

Priya’s Capital A/c

Dr.

 

300

 

 

To Realisation A/c

 

 

 

300

 

(Unrecorded Typewriter estimated Rs 400 taken over by Priya at

25% less price)

 

 

 

 

 

 

 

 

 

5)

Paras’s Capital A/c

Dr.

 

300

 

 

Priya’s Capital A/c

Dr.

 

300

 

 

To Realisation A/c

 

 

 

600

 

(100 shares of Rs 10 each  which were not recorded in the books 

taken @ Rs 6 each by Paras and Priya and divided between them in

their profit sharing ratio)

 

 

 

 

 

 

 

 

 

 

Page No 254:

Question 9:

All partners wish to dissolve the firm. Yastin, a partner wants that her loan of Rs 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:

As per section 48 of Partnership Act 1932, at the time of dissolution, loans and advances from the partners must be paid off before the settlement of their capital accounts. Hence, Yastin’s argument is correct that her loan of Rs 2,00,000 must be paid off before the payment of partners' capital.

Page No 254:

Question 10:

What journal entries would be recorded for the following transactions on the dissolution of a firm after various assets (other than cash) on the third party liabilities have been transferred to Reliasation Account.

1. Arti took over the Stock worth Rs 80,000 at Rs 68,000.

2. There was unrecorded Bike of Rs 40,000 which was taken over By Mr. Karim.

3. The firm paid Rs 40,000 as compensation to employees.

4. Sundry creditors amounting to Rs 36,000 were settled at a discount of 15%.

5. Loss on Realisation Rs 42,000 was to be distributed between Arti and Karim in the ratio of 3:4.

Answer:

 

 

Journal 

 

 

Particulars

L.F.

Amount

Rs

Amount

Rs

1

Arti’s Capital A/c

Dr.

 

68,000

 

 

To Realisation A/c

 

 

68,000

 

(Arti took over stock worth Rs 80,000 at Rs 68,000)

 

 

 

 

 

 

 

 

 

 

2.

Karim’s Capital A/c

Dr.

 

40,000

 

 

To Realisation A/c

 

 

40,000

 

(Karim took over an unrecorded bike of  Rs 40,000)

 

 

 

 

 

 

 

 

 

 

3.

Realisation A/c

Dr.

 

40,000

 

 

To Bank A/c

 

 

40,000

 

(Compensation paid to the employees )

 

 

 

 

 

 

 

 

 

4.

Realisation A/c

Dr.

 

30,600

 

 

To Bank A/c

 

 

 

30,600

 

(Creditors amounting Rs 36,000 were settled at a discount of 15%)

[36,000 × (85/100)]

 

 

 

 

 

 

 

 

 

5.

Arti’s Capital A/c

Dr.

 

18,000

 

 

Karim’s Capital A/c

Dr.

 

24,000

 

 

To Realisation A/c

 

 

 

42,000

 

(Loss on Realisation transferred to Partners’ Capital Account)

 

 

 

 

 

 

 

 

 



Page No 255:

Question 11:

 

Rose and Lily shared profits in the ratio of 2:3. Their Balance Sheet on March 31, 2017 was as follows:

 

Balance Sheet of Rose and Lily as on March 31, 2017

 

 

Liabilities

Amount

Rs

Assets

Amount

 Rs

Creditors

40,000

Cash

 

16,000

Lily’s loan

32,000

Debtors

80,000

 

Profit and Loss

50,000

Less: Provision for doubtful Debts

3,600

76,400

Capitals:

 

 

 

 

Lily

1,60,000

Inventory

 

1,09,600

Rose

2,40,000

Bills Receivable

 

40,000

 

 

Buildings

 

2,80,000

 

5,22,000

 

 

5,22,000

 

 

 

 

 

           

 

Rose and Lily decided to dissolve the firm on the above date. Assets (except bills receivables) realised Rs 4,84,000.  Creditors agreed to take Rs 38,000. Cost of Realisation was Rs 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 Rs 10,000. There was a contingent liability in respect of outstanding electric bill of Rs 5,000, Bill Receivable taken over by Rose at Rs 33,000.

Show Realisation Account, Partners Capital Account, Loan Account and Cash Account.


 

 

Answer:

 

 

Books of Rose and Lily

 

Realisation Account

 

Dr.

 

Cr.

 

Particulars

Amount

Rs

Particulars

Amount

Rs

 

Debtors

80,000

Provision for Doubtful Debts

3,600

 

Inventory

1,09,600

Creditors

40,000

 

Bills Receivables

40,000

Cash:

 

 

 

Buildings

2,80,000

Motor cycle

10,000

 

 

Cash:

 

Other Assets

4,84,000

4,94,000

 

Outstanding Electricity Bill

5,000

 

Rose’s Capital (Bills Receivable)

33,000

 

Creditors

38,000

 

 

 

 

Expenses

2,400

45,400

 

 

 

 

 

 

 

 

Profit transferred to:

 

 

 

 

Rose' Capital

6,240

 

 

 

 

Lily's Capital

9,360

15,600

 

 

 

 

5,70,600

 

5,70,600

 

 

 

 

 

 

               

 

Partners’ Capital Accounts

 

Dr.

 

Cr.

 

Particulars

Rose

Lily

Particulars

Rose

Lily

Realisation  (Bills Receivable)

33,000

 

Balance b/d

2,40,000

1,60,000

Cash A/c

2,33,240

1,99,360

Profit and Loss

20,000

30,000

 

 

 

Realisation  (Profit)

6,240

9,360

 

2,66,240

1,99,360

 

2,66,240

1,99,360

 

 

 

 

 

 

               

 

Lily's Loan Account

 

Dr.

 

Cr.

 

Particulars

Amount

Rs

Particulars

Amount

Rs

Cash

32,000

Balance b/d

32,000

 

 

 

 

 

32,000

 

32,000

 

 

 

 

             

 

Cash Account

 

Dr.

 

Cr.

 

Particulars

Amount

Rs

Particulars

Amount

Rs

Balance b/d

16,000

Realisation:

 

Realisation:

 

Creditors

38,000

 

Motor Cycle

10,000

 

Outstanding Electricity Bill

5,000

 

Other Assets

4,84,000

4,94,000

Expenses

2,400

45,400

 

 

Lily's Loan

32,000

 

 

Rose’s Capital A/c

2,33,240

 

 

Lily’s Capital A/c

1,99,360

 

5,10,000

 

5,10,000

 

 

 

 

                 

 

Note: In the solution Contingent Liability of Electricity Bill has been treated as Electricity Bill Payable.

 

Page No 255:

Question 12:

 

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 was as under:

 

Balance Sheet of Shilpa, Meena and Nanda as on March 31, 2017

 

 

Liabilities

Amount

Rs

Assets

Amount

Rs

Capitals:

 

Land

81,000

Shilpa

80,000

Stock

56,760

Meena

40,000

Debtors

18,600

Bank loan

20,000

Nanda’s Capital Account

23,000

Creditors

37,000

Cash

10,840

Provision for doubtful debts

1,200

 

 

General Reserve

12,000

 

 

 

1,90,200

 

1,90,200

 

 

 

 

         

 

The stock of value of Rs 41,660 are taken over by Shilpa for Rs 35,000 and she agreed to discharge bank loan. The remaining stock was sold at Rs 14,000 and debtors amounting to Rs 10,000 realised Rs 8,000. land is sold for Rs 1,10,000. The remaining debtors realised 50% at their book value. Cost of Realisation amounted to Rs 1,200. There was a typewriter not recorded in the books worth Rs 6,000 which were taken over by one of the Creditors at this value. Prepare Realisation Account.

 

 

Answer:

 

 

In the books of Shilpa, Meena and Nanda

 

 

Realisation Account

 

Dr.

 

Cr.

 

Particulars

Amount

Rs

Particulars

Amount

Rs

Land

81,000

Bank Loan

20,000

Stock

56,760

Creditors

37000

Debtors

18,600

Provision for doubtful debts

1,200

Shilpa’s Capital A/c

20,000

Shilpa’s Capital A/c (Stock)

35,000

Cash :

 

Cash:

 

Creditors

31000

 

Stock

14000

 

Realisation Expenses

1,200

32200

Debtors

12300

Profit transferred to

 

Land

1,10,000

1,36,300

Shilpa’s Capital A/c

10,470

 

 

 

 

 

Meena’s Capital A/c

6,980

 

 

 

Nanda’s Capital A/c

3,490

20,940

 

 

 

2,29,500

 

2,29,500

 

 

 

 

                   

 

Partners’ Capital Account

 

Dr.

 

Cr.

 

Particulars

Shilpa

Meena

Nanda

Particulars

Shilpa

Meena

Nanda

Balance b/d

23,000

Balance b/d

80,000

40,000

Realisation 

35,000

 

 

General Reserve

6,000

4,000

2,000

(Stock)

 

 

 

Realisation

20,000

 

 

Cash

81,470

50,980

 

(Bank Loan)

 

 

 

 

 

 

 

Realisation (Profit)

10,470

6,980

3,490

 

 

 

 

Cash

 

 

17,510

 

1,16,470

50,980

23,000

 

1,16,470

50,980

23,000

 

 

 

 

 

 

 

 

                   

 

Cash Account

 

Dr.

 

Cr.

 

Particulars

Amount

Rs

Particulars

Amount

Rs

Balance b/d

10,840

Realisation (Expenses)

32,200

Realisation (Assets)

1,36,300

Shilpa’s Capital A/c

81,470

Nanda’s Capital A/c

17,510

Meena’s Capital A/c

50,980

 

 

 

 

 

1,64,650

 

1,64,650

 

 

 

 

             

 

 



Page No 256:

Question 13:

 

Surjit and Rahi were sharing profits (losses) in the ratio of 3:2, their Balance Sheet as on March 31, 2017 is as follows:

 

Balance Sheet of Surjit and Rahi as on March 31, 2017

 

 

Liabilities

Amount

Rs

Assets

Amount

Rs

Creditors

38,000

Bank

11,500

Mrs. Surjit loan

10,000

Stock

6,000

Reserve

15,000

Debtors

19,000

Rahi’s loan

5,000

Furniture

4,000

Capital’s:

 

Plant

28,000

Surjit

10,000

Investment

10,000

Rahi

8,000

Profit and Loss

7,500

 

86,000

 

86,000

 

 

 

 

         

 

The firm was dissolved on March 31, 2017 on the following terms:

1. Surjit agreed to take the investments at Rs 8,000 and to pay Mrs. Surjit’s loan.

2. Other assets were realised as follows:

Stock

Rs

5,000

Debtors

Rs

18,500

Furniture

Rs

4,500

Plant

Rs

25,000

3. Expenses on Realisation amounted to Rs 1,600.

4. Creditors agreed to accept Rs 37,000 as a final settlement.

You are required to prepare Realisation Account, Partners’ Capital Account and Bank Account.

 

 

Answer:

 

Books of Surjit and Rahi

 

Realisation Account

 

Dr.

 

Cr.

 

Particulars

Amount

Rs

Particulars

Amount

Rs

Stock

6,000

Creditors

38,000

Debtors

19,000

Mrs. Surjit's Loan

10,000

Furniture

4,000

Surjit’s Capital A/c (Investment)

8,000

Plant

28,000

Bank:

 

Investment

10,000

Stock

5,000

 

Surjit’s Capital A/c

10,000

Debtors

18,500

 

(Mrs. Surjit's Loan)

 

Furniture

4,500

 

Bank:

 

Plant

25,000

53,000

Expenses

1,600

 

Loss transferred to:

 

Creditors

37,000

38,600

Surjit’s Capital A/c

3,960

 

 

 

Rahi’s Capital A/c

2,640

6,600

 

 

 

 

 

 

1,15,600

 

1,15,600

 

 

 

 

               

 

Partners’ Capital Account

 

Dr.

 

Cr.

 

Particulars

Surjit

Rahi

Particulars

Surjit

Rahi

Realisation (Investment)

8,000

 

Balance b/d

10,000

8,000

Realisation (Loss)

3,960

2,640

Realisation (Mrs. Surjit Loan)

10,000

 

Profit and Loss

4,500

3,000

 

 

 

 

Bank

12,540

8,360

Reserve

9,000

6,000

 

 

 

 

 

 

 

29,000

14,000

 

29,000

14,000

 

 

 

 

 

 

                   

 

Rahi's Loan Account

 

Dr.

 

Cr.

 

Particulars

Amount

Rs

Particulars

Amount

Rs

 

 

Balance b/d

5,000

Bank

5,000

 

 

 

 

 

 

 

5,000

 

5,000

 

 

 

 

             

 

Bank Account

 

Dr.

 

Cr.

 

Particulars

Amount

Rs

Particulars

Amount

Rs

Balance b/d

11,500

Realisation (Creditors and Expenses)

38,600

Realisation A/c (Assets realised)

53,000

Rahi’s Loan

5,000

 

 

Surjit’s Capital A/c

12,540

 

 

Rahi’s Capital A/c

8,360

 

64,500

 

 

64,500

 

 

 

 

 

               

 

 

Page No 256:

Question 14:

 

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 was as follows:

 

Liabilities

Amount

Rs

Assets

Amount

Rs

Capitals:

 

 

Cash

22,500

Rita

80,000

 

Debtors

52,300

Geeta

50,000

 

Stock

36,000

Ashish

30,000

1,60,000

Investments

69,000

Creditors

 

65,000

Plant

91,200

Bills payable

 

26,000

 

 

General reserve

 

20,000

 

 

 

 

2,71,000

 

2,71,000

 

 

 

 

 

 

On the date of above mentioned date the firm was dissolved:

1. Rita was appointed to realise the assets. Rita was to receive 5% commission on the rate of assets (except cash) and was to bear all expenses of Realisation,

2. Assets were realised as follows:

 

Rs

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 Rs 4,100,

5. Firm had to pay Rs 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 Rs 9,800,

Prepare Realisation Account, Capital Accounts of Partners’ and Cash Account.

 

 

Answer:

 

In the books of Rita, Geeta and Ashish

 

Realisation Account

 

Dr.

 

Cr.

 

Particulars

Amount

Rs

Particulars

Amount

Rs

Debtors

52,300

Creditors

65,000

Stock

36,000

Bills Payable

26,000

Investment

69,000

Cash:

 

Plant

91,200

Debtors

30,000

 

Cash:

 

Stock

26,000

 

Outstanding Salaries

7,200

 

Plant

42,750

 

Discounted Bill

9,800

 

Investment

58,650

1,57,400

Creditors

65,000

 

 

 

Bills Payable

26,000

1,08,000

Loss transferred to

 

Rita’s Capital A/c

 

7,870

Rita’s Capital A/c

57,985

 

(Commission- 1,57,400 ´ 5/100)

 

Geeta’s Capital A/c

38,657

 

 

 

 

Ashish’s Capital A/c

19,328

1,15,970

 

 

 

 

 

 

 

 

364370

 

 

364370

 

 

 

 

 

 

                   

 

Partners’ Capital Account

 

Dr.

 

Cr.

 

Particulars

Rita

Geeta

Ashish

Particulars

Rita

Geeta

Ashish

Realisation (Loss)

57,985

38,657

19,328

Balance b/d

80,000

50,000

30,000

Bank

39,885

18,010

14,005

General Reserve

10,000

6,667

3,333

 

 

 

 

Realisation

7,870

 

 

 

 

 

 

 

 

 

 

 

97,870

56667

33333

 

97870

56,667

33,333

 

 

 

 

 

 

 

 

                   

 

Cash Account

 

Dr.

 

Cr.

 

Particulars

Amount

Rs

Particulars

Amount

Rs

 

Balance b/d

22,500

Realisation A/c

1,08,000

 

Realisation

1,57,400

Rita’s Capital

39,885

 

 

 

Geeta’s Capital A/c

18,010

 

 

 

Ashish’s Capital A/c

14,005

 

 

 

 

 

 

 

1,79,900

 

1,79,900

 

 

 

 

 

 

             

 

NOTE: As per the solution, the total of Cash Account should be Rs 1,79,900; however, the answer given in the book shows Rs 1,65,705.

 

 



Page No 257:

Question 15:

 

Anup and Sumit are equal partners in a firm. They decided to dissolve the partnership on December 31, 2017. When the balance sheet is as under:

 

Balance Sheet of Anup and Sumit as on December 31, 2017

 

 

Liabilities

Amount

Rs

Assets

Amount

Rs

Sundry Creditors

27,000

Cash at bank

11,000

Reserve fund

10,000

Sundry Debtors

12,000

Loan

40,000

Plants

47,000

Capital

 

 

Stock

42,000

Anup

60,000

 

Lease hold land

60,000

Sumit

60,000

1,20,000

Furniture

25,000

 

 

1,97,000

 

1,97,000

 

 

 

 

 

           

 

The Assets were realised as follows:

 

 

Rs

Lease hold land

72,000

Furniture

22,500

Stock

40,500

Plant

48,000

Sundry Debtors

10,500

 

The Creditors were paid Rs 25,500 in full settlement. Expenses of Realisation amount to Rs 2,500.

Prepare Realisation Account, Bank Account, Partners Capital Accounts to close the books of the firm.

 

 

Answer:

 

 

Books of Anup and Sumit

 

Realisation Account

 

Dr.

 

Cr.

 

Particulars

Amount

Rs

Particulars

Amount

Rs

Sundry Debtors

12,000

Sundry Creditors

27,000

Plants

47,000

Loan

40,000

Stock

42,000

Bank:

 

Lease hold land

60,000

Lease hold Land

72,000

 

Furniture

25,000

Furniture

22,500

 

Bank:

 

Stock

40,500

 

Creditors

25,500

 

Plant

48,000

 

Loan

40,000

 

Sundry Debtors

10,500

1,93,500

Expenses

2500

68,000

 

 

 

Profit transferred to

 

 

 

 

Anup’s Capital A/c

3,250

 

 

 

Sumit’s Capital A/c

3250

6,500

 

 

 

 

 

 

 

2,60,500

 

2,60,500

 

 

 

 

                 

 

Partners’ Capital Account

 

Dr.

 

Cr.

 

Particulars

Anup

Sumit

Particulars

Anup

Sumit

Bank

68,250

68,250

Balance b/d

60,000

60,000

 

 

 

Reserve Fund

5,000

5,000

 

 

 

Realisation

3,250

3,250

 

 

 

 

 

 

 

68,250

68,250

 

68,250

68,250

 

 

 

 

 

 

                 

 

Bank Account

 

Dr.

 

Cr.

 

Particulars

Amount

Rs

Particulars

Amount

Rs

Balance b/d

11,000

Realisation (Expenses and Liabilities)

68,000

Realisation (Assets )

1,93,500

Anup’s Capital A/c

68,250

 

 

Sumit’s Capital A/c

68,250

 

 

 

 

 

2,04,500

 

2,04,500

 

 

 

 

             

 

 

 



Page No 258:

Question 16:

 

Ashu and Harish are partners sharing profit and losses as 3:2. They decided to dissolve the firm on December 31, 2017. Their balance sheet on the above date was:

 

Balance Sheet of Ashu and Harish as on December 31, 2017

 

 

Liabilities

Amount

Rs

Assets

Amount

Rs

Capitals:

 

 

Building

80,000

Ashu

1,08,000

 

Machinery

70,000

Harish

54,000

1,62,000

Furniture

14,000

Creditors

 

88,000

Stock

20,000

Bank overdraft

 

50,000

Investments

60,000

 

 

 

Debtors

48,000

 

 

 

Cash in hand

8,000

 

 

3,00,000

 

3,00,000

 

 

 

 

 

           

 

Ashu is to take over the building at Rs 95,000 and Machinery and Furniture is take over by Harish at value of Rs 80,000. Ashu agreed to pay Creditor and Harish agreed to meet Bank overdraft. Stock and Investments are taken by both partner in profit sharing ratio. Debtors realised for Rs 46,000, expenses of Realisation amounted to Rs 3,000. Prepare necessary ledger Account.

 

 

Answer:

 

 Books of Ashu and Harish

 

Realisation Account

 

Dr.

 

Cr.

 

Particulars

Amount

Rs

Particulars

Amount

Rs

Building

80,000

Creditors

88,000

Machinery

70,000

Bank overdraft