DK Goel Solutions Class 12 Accountancy Chapter 6 Dissolution of a Partnership Firm

Short Answer Questions

Question 1.       Write the circumstances under which a firm is dissolved.

Solution  1          Below are the circumstances under which a firm is dissolved:-

1.) When a partner has become of unsound mind.

2.) When  a partner, other than the partner filing a suit, has become permanently incapable of performing his duties as a partner.

3.) When a partner, other than the partner filing a suit, is guilty of misconduct that may harm the partnership.

4.) When a partner, other than the partner filing a suit, wilfully or persistently commits breach of partnership agreement.

5.) When a partner, other than the partner filing a suit, has transferred the whole of his interests in the firm to a third party.

Question 2.      Clarify the difference between dissolution of a firm and dissolution of partnership.

Solution  2          

Question 3.         What is a Realisation Account?

Solution  3          A ‘Realisation Account’ is opened for disposing of all the assets of the firm and making payment to all the creditors. Realisation account is a nominal account and the object of such an account is to find out the profit or loss on realisation of assets and payment of liabilities.

Question 4.      Mention the order in which the proceeds from the sale of Assets are utilised at the time of dissolution of partnership firm.

Solution  4        Amount realised from the sale of the assets of the firm shall be applied in the following manner and order:

1.) First of all, outside debts of the firm will be paid.

2.) Out of the remaining amount, the loans advanced by partners will be paid off.

3.) Thereafter the balance of Partners Capital Account will be returned.

4.) If some amount remains, it will be divided among the partners in their profit sharing ratio.

Question 5.      How will you deal with the Realisation expenses at the time of dissolution of a firm?

Solution  5         

(i) When expenses are paid by the firm:

Realisation A/c       Dr.

To Cash/Bank A/c

(Being Realisation expenses paid in cash)

(ii) When expenses of realisation are paid by a partner on behalf of the firm:

Realisation A/c       Dr.

To Partner’s Capital A/c

(Being Remuneration expenses paid by the partner)

(iii) When the firm has agreed to pay a fixed amount to the partner towards realisation expenses and the partner has bear the expenses:

Realisation A/c       Dr.

To Partner’s Capital A/c

(Being Remuneration allowed to the partner)

(iv) When realisation expenses are to be borne by the partner and the expenses are paid by the firm:

Partner’s Capital A/c       Dr.

To Cash/Bank A/c

(Being Realisation expenses paid on behalf of the partner)

(v) No entry will be passed if the expenses are to be borne and paid by the partner out of his pocket.

Question 6.      Explain the accounting treatment at the time of dissolution of a partnership firm of the assets and liabilities not already recorded in the books of the firm.

Solution  6         

(i) When assets are sold for cash:

Cash/ Bank A/c         Dr.

To Realisation A/c

(Being Assets sold for cash)

(ii) When assets is taken away by one of the partners:

Partner’s Capital A/c         Dr.

To Realisation A/c

(Being Assets taken over by partner)

(iii) If an asset is given away to a Creditor in part or full payment of his dues, the agreed amount of the asset is deducted from the claim of the creditor and the balance is paid to him. No entry is passed for the transfer of assets to the creditor.

Question 7.       What accounting record is made on dissolution of partnership firm?

Solution  7         The following accounts are opened in the order to dissolution of partnership firm:-

1.) Realisation Account

2.) Partner’s Loan Account

3.) Partner’s Capital Account

4.) Cash or Bank Account

Practical Questions

Question 1.        Manoj and Nand were partners sharing profits in the ratio of 3 : 2. Pass journal entries under following situations at the time of dissolution of firm:

(i) Workmen Compensation Reserve stood at Rs.1,00,000 and there was no liability towards Workmen Compensation.

(ii) Workmen Compensation Reserve stood at Rs. 1,00,000 and liability in respect of it was ascertained at Rs. 75,000.

(iii) Workmen Compensation Reserve stood at Rs. 1,00,000 and liability in respect of it was ascertained at Rs. 1,20,000.

(iv) Workmen Compensation Reserve stood at Rs. 1,00,000 and liability in respect of it was ascertained at Rs. 1,00,000.

Solution  1          

Question 2.       

(i) Expenses of realization Rs. 8,000.

(ii) Expenses of realisation Rs. 10,000 were paid by a partner.

(iii) Realisation expenses of Rs. 12,000 were to be met by Tushar, a partner, but were paid by the firm.

(iv) Suresh, a partner, was paid remuneration of Rs. 10,000 and he was to meet all expenses. (v) Viru, a partner, was paid remuneration of Rs. 15,000 and he was to meet all expenses. Actual Expenses amounted to Rs. 20,000 which were paid by the firm.

(vi) Realisation expenses amounting to Rs. 15,000 were paid by the firm, Rs. 10,000 were to be borne by a partner and the balance by the firm.

(vii) Gauri, a partner, was allowed a remuneration of Rs. 25,000 and he was to meet all expenses. Firm paid an expense of Rs. 5,000.

Solution  2   

Question 3.        Pass necessary Journal Entries on the dissolution of a partnership firm in the following cases :

(i) L, a partner, was appointed to look after the dissolution process for which he was given a remuneration of Rs. 10,000.

(ii) Dissolution expenses Rs. 8,000 were paid by the partner, M.

(iii) Dissolution expenses were Rs. 5,000.

(iv) P, a partner, was appointed to look after the process of dissolution for which he was allowed a remuneration of Rs. 7,000. P agreed to bear the dissolution expenses. Actual dissolution expenses Rs. 4,000 were paid by P.

(v) N, a partner, was appointed to look after the process of dissolution for which he was allowed a remuneration of Rs. 9,000. N agreed to bear the dissolution expenses. Actual dissolution expenses Rs. 4,000 were paid by the firm.

(vi) Question  a partner was appointed to look after the process of dissolution for which he was allowed a remuneration of Rs. 18,000. Question  agreed to take over stock worth Rs. 18,000 as his

Remuneration The stock had already been transferred to Realisation Account.

Solution  3       

Question 4.        The following is the Balance Sheet of A and B as at 31st March, 2018. The profit sharing ratio of the partners are 3 : 2.

The partners decided to dissolve the firm on and from the date of the Balance Sheet Motor Vehicles and Stock were sold for cash at Rs. 16,950 and Rs. 77,600 respectively and all Debtors were realised in full. Land & Buildings were sold at Rs. 43 500. Creditors were paid off subject to discount of Rs. 1,700. Expenses of realisation were Rs. 1,250.

Prepare Realisation Account, Bank Account and Partners' Capital Accounts to close the books of the firm as a result of its dissolution.

Solution  4        

Point of Knowledge:-

(i) When expenses are paid by the firm:

Realisation A/c       Dr.

To Cash/Bank A/c

(Being Realisation expenses paid in cash)

(ii) When expenses of realisation are paid by a partner on behalf of the firm:

Realisation A/c       Dr.

To Partner’s Capital A/c

(Being Remuneration expenses paid by the partner)

Question 5.   P, Q  and R are partners sharing profits and losses in the ratio of 2:1:1. They decide to dissolve their firm on 31-03-2018, the date on which their Balance Sheet stands as

under:

The following additional information is given :

(1)    Investments are taken over by P at book value.

(2)    Furniture is taken over by Question  for Rs. 20,000.

(3)    Creditors were paid off at a discount of 5%.

(4)    Other assets realised as follows:

1. Stock                     at 80%
2. Debtors               Rs. 65,000
3. Machinery           at 30% less.

(5)    Expenses of realisation amounted to Rs. 2,000.

Prepare the necessary ledger accounts to close the books of the firm.

Solution  5         

Question 6.  A and B were partners sharing profits and losses in 2:1. Their Balance Sheet as at 31st March, 2021 was as follows:

Partners decide to dissolve the firm on the above date. Assets and liabilities realised as follows:
(i) Plant & Machinery was taken over by A at 60% of the book value.
(ii) Investments were taken over by B at 120%.
(iii) Sundry Creditors were paid off by giving them stock at 75% of the book value and the balance in cash.
(iv) Debtors realised 20% less of the amount due from them.
(v) A's loan was paid off with interest for six months.
(vi) Realisation expenses amounted to Rs. 1,000.
you are required to prepare:
(a) Realisation Account
(b) A's Loan Account and B's Loan Account
(c) Partner's Capital Accounts, and
(d) Bank Account

Solution 6.

Question 7.        A, B and C were in partnership sharing profits in the ratio of 2:1:1. Their Balance Sheet showed the following position on the date of dissolution :

1. A agreed to take over furniture at 20% less than the book value.
2. Fixed assets realised Rs. 32,000 and stock Rs. 55,000.
3. Bad Debts amounted to Rs. 5,000.
4. Expenses of realisation were Rs. 3,000. Creditors were paid at a discount of 5%.
5. There was a claim of Rs. 6,400 for damages against the firm. It had to be paid.

Prepare necessary accounts.

Solution  7      

Question 8.        X, Y and Z are in partnership, sharing profits and losses equally. They a to dissolve the partnership on 31st March, 2018, at which date the Balance Sheet of the firm was as follows:

The assets realised as under :

Premises 20% more; Machinery 40% less; Stock Rs. 5,000 more, Sundry Debtors and Bills Receivable at book values. Expenses of realisation amounted to Rs. 2,000 Sundry Creditors agreed to accept Rs. 57,500 in full settlement.

Show necessary ledger accounts to close the books of the firm.

[Ans. Loss on Realisation Rs. 5,700; Final Payments: X Rs. 1,01,100; Y Rs. 62,100 Z Rs. 35,100; Total of Bank A/c Rs. 2,77,800.] 

Solution  8          

Question 9.  The following was the Balance Sheet of X, Y and Z as at 28.2.2021 :

The firm was dissolved on the above date on the following terms:
(1) Debtors realized Rs. 29,000 and creditors and bills payable were paid at a discount of 10%.
(2) Stock was taken over by X for Rs. 17,000 and furniture was sold to K for Rs. 20,000.
(3) Land and Building was sold for Rs. 2,98,000.
(4) G's loan was paid by a cheque of the same amount.
(5) Compensation to workmen paid by the firm amounted to Rs. 15,000.
Prepare Realisation Account, Capital Accounts and Bank Account.

Solution  9. 

Realisation Account
For the year of 31 March, 2021

Point of Knowledge:-
(i) When expenses are paid by the firm:
Realisation A/c Dr.
To Cash/Bank A/c
(Being Realisation expenses paid in cash)

(ii) When expenses of realisation are paid by a partner on behalf of the firm:
Realisation A/c Dr.
To Partner’s Capital A/c
(Being Remuneration expenses paid by the partner)

Question 10. (A)    Pritam and Naresh decided to dissolve their firm on September 30,2018, when the Balance Sheet stood as follows:

The assets were realized as follows: Stock Rs. 20,000; Bills Receivable Rs. 3,800; Furniture Rs. 5,100; Plant & Machinery Rs. 35,000; Sundry Debtors at 10% less than book value.

Sundry Creditors allowed a discount of 5%. Pritam agreed to pay his wife's loan Naresh agreed to pay outstanding rent. Expenses on dissolution came to Rs. 800.

Pritam and Naresh shared profits and losses in the ratio of their Capitals. Accounts were finally settled. Prepare Journal, Realisation Account, Capital Accounts and Bank Account.

Solution  10 (A)     

Question 10. (B)          Mrs. Rita Chowdhary and Miss Shobha are partners in a firm, 'Fancy Garments Exports' sharing profits and losses equally. On 1st April, 2018, the Balance Sheet of the firm was as follows:

The firm was dissolved on the date given above. The following transactions took place:

(i)                  Mrs. Rita Chowdhary undertook to pay Mr. Chowdhary's Loan and took over 50 per cent of stock at a discount of 20 per cent.

(ii)                Book-debts realised Rs. 54,000, balance of the stock was sold off at a profit of 30 per cent on cost.

(iii)               Sundry Creditors were paid out at a discount of 10 per cent Bills payable were paid in full.

(iv)              Plant and Machinery realised Rs. 75,000 and Land and Buildings Rs. 1,20,000

(v)                Mrs. Rita Chowdhary took over the goodwill of the firm at a valuation of Rs. 30,000.

(vi)              Realisation expenses were Rs. 5,250.

Show the Realisation Account, Bank Account and Partner's Capital de the books of the firm.

Solution  10 (B)          

Point of Knowledge:-

(i) When expenses are paid by the firm:

Realisation A/c       Dr.

To Cash/Bank A/c

(Being Realisation expenses paid in cash)

(ii) When expenses of realisation are paid by a partner on behalf of the firm:

Realisation A/c       Dr.

To Partner’s Capital A/c

(Being Remuneration expenses paid by the partner)

Question 11.      Anurag and Prem were partners sharing profits and losses in 2 : 1. On 31 March, 2020 their Balance Sheet was as follows:

The firm was dissolved on the above date:

(i) Anurag took over 60% of the stock at a discount of 20%, 25% of the remaining stock was sold at a profit of 40% on cost; Remaining stock was found obsolete and realised nothing.

(ii) Firm had to pay Rs. 90,000 as compensation to workers.

(iii) Sundry Creditors took over investments in full settlement.

(iv) Sundry Debtors realised at 75% and plant realised 20% less.

(v) Prem agreed to take over the responsibility of completing dissolution work and he was given furniture as his remuneration.

(vi) Realisation expenses amounted to Rs. 10,000.

Prepare Realisation Account.

 Workmen Compensation Reserve amounting to Rs. 30,000 will be transferred to the Cr.  side of Capital Accounts.

(iii)There will be no entry of Sundry Creditors taking over the investments.

(iv) There will be no entry of Prem taking over furniture as his remuneration.

Solution  11       

Question 12.      The following  is the Balance Sheet of A and B as at 31st March, 2018:

1. Half the stock was sold at 10% less than the book value and the remaining half was taken over by A at 20% more than the book value.

2. During the course of dissolution a liability under action for damages was settled at Rs. 12,000 against Rs. 10,000 included in the creditors.

3. Assets realised as follows:

Plant & Machinery – Rs. 1,00,000; Truck – Rs. 1,20,000; Goodwill was sold for Rs. 25,000; Bad Debts amounted to Rs. 5,000. Half the investments were sold at book value.

4. A promised to pay off Mrs. A's Loan and took away half the investments at 10% discount.

5. Trade Creditors and Bills Payable were due on average basis of one month after 31^st March, but were paid immediately on 31^st March, at 12% discount per annum.

Prepare necessary accounts.

Solution  12

Question 13.      The following is the Balance Sheet of A, B and C, as at 31^st March, 2018:

The profit and loss sharing ratios of the partners are 3:2 : 1. At the above date, partners decide to dissolve the firm. The assets realised were as follows:

(i) Bills Receivable were realised at a discount of 5%. Debtors were all good; Stock realised Rs. 32,000. Land and Buildings realised at 40% higher than the book value.

(ii) Furniture was sold for Rs. 6,000 by auction and auctioneer's commission amounted to Rs. 300.

(iii) Typewriters were taken over by A for an agreed valuation of Rs. 5,000.

(iv) Investments were sold in the open market at a price of Rs. 25,000, for which a commission of 2% was paid to the broker.

(v) Creditors agreed to accept 10% less. All other liabilities were paid off at their book value.

(vi) The firm retrenched their employees three months before the dissolution of the firm and the firm had to pay Rs. 25,000 as compensation. This liability was not appearing in the above Balance Sheet.     Close the books of the firm by preparing Realisation Account, Partner's Capital Accounts, and Bank Account.

Hint: Amount realised from Sundry Debtors : Rs. 40,000.

Solution  13   

Point of Knowledge:-

(i) When expenses are paid by the firm:

Realisation A/c       Dr.

To Cash/Bank A/c

(Being Realisation expenses paid in cash)

(ii) When expenses of realisation are paid by a partner on behalf of the firm:

Realisation A/c       Dr.

To Partner’s Capital A/c

(Being Remuneration expenses paid by the partner) 

Question 14.       Following is the Balance Sheet of Ramji Lal and Panna Lal as at 31st March, 2021 :

They decided to dissolve the firm. Assets are realised as follows:

(i) Machinery 10% less  than book value; Plant Rs. 12,500 and Goodwill Rs. 2,520.

(ii) Ramji Lal is to take over Debtors amounting to Rs. 6,800 at Rs. 6,000, remaining Debtors were realised for 90% of the book value.

(iii) One bill of Rs. 600 under discount having been dishonoured had to be taken up by them.

(iv) The Bill payable of Rs. 2,600 to be assumed by Panna Lal at that figure.

(v) Creditors are paid off at a discount od 10%.

(vi) An amount of Rs. 2,500  had to be paid for Workmen Compensation.

(vii) The liquidation expenses amounted to Rs. 400.

You are required to show the Realisation Account, Capital Accounts and Bank Account.

Solution  14       

Realisation Account
as at 31 March, 2021

Question 15.      Raman and Richa were  partners in a firm sharing profits in the ratio of 7:3. On 31.3.2018 the Balance Sheet of the firm was as follows:

The firm was dissolved on 1.4.2018 and the assets and liabilities were settled as follows:

(i) Land and building was taken over by Raman at a depreciation of 10% for cash;

(ii) Creditors of Rs. 1,25,000 took over stock and debtors in full settlement of their claim;

(iii) Remaining creditors were paid by Richa;

(iv) Furniture realised Rs. 5,000 less than the book value.

(v) Expenses of realisation were Rs. 400.

Pass necessary journal entries for dissolution of the firm.

Solution  15       

Question 16.      Verma and Sharma were partners in a firm sharing profits in the ratio of 3:1. On 31.3.2018 their Balance Sheet was as follows:

The firm was dissolved on 1.4.2018 and the assets and liabilities were settled as follows:

(i) Creditors of Rs. 50,000 took over Land and Building in full settlement of their claim;

(ii) Remaining creditors were paid in cash;

(iii) Machinery was sold at a depreciation of 30%;

(iv) Debtors were collected at a cost of Rs. 500;

(v) Expenses of realisation were Rs. 1,700.

Pass necessary journal entries for dissolution of the firm.

Solution  16

Question 17.      Mala Neela and Kala were partners sharing profits in the ratio of 3:2:1. On 1-3-2015 their firm was dissolved. The assets were realized and liabilities were Paid off.  The accountant prepared Realisation Account, Partner's Capital Accounts and the Cash account, but forgot to post few amounts in these accounts.

You are required to complete these below given accounts by posting correct amounts.

Solution  17

Point of Knowledge:-

(i) When expenses are paid by the firm:

Realisation A/c       Dr.

To Cash/Bank A/c

(Being Realisation expenses paid in cash)

(ii) When expenses of realisation are paid by a partner on behalf of the firm:

Realisation A/c       Dr.

To Partner’s Capital A/c

(Being Remuneration expenses paid by the partner)

Question 18.      A. B and C are in partnership sharing in 4:3 :3. They decide to dissolve the partnership firm. At the date of dissolution their creditors amounted to Rs. 16,800 and in the course of dissolution a contingent liability of Rs. 3,500 not brought into the accounts matured and had to be met. Their capitals stood at Rs. 12,000, Rs. 10,000 and Rs. 8,000 respectively. B had lent to the firm in addition to Capital Rs. 13,200 The assets realised Rs. 45,670.

Prepare the Realisation Account and Partners' Capital Accounts. Also show the Bank Account.’

Solution  18        

Question 19.   A and B who were in partnership sharing profits and losses in the proportion of 4/7 and 3/7 respectively, decided to dissolve the firm as on 31st March, 2018. At the time of dissolution A's capital was Rs. 1,25,030, B's Rs. 2,070, the creditors amounted Rs. 23,150 and cash Rs. 4,520. Remaining assets realised Rs. 1,24,910 and expenses of dissolution were rs. 1,860. A & B both were solvent. Prepare the Balance Sheet as on the date of dissolution and the accounts necessary to close the books of the firm. Show the final adjustments of cash between partners.

Solution  19        

Question 20.      Ashok and Kishore were in partnership sharing profit in the ratio of 3:1. They agreed to dissolve the firm. The assets (other than cash of Rs. 2,000) of the realised Rs. 1,10,000. The liabilities and other particulars of the firm on that date were as follows:

Creditors                                                   40,000

Ashok’s Capital                                       1,00,000

Kishore’s Capital                                      10,000 (Dr. Balance)

Profit and Loss Account                               8,000 (Dr. Balance)

Realisation Expenses were                               1,00

Creditors were settled in full settlement at Rs. 38,000. Prepare realisation and Cash account.

Solution  20        

Point of Knowledge:-

(i) When expenses are paid by the firm:

Realisation A/c       Dr.

To Cash/Bank A/c

(Being Realisation expenses paid in cash)

(ii) When expenses of realisation are paid by a partner on behalf of the firm:

Realisation A/c       Dr.

To Partner’s Capital A/c

(Being Remuneration expenses paid by the partner)

Question 21.      X and Y were partners in a firm sharing profit and losses in the ration of 5:3. They agreed to dissolve the firm on June 30, 2018. On that date, the Capitals of X and Y were Rs. 80,000 and Rs. 40,000 respectively, the amount owed by X to the firm was Rs. 32,000 and the amount owed by the firm to Y was Rs. 25,000 the creditors amounted to Rs. 37,000 and balance at bank Rs. 10,000. The assets other than the amount owning by X to the firm realised Rs. 46,000. Realisation expenses amounted to Rs. 2,000. Prepare the Balance Sheet of the firm as on June 30, 2018 and necessary ledger accounts to close the books of the firm. 

Solution  21

Question 22.      On 1^st April, 2017 A, B and C commenced business in partnership sharing profit and losses in proportion of 1/2, 1/3 and 1/6 respectively. They paid into their Bank A/c as their capital Rs. 22,000 being Rs. 10,000 by A Rs. 7,000 by B and Rs 5,000 by C. During the year they drew Rs. 5,000, being Rs. 1,900 by A Rs. 1,700 by B and Rs. 1,400 By C.

On 31^st March, 2018, they dissolved their firm, A taking up stock at an agreed valuation of Rs. 5,000, B taking up furniture at Rs. 2,000 and C taking up debtors at Rs. 3,000. After paying up their creditors, there remained a balance of Rs. 1,000 at Bank. Prepare the necessary accounts showing the distribution of the cash at the Bank and of the further cash brought in by any partner as the case required.

Solution  22

Question 23.      X, Y and Z entered into partnership on 1^st October, 2017 sharing profits and losses in the proportions of 4:3:2, respectively, and with capitals of Rs. 30,000, Rs. 20,000 and Rs. 10,000.

Their assets and liabilities on 1^st October, 2018, the date on which they decided to wind up their affairs, were as follows:

Office Fixtures Rs. 1,000; Debtors Rs. 28,000; Bills Receivable Rs. 5,000; and Stock-in-trade Rs. 45,000. Sundry creditors were Rs. 30,000; Bills Payable Rs. 4,000.

X agreed to take over the Stock-in-trade at a discount of 10% and pay off the Bills Payable.

Y agreed to take over the Book Debts at a discount of 20% and pay off the Creditors.

Z took over the Bills Receivable at Rs. 4,877 and Office Fixtures at a depreciation of 10%.

5% p.a. interest is to be credited to each partner on his capital.

Prepare Realisation A/c and Capital A/cs of the partners and an account showing adjustment of profits or losses in the business. 

Solution  23

Point of Knowledge:-

(i) When expenses are paid by the firm:

Realisation A/c       Dr.

To Cash/Bank A/c

(Being Realisation expenses paid in cash)

(ii) When expenses of realisation are paid by a partner on behalf of the firm:

Realisation A/c       Dr.

To Partner’s Capital A/c

(Being Remuneration expenses paid by the partner)

Question 24.      P, Q  and R started business on 1^st April, 2017. They shared profit and loss in the ratio of 2:2:1. Capitals contributed by them were P Rs. 40,000; Q  Rs. 30,000 and R Rs. 20,000. The partners were entitled to interest on capital @ 6% p.a. During the year the firm earned a profit (before interest) of Rs. 25,000. The partners had withdrawn P Rs. 10,000; Q  Rs. 8,000 and R Rs. 5,000.

On 31^st March, 2018 the firm was dissolved. The assets realised Rs. 1,00,000. The creditors of Rs. 15,000 were paid at a discount of 3% Expenses incurred on realisation were Rs. 1,450.

Prepare Partner’s Capital Accounts, Realisation Account, Cash Account, Profit and Loss Appropriation Account and Balance Sheet to close the books of the firm. 

Solution  24 

Question 25.      A, B and C were partners from 1^st April, 2016 with capitals of Rs. 3,00,000; Rs. 2,00,000 and Rs. 1,50,000 respectively. They shared profit in the ration of 2:2:1. They carried on business for two years. In the first year ending on 31^st March, 2018, a loss of Rs. 60,000 was incurred. As the business was no longer profitable they dissolved the firm on 31^st March, 2018. Creditors on that date were Rs. 75,000. The partners withdrew for personal use Rs. 40,000 per partner per year. The assets realised Rs. 4,00,000. The expenses of realisation were Rs. 5,000.

Prepare Realisation Account and show your working clearly.

Solution  25

Question 26. (A)       Following is the Balance Sheet of Deepak and Jyoti, who were sharing profit and losses in the ratio 3:2, as at March 31, 2018:

The firm was dissolved on that date and the following arrangements were made:

(i) Assets realised as follows: Debtors Rs. 18,000; Furniture Rs. 5,500; Plant Rs. 32,000.

(ii) Deepak agreed to take over stock in full settlement of his wife’s loan.

(iii) Creditors were paid at 2% discount and Bank Loan was discharged along with interest due for six months @ 10% p.a. and

(iv) Expenses of realisation amounted to Rs. 1,800.

Solution  26 (A)         

Question 26. (B)          A, B and C sharing profits in the proportion of 3:2:1 agreed upon dissolutions of their partnership on 31^st March, 2018 on which date their balance sheet was as under:

The investments are taken over by A for Rs. 17,500. A agrees to discharge his wife’s loan. B takes over all the Stock at Rs. 7,000 and debtors amounting to Rs. 5,000 at Rs. 4,000. Machinery is sold for Rs. 67,000. The remaining debtors realise 50% of book value. The expenses of realisation amount to Rs. 600. 

In is found that an investment not recorded in the books is wroth Rs. 3,000 and it is taken over by one of the creditors at this value.

Show the necessary ledger accounts on completion of the dissolution of firm.

Solution  26 (B)

Point of Knowledge:-

(i) When expenses are paid by the firm:

Realisation A/c       Dr.

To Cash/Bank A/c

(Being Realisation expenses paid in cash)

(ii) When expenses of realisation are paid by a partner on behalf of the firm:

Realisation A/c       Dr.

To Partner’s Capital A/c

(Being Remuneration expenses paid by the partner)

Question 27.      Mehta and Menon were partners in a firm, sharing profit and losses in the ratio of 7:3.

They decided to dissolve their partnership firm on 31^st March, 2016. On that date their books showed the following ledger account balances:

Additional information:-

(a) Bills Payable falling due on 31^st May, 2016 were retired on the date of dissolution of the firm, at a rebate 0f 6% per annum.

(b) The bankers accepted the furniture (included in sundry assets) having a book value of Rs. 18,000 in full settlement of the loan given by them.

(c) Remaining assets were sold for Rs. 1,50,000

(d) Liability on account of outstanding salary not recoded in the books, amounting to Rs. 15,000 was met.

(e) Menon agreed to take over the responsibility of completing the dissolution work and to bear all expenses of realisation expenses were Rs. 1,500 which were paid by the fir, on behalf of Menon.

You are required to prepare:

(i) Realisation Account and

(ii) Partners Capital Accounts.

Solution  27        

Question 28.  (A)          X, Y and Z were in partnership sharing profits and losses in the ratio of 7:2:1 and the Balance Sheet of the firm stood on 31^st March, 2018, as under:

On 31^st March, 2018 it was decided to dissolve the firm on the following terms:

(i) X is to take over the building at Rs. 7,300.

(ii) Y, who will continue with business, to take over Goodwill, Stock and Debtors at book values, Patents at Rs. 6,500 and Machinery at Rs. 1,500. He also agreed to pay the Creditors.

(iii) Z agreed to take share in C co. Ltd. at Rs. 5 each.

(iv) The shares in B Co. Ltd. to be divided in profit sharing ratio.

Show the ledger accounts to record the dissolution.

Solution  28 (A)        

Point of Knowledge:-

(i) When expenses are paid by the firm:

Realisation A/c       Dr.

To Cash/Bank A/c

(Being Realisation expenses paid in cash)

(ii) When expenses of realisation are paid by a partner on behalf of the firm:

Realisation A/c       Dr.

To Partner’s Capital A/c

(Being Remuneration expenses paid by the partner)

Question 28. (B)          Following is the balance sheet of P, Question  and R who were sharing profits and losses in the ratio of 3:2:1.

The firm was dissolved on that date and the following arrangements were made:

1.) Assets realised as follows: Debtors Rs. 15,000; Plant at 30% discount.

2.) Stock was valued at Rs. 36,000 and this was taken over by P and Question  equally.

3.) Market value of the share of A Ltd. is Rs. 16 per share. Half the shares were sold in the market and the balance half were taken over by P and Question  in their profit sharing ratio.

4.) A creditor for Rs. 50,000 took over Motor Car in full settlement of his claim and the balance of creditors was paid at a discount of 2%.

5.) Expenses of realisation amount to Rs. 6,000. P agreed to discharge his wife’s Loan.

Prepare Journal entries and Ledger accounts.

Solution  28 (B)

Point of Knowledge:-

(i) When expenses are paid by the firm:

Realisation A/c       Dr.

To Cash/Bank A/c

(Being Realisation expenses paid in cash)

(ii) When expenses of realisation are paid by a partner on behalf of the firm:

Realisation A/c       Dr.

To Partner’s Capital A/c

(Being Remuneration expenses paid by the partner)

Question 29.      P, Q , and R were partners in a firm sharing profits in the ratio of 1:2:2. Their Balance Sheet as at 31^st March, 2019 was as follows:

Partners agreed to dissolve the firm on that date. You are given the following information about dissolution :

(i) One of the Debtors for Rs. 20,000 paid Rs. 12,000 in full settlement of his account and debtors of Rs. 5,000 were proved bad.

(ii) Part of the stock was sold for Rs. 20,000 (being 25% more than the book value).

(iii) Office Equipment was accepted by the creditor for Rs. 7,000 in full settlements. Another creditor of Rs.  40,000 was paid only 40% in full settlement of his account and remaining creditors accepted remaining stock in full settlement of their account.

(iv) An unrecorded asset of Rs. 20,000 was handed over to an unrecorded liabilities of Rs. 15,000 in full settlement.

(v) Land & Buildings were sold at a loss of 20%.

(vi) Question 's Loan was settled by payment of Rs. 30,000.

(vii) Realisation expenses Rs. 16,000 were paid by R.

You are required to prepare the necessary accounts.

Solution  29      

Question 30.      A, B and C were partners in a firm sharing profits & losses in the ratio of 2:2:1. The Balance Sheet of the firm at the date of dissolution was as follows:

You are informed that:

(1) They appointed B to realise the assets. He is to receive 5% of the amounts realised from Debtors, Stock and Machinery, and is to bear all expenses of realisation.

(2) Bad Debts amounted to Rs. 2,000; Stock realised Rs. 36,000 and Machinery realised Rs. 46,000. There was an unrecorded asset of Rs. 10,000 which was taken over by A at Rs. 8,000.

(3) Market value of Investments was ascertained to be Rs. 20,000, and one of the creditors agreed to accept the Investments at this value. Remaining creditors were paid at a discount of Rs. 6,000.

(4) An office typewriter, not shown in the books of accounts, realised Rs. 20,000.

(5) There were outstanding expenses amounting to Rs. 6,000. These were settled for Rs. 4,500. Expenses of realisation met by B amounted to Rs. 2,000.

Prepare necessary accounts.

Solution  30 

Question 31.      A, B and C are partners sharing profits and losses in the ratio of 4:2:1. On 31st March 2018, their Balance Sheet was as follows:

It was decided to dissolve the firm, A agreeing to take over the business (except Cash at Bank) at the following valuations :

         Leasehold Premises at Rs. 60,000

         Plant and Machinery at Rs. 12,000 less than the book value.

         1/4 th stock at 33 ¹/₃% more than its book value.

          Remaining Stock at 20% more than the book value.

          Sundry Debtors subject to a provision of 5%.

           Mrs. B's Loan was paid in full and the creditor were proved at Rs. 2,000 and were taken over by A. Expenses of dissolution came to Rs. 900.

Prepare necessary accounts to close the books of the firm and prepare the Balance Sheet of A.

[Ans. Loss on Realisation Rs. 49,000; Cash brought in by A Rs. 81,300 and by C Rs. 3,200; Cash paid to B Rs. 86,300; Total of Bank A/c Rs. 1,02,200; B/S Total Rs. 2,10,500.]

Solution  31

Question 32.      Give journal entries in each of the following alternative cases on the dissolution of a firm:

(i) Realisation expenses paid by X on behalf of the firm.

(ii) Realisation expenses paid by the firm Rs. 1,000. However, the expenses were to be borne by partner X for which he was to be given a commission of 5% on net cash realised on dissolution. Cash realised from assets was Rs. 2,00000.

(iii) General Reserve appearing in the balance sheet was Rs. 20,000.

(iv) Sundry Creditors amounted to Rs. 15,000. These were paid at a discount of 2%.

[Ans. (i) Debit Realisation A/c and Credit X's Capital A/c.

(ii) Debit Y's Capital A/c and Credit Bank A/c by Rs. 1,000;

      Debit Bank A/c and Credit Realisation A/c by Rs. 2,00,000;

      Debit Realisation A/c and Credit Bank A/c by Rs. 40,000;

      Debit Realisation A/c and Credit X's Capital A/c by Rs. 8,000.

(iii) Debit General Reserve A/c and Credit Partner's Capital A/cs in profit sharing ratio.

(iv) Debit Realisation A/c and Credit Bank A/c by Rs. 14,700.

Solution  32       

Question 33.      Jain, Sharma and Verma were partners in a firm sharing profits in the ratio of 1: 2: 1. On 31st March, 2018 their firm was dissolved. It was agreed that Sharma will look after the dissolution work and will be paid Rs. 15,000 as remuneration. The dissolution expenses were Rs. 5,000, Rs. 2,84,000 were paid to the creditors in full settlement of their claim of Rs. 3,00,000. Dissolution of the firm resulted into a loss of Rs. 18,000.

Pass necessary journal entries for the above transactions.

[Ans.(a) Debit Realisation A/c and Credit Sharma's Capital A/c by Rs. 15,000.

(b) Debit Realisation A/c and Credit Bank A/c by Rs. 5,000.

(c) Debit Realisation A/c and Credit Bank A/c by Rs. 2,84,000.

(d) Debit Partners Capital A/cs respectively by Rs. 4,500, Rs. 9,000 and Rs. 4,500 and Credit Realisation A/c by Rs. 18,000.]

Solution  33        

Point of Knowledge:-

(i) When expenses are paid by the firm:

Realisation A/c       Dr.

To Cash/Bank A/c

(Being Realisation expenses paid in cash)

(ii) When expenses of realisation are paid by a partner on behalf of the firm:

Realisation A/c       Dr.

To Partner’s Capital A/c

(Being Remuneration expenses paid by the partner)

Question 34.      Pass the necessary journal entries for the following transactions on the dissolution of the firm of James and Haider who were sharing profits and losses in the ratio of 2 : 1. The various assets (other than cash) and outside liabilities have been transferred to Realisation Account:

(i) James agreed to pay off his brother's loan Rs. 10,000.

(ii) Debtors realised Rs. 12,000.

(ii) Haider took over all investments at Rs. 12,000.

(iv) Sundry creditors Rs. 20,000 were paid at 5% discount.

(v) Realisation expenses amounted to Rs. 2,000.

(vi) Loss on realisation was Rs. 10,200.

[Ans.(i) Debit Realisation A/c and Credit Jame's Capital A/c by Rs. 10,000.

(ii) Debit Bank A/c and Credit Realisation A/c by Rs. 12,000.

(iii) Debit Haider's Capital A/c and Credit Realisation A/c by Rs. 12,000.

(iv) Debit Realisation A/c and Credit Bank A/c by Rs. 19,000.

(v) Debit Realisation A/c and Credit Bank A/c by Rs. 2,000.

(vi) Debit Jame's Capital A/c by Rs. 6,800 and Haider's Capital A/c by Rs. 3,400 and Credit Realisation A/c by Rs. 10,200.]

Solution  34    

Question 35.      P and Q  were partners in a firm sharing profits and losses equally. On 15^th March,2014 the firm was dissolved. The dissolution resulted in a loss of Rs. 60,000. On that date the Capital Accounts of P and Q  showed credit balances of Rs. 70,000 and Rs. 50,000 respectively. There was a bank balance of Rs. 60,000.

       Pass the necessary Journal Entries for :

(i) The transfer of loss to the Capital accounts of the partners, and

(ii) Making final payments to the partners.

Solution  35

Question 36.      Gaurav, Saurabh and Vaibhav were partners in a firm sharing profits and losses in the ratio of 2:2:1. They decided to dissolve the firm on 31st March, 2018. After transferring Sundry assets (other than cash in hand and cash at Bank) and third party liabilities to realisation account, the assets were realized and liabilities were paid off as follows:

(i) A machinery with a book value of Rs. 6,00,000 was taken over by Gaurav at 50% and stock worth Rs.          5,000 was taken over by a creditor of Rs. 9,000 in full settlement of his claim.

(ii) Land and building (book value Rs. 3,00,000) was sold for Rs. 4,00,000 through a broker who charged 2% commission.

(iii) The remaining creditors were paid Rs. 76,000 in full settlement of their claim and the remaining assets were taken over by Vaibhav for Rs. 17,000.

(iv) Bank loan of Rs. 3,00,000 was paid along with interest of Rs. 21,000.

Pass necessary journal entries for the above transactions in the books of the firm. 

Solution  36

Point of Knowledge:-

(i) When expenses are paid by the firm:

Realisation A/c       Dr.

To Cash/Bank A/c

(Being Realisation expenses paid in cash)

(ii) When expenses of realisation are paid by a partner on behalf of the firm:

Realisation A/c       Dr.

To Partner’s Capital A/c

(Being Remuneration expenses paid by the partner) 

Question 37.      Adiraj and Karan were partners in a firm sharing profits and losses in the ratio 3:2. On 31st March, 2018 the firm was dissolved. After the transfer of assets (other than cash in hand and at bank) and third party liabilities to the Realisation Account, the following information was provided :

(i) Furniture of Rs. 70,000 was sold for Rs. 68,000 by auction and auctioneer's commission amounted to Rs. 2,000.

(ii) Adiraj's loan amounting to Rs. 35,000 was settled at Rs. 37,500.

(iii) Out of the stock of Rs. 80,000, Karan took over 50% of the stock at a discount of 20% while the remaining stock was sold off at a profit of 30% on cost.

(iv) A bills receivable of Rs. 3,000 under discount was dishonored as the acceptor had become insolvent and hence the bill had to be met by the firm

(v) Profit and Loss Account showed a debit balance of Rs. 56,000.

(vi) Realization expenses amounted to Rs. 2,000 which were paid by Adiraj

Pass the necessary journal entries for the above transactions on the dissolution of the firm.

Solution  37

Question 38.      Give the necessary journal entries for the following transactions on dissolution of the firm of Aman and Rajat on 31st March, 2016, after the transfer of various assets (other than cash) and the third party liabilities to Realisation Account. They shared profits and losses in the ratio of 2:1.

(a) There was a bill of exchange of Rs. 10,000 under discount. The bill was received from Derek who became insolvent.

(b) Bills Payable of Rs. 30,000 falling due on 30th April, 2016 was discharged at Rs. 29,550.

(c) Creditors of Rs. 30,000 took over stock of Rs. 10,000 at 10% discount and the balance was paid to them in cash.

(d) There was an old typewriter which had been written off completely. It was estimated to realize Rs. 600. It was taken away by Rajat at 25% less than the estimated price.

(e) Aman agreed to take over the responsibility of completing dissolution at an agreed remuneration of Rs. 1,000 and to bear all realization expenses. Actual realisation expenses Rs. 800 were paid by the firm.

(f) Loss on realization was Rs. 54,000.

Solution  38

Question 39.      Disha, Mohit and Nandan are partners. They decide to dissolve their firm. Pass necessary Journal Entries for the following after various Assets (other than Cash and Bank) and the third party liabilities have been transferred to Realisation Account:

(a) An old typewriter which was not recorded in the books was sold for Rs. 2,000 whereas its expected value was Rs. 5,000.

(b) Stock of Rs. 70,000 was taken by Disha at a discount of 30%.

(c) Total creditors of the firm were Rs. 20,000. A creditor for Rs. 2,000 was untraceable and other creditors accepted payment allowing 10% discount.

(d) Mohit paid realisation expenses of Rs. 18,000 out of his private funds, who was responsible to bear all the realisation expenses.

(e) Nandan had taken taken a loan of Rs. 50,000 from the firm, which was paid fully by him to the firm.

(f) Rs. 12,000 was recovered from a debtor which was written off as Bad debts last year.

Solution  39

Question 40 (new). Harish and Gopal were partners in a firm sharing profits in the ratio of 3:2. On 31^st March, 2018, their Balance Sheet was as follows:

Balance Sheet of Harish and Gopal
As at March 31, 2018 

On the above date the firm was dissolved. Various assets were realized and liabilities were settled as under:
(i) Gopal agreed to pay his wife’s Loan.
(ii) Leasehold premises realised Rs. 1,50,000 and Debtors Rs. 12,000 less.
(iii) Half of the creditors agreed to accept furniture of the firm as full settlement of their claim and remaining half agreed to accept 10% less.
(iv) 50% stock was taken over by Harish on payment by cheque of Rs. 90,000 and remaining stock was sold for Rs. 94,000.
(v) Realization expenses of Rs. 10,000 were paid by Gopal on behalf of the firm.
Prepare Realization Account. 

Solution  40 (new). 

Question 40.      Angad, Raman and Harshit were partners in a firm. They decided to dissolve their firm. Pass necessary journal entries for the following after various assets (other than cash bank) and the third party liabilities have been transferred to Realisation Account :

(i) There was a stock of Rs. 90,000. Raman took over 50% of the stock at 10% discount and remaining stock was sold at 40% profit on book value.

(ii) Profit and Loss A/c was showing a debit balance of Rs. 15,000 which was distributed among the partners.

(iii) A machinery which was not recorded in the books was sold for Rs. 2,000.

(iv) Angad was paid only Rs. 5,000 (in full settlement) for his loan to the firm which amounted to Rs. 5,500.

(v) Realisation expenses amounting to Rs. 5,000 paid by Harshit.

(vi) There were 100 shares of Rs. 10 each in DCM Ltd. acquired at a cost of Rs. 1,200 which had been written off completely from the books. These shares are valued at Rs. 9 each and divided among the partners in their profit sharing ratio. (vi) Debit Partner's Capital A/cs by Rs. 300 each and Credit Realisation A/c by Rs. 900.]

Solution  40

Question 41.      If total assets are Rs. 12,00,000; total liabilities are Rs. 3,00,000; assets are realised at 70% and expenses on realisation are Rs. 10,000, what will be the profit or loss on realisation?

[Ans. Loss on Realisation Rs. 3,70,000.]

Solution  41

Loss on realisation can be easily calculated by preparing a realisation account:

Question 42.      In a firm's Balance Sheet, Total Debtors were appearing at Rs. 5,00.000 and provision for doubtful debts appeared at Rs. 10,000. On dissolution, bad debte were Rs. 1,00,000 and the remaining debtors were realised at 10% discount. How much amount was realised from debtors?

[Ans. Rs. 3,60,000.]

Solution  42

Question 43.      X and Y are partners. They decided to dissolve their firm. Pass necessary entries assuming that various assets and external liabilities have been transferred Realisation Account:

(1) X's loan was appearing on the liabilities side of Balance Sheet at Rs. 40,000. He accepted an unrecorded asset of Rs. 60,000 in full settlement of his account.

(2) Raman, a Creditor to whom Rs. 25,000 were due to be paid, accepted an unrecorded computer of Rs. 18,000 at a discount of 10% and the balance was paid to him in Cash.

(3) Sudhir, an unrecorded creditor of Rs. 40,000 accepted an unrecorded vehicle of Rs. 20,000 at Rs. 25,000 and the balance was paid to him in Cash.

(4) There was a Contingent liability in respect of bill discounted but not matured Rs. 20,000.

(5) Furniture of Rs. 20,000 and goodwill of Rs. 30,000 were appearing in the Balance Sheet but no other information was provided regarding these two items.

Solution  43

Question 44.      Michael Jackson and John were partners in a firm sharing profits in the ratio of 3: 1: 1. On 31st March, 2017, they decided to dissolve their firm. On that date their Balance Sheet was as follows:      

It was agreed that:

(i) Michael was to take over Furniture at Rs. 2,600 and Debtors amounting to Rs.40,000 at Rs. 34,400 and the Creditors of Rs. 10,000 were to be paid by him at this figure.

(ii) Jackson was to take over all the stock in trade at Rs. 14,000 and some of the other Sundry Assets at Rs. 28,800 (being 10% less than book value).

(iii) John was to take was to take over the remaining Sundry Assets at 90% of the book value and assumed the responsibility for the discharge of the loan.

(iv)The remaining debtors were sold to a debt collecting agency for 50% of the book value. The expenses of dissolution Rs. 600 were paid by John.

Prepare Realisation Account, Bank Account and Partners' Capital Accounts.

Solution  44

Question 45.      Srijan, Raman and Manan were partners in a firm sharing profits and losses in the ratio of 2:2:1. On 31st March, 2017 their Balance Sheet was as follows:

On the above date they decided to dissolve the firm

(i) Srijan was appointed to realise the assets and discharge the liabilities. Srijan was to receive 5% commission on sale of assets (except cash) and was to bear all expenses of realisation.

(ii) Assets were realised as follows:

                                Rs.

Plant                      85,000

Stock                     33,000

Debtors                 47,000

(iii) Investments were realised at 95% of the book value.

(iv) The firm had to pay Rs. 7,500 for an outstanding repair bill not provided for earlier.

(v) A contingent liability in respect of bills receivable, discounted with the bank had also materialised and had to be discharged for Rs. 15,000

(vi) Expenses of realisation amounting to Rs. 3,000 were paid by Srijan.

Prepare Realisation Account, Partners' Capital Accounts and Bank Account.

Solution  45

Question 46.      Hema and Garima were partners in a firm sharing profits in the rain 3:2. On 31st March, 2015, their Balance Sheet was as follows:

On the above date the firm was dissolved. The various assets were realised and liabilities were settled as under:

(i) Garima agreed to pay her husband's loan.

(ii) Leasehold Premises realised Rs. 1,50,000 and Debtors Rs. 2,000 less.

(iii) Half the creditors agreed to accept furniture of the firm in full settlement of their claim and remaining half agreed to accept 5% less.

(iv) 50% Stock was taken over by Hema on cash payment of Rs. 90,000 and remaining stock was sold for Rs. 94,000.

(v) Realisation expenses Rs. 10,000 were paid by Garima on behalf of firm.

Pass necessary Journal entries for the dissolution of the firm.

Solution  46

Question 47.      Following is the Balance Sheet of Vinit and Yogesh as at 31^st March, 2015:

The firm was dissolved on 31st March, 2015. The assets were realised and the liabilities were paid as under:

(a) Vinit promised to pay off Mrs. Vinit's Loan and took away stock at 20% discount.

(b) Yogesh took away 90% of the investment at 10% discount.

(c) Sunil, a debtor Rs. 50,000 had to pay the amount due 3 months after the date dissolution. He was allowed a discount of 5% for making payment immediately. The remaining debtors were collected in full.

(d) Creditors were paid 3,50,000 in full settlement of their claim.

(e) Fixed Assets realised Rs. 2,82,000 and remaining investment realised Rs. 7,500.

(f) There was an old furniture which has been written off completely from the books. Yogesh took away the same for 4,000.

(g) Realisation expenses Rs. 2,000 were paid by Vinit.

Prepare Realisation A/c, Bank A/c and Partners' Capital A/cs.

Solution  47     

Question 48.      P, Q  and R were partners in a firm sharing profits in the ratio of 1: 2: 2. Their Balance sheet as at 31st March, 2018 was as follows:

Partners agreed to dissolve the firm on that date. You are given the following information about dissolution:

(a) Office Equipment was accepted by a creditor for Rs. 7,000 in full settlement. The remaining creditors were paid in full by cheque.

(b) Assets realised as follows:

Land and Building              Rs. 1,29,000

Stock                                  Rs. 40,000

Accounts Receivable         Rs. 15,000

(c) Other liabilities were paid in full.

(d) Dissolution expenses amounted to Rs. 3,000.

You are required to prepare Realisation Account, Bank Account and Accounts of the Partners.

Solution  48

Question 49.      A, B and C are in partnership sharing profits and losses in the proportions of 1/2, 1/3 and 1/6 respectively. On 31st January, 2018 they decide to dissolve the partnership, and the position of the firm on this date is represented by the following Balance Sheet :

During the course of realisation, a liability under a suit for damages is settled at Rs. 20,000 as against Rs. 5,000 only provided for in the books of the firm.

Land and Buildings were sold for Rs. 40,000 and the Stock and Sundry Debtors realised Rs. 30,000 and Rs. 42,000 respectively. The expenses of realisation amounted to Rs. 1,200. You are required to prepare Realisation Account, Cash Account and Partners Capital Accounts in the books of the firm.

Solution  49

Question 50.      The following is the Balance Sheet of X and Y as at 30th June, 2018.

The firm was dissolved on 30th June, 2018 and the following arrangements were decided upon :

(a) X agreed to pay off his brother's loan;

(b) Debtors realised Rs. 12,000;

(c) Y took over all the investments at Rs. 12,000.

(d) Other assets realised as follows:

Plant – Rs. 20,000, Building – Rs. 50,000, Goodwill – Rs. 6,000

(e) Sundry Creditors and bills payable were settled at 5% discount, Y accepted Stock at Rs. 8,000 and X took over Bills Receivable at 20% discount.

(f) Realisation Expenses amounted to Rs. 2,000.

You are required to pass Journal Entries.

Solution  50        

Question 51.   A, B and C were partners in a firm sharing profits in the ratio of 5:3:2. On 1-4-2018 they decided to dissolve the firm. On that date A's Capital was Rs. 2,00,000 B's Capital was Rs. 10,000 (Dr.) and C's Capital was Rs. 25,000 (Dr.). The Creditors amounted to Rs. 80,000 and Cash balance was Rs. 12,000. The assets realised Rs. 2,00,000; Creditors were paid at a discount of 10% and the expenses of dissolution were Rs. 1,240. All partners were solvent. Prepare realisation account, partner's capital accounts and the cash account.

Solution  51

Question 52.   The partnership between X and Y was dissolved on March 31, 2018. On that date their respective credits to the Capitals were Rs. 1,50,000 and Rs. 10,000. Rs. 1,20,000 were due to creditors. Rs. 60,000 were due for Bank Loan and Reserve has been maintained for Rs. 20,000. X and Y shared profits in the ratio of 4: 1. Cash balance of Rs. 18,000 was also kept in the firm. Assets realised Rs. 3,02,000. Prepare Memorandum Balance Sheet, Realisation Account; Partner's Capital Accounts and Cash Account.

Solution  52

Question 53.      Peter, Roberts and Sunny commenced business on 1st April 2016 with Capitals of Rs. 60,000, Rs. 50,000 and Rs. 40,000 respectively. Profit for the first year was Rs. 48,000 while losses in the second year amounted to Rs. 12,000. Drawings per partner were 7,000 per annum.

The firm was dissolved on the first day of the third year, 1st April 2018. Creditors on that day were Rs. 14,000 who were paid Rs. 12,500 in full and final settlement. Cash amounted to Rs. 5,000 on that date. Other assets realised Rs. 1,62,000. Expense amounted to Rs. 3,000.

Prepare the Realisation Account.

Solution  53        

Question 54.      A and B dissolve their partnership. Their position as at 31st March 2018 was as follows:

                                                                Rs.

A's Capital                                           60,000  

B's Capital                                            40,000

Sundry Creditors                                 25,000

Cash at Bank                                          2,000

The balance of A's Loan Account to the firm stood at Rs. 20,000. The realisation expenses amounted to Rs. 800. Stock realised Rs. 40,000 and Debtors Rs. 30,000. B took a machine at the agreed valuation of Rs. 20,000. Other fixed assets realised Rs. 60,000.

Prepare necessary accounts.

Solution  54

Question 55.      The following was the Balance Sheet of Fox and Wolf as at 31st March, 2018, when they decided to dissolve the firm :

The assets realised :

Stock                                     Rs. 10,500

Debtors                                 Rs. 27,750

Machinery                              Rs. 88,500

Furniture was taken over by Fox at Rs. 7,500. Bills payable were paid in full, while creditors were settled at 2% discount. Mrs. Wolf accepted Rs. 38,500 in full settlement of her Loan Account.

There was a claim of damages against the firm for Rs. 4,000 which was settled at Rs. 2,000.

One customer, whose account was written off as bad, now paid Rs. 1,800, which is not insluded in Rs. 27,750 given above. Actual realisation expenses amounted to Rs. 2,100.

Prepare (a) Realisation A/c, (b) Capital Accounts of Partners, (c) Bank Account to close the Books of the firm.

Solution  55

Question 56.      J, S and R were in partnership sharing profits and losses in the ratio of 3:2:1. Their Balance Sheet as at 31st March, 2018 was as follows:

It was agreed to dissolve the firm, and the terms of the dissolution were:

(i) J took over Buildings at book value and agreed to pay off creditors.

(ii) Accrued interest was not collected whereas there was a contingent liability of Rs. 600 which was met. (iii) Other assets realised: Plant : Rs. 25,000, Stock: Rs. 11,200, Debtors: Rs. 4,600.

(iv) Realisation expenses Rs. 600.

Prepare Realisation Account, Capital Accounts and Cash Account.

Solution  56

Question 57.  Sanjay and Sameer were partners in a firm sharing profits in the ratio of 2:3. On 31.3.2021 their Balance Sheet was as follows:

BALANCE SHEET OF S SANJAY AND SAMEER 
as at 31.3.2021

The firm was dissolved on 1.4.2018 and the assets and liabilities were settled as follows:
(i) Sanjay agreed to take over land and building at Rs. 3,50,000 by paying cash.
(ii) Stock was sold for Rs. 90,000;
(iii) Creditors accepted Debtors in full settlement of their claim.
Pass necessary journal entries for dissolution of the firm.

Solution  57.

Working Note:-

Realisation Account
as at 31st March, 2021

Question 58.      Arun, Tarun and Varun shared profits in the ratio of 2:2:1. On 31.12.2018 their Balance Sheet was as follows:

On this date the firm was dissolved. Arun was appointed to realise the assets. Arun was to receive 5% commission on the sale of assets (except cash) and was to bear all expenses of realisation.

Arun realised the assets as follows:

Stock Rs. 36,000, Debtors Rs. 45,000, Investments 80% of the book value, Plant Rs. 65,500. Expenses of realisation amounted to Rs. 5,500. Commission received in advance was returned to the customers after deducting Rs. 4,000. Firm had to pay Rs. 8,000 for outstanding wages. This liability was not provided for in the above Balance Sheet Rs. 20,000 had to be paid for provident fund.

Prepare Realisation Account, Capital Accounts and Cash Account.

Solution  58

Question 59.      Arnab, Ragini and Dhrupad were partners sharing profits in the ratio of 3 : 1 : 1 On 31^st March, 2015, they decided to dissolve their firm. On that date their Balance Sheet was as under:

The assets were realised and the liabilities were paid as under :

(i) Arnab agreed to pay his brother's loan.

(ii) Investments realised 20% less.

(iii) Creditors were paid at 10% less.

(iv) Building was auctioned for Rs. 3,55,000. Commission on auction was Rs. 5,000.

(v) 50% of the stock was taken over by Ragini at market price which was 20% less than the book value and the remaining was sold at market price.

(vi) Dissolution expenses were Rs. 8,000. Rs. 3,000 were to be borne by the firm and the balance by Dhrupad. The expenses were paid by him.

Prepare Realisation Account, Bank Account and Partner's Capital Accounts.

Hint. Realisation of Building will be recorded at the net amount of Rs. 3,50,000.

Solution  59

Question 60.      A, B and C sharing profits and losses in the ratio of 3 : 2 : 1 agreed to dissolve their partnership firm on 31st March, 2018. A was asked to realise the assets and pay off liabilities. He had to bear the realisation expenses for which he was promised a lump sum amount of Rs. 3,000. Their financial position on that date was as follows:

Information’s :-

(i) Stock was valued at Rs. 40,000 and this was taken over by A and B equally. Lease realised Rs. 1,10,000; Equipment’s at Rs. 18,000; and Accounts Receivable at Rs. 20,000 and other assets proved valueless.

(ii) Actual realisation expenses paid by A amounted to Rs. 1,800.

(iii) There was an unrecorded asset of Rs. 10,000 which was taken over by A at Rs. 12,000.

(iv) A bill of Rs. 3,200 due for sales tax was received during the course of realisatie and this was also paid.

(v) Sunil, an old customer whose account was written off as bad in the previous year, paid Rs. 2,500 which is not included in the above stated accounts receivable.

(vi) Market value of the Shares in X Ltd. is Rs. 100 per share. Half the shares were sold in the market subject to a commission of 2% and the balance half were divided by all the partners in their profit sharing ratio.

Prepare necessary accounts.

Solution  60        

Question 61 .  X, Y and Z decided to dissolve partnership. The position as at 31st December, 2021, the date of dissolution was as follows:

They shared profile in the ratio of X: 1/2, Y: 3/10 and Z: 1/5.
X agreed to bear all realisation expenses. For this service X is paid Rs. 2,000. Actual expenses amounted to Rs. 3,200 which was withdrawn by him from the firm.
Other information’s are :
(1) Assets, with the exception of investments and Cash, are sold for Rs. 1,25,100. 75% of the investments are taken over by X at 75% of their book value. He also agrees to discharge the Bank Loan. The investments were taken over by Y at the market value of 120%
(2) There were outstanding expenses amounting to Rs. 5,000. These were settled for Rs. 2,000. The previous accounts.
(3) A B/R for Rs. 10,000 was received from a customer Mr. Surender Kumar and the bill was discounted from the bank. Surender became insolvent and 75 paise per Rs. were received from his estate.
(4) Commission received in advance was returned to the customers after deducting 60% for work done.
You are required to prepare the necessary accounts

Solution ( 61).

Realisation Account
As at 31^st March, 2021

Point of Knowledge:-
(i) When expenses are paid by the firm:
Realisation A/c Dr.
To Cash/Bank A/c
(Being Realisation expenses paid in cash)

(ii) When expenses of realisation are paid by a partner on behalf of the firm:
Realisation A/c Dr.
To Partner’s Capital A/c
(Being Remuneration expenses paid by the partner)

Question 62.      A and B shared profits in the ratio of 7 : 3. They dissolved the partnership and appointed A to realise the assets. A is to receive 6% commission on the amount realised from Stock, Debtors, B/R and Shares. The position of the firm was as follows:

Information’s:

1. A realised the assets as follows:- Full amount from Sundry Debtors and B/R except from one for Rs. 2,000 being insolvent. Stock realised Rs. 52,000; Shares in D.C.M were sold for Rs. 60 each.

2. Half the trade creditors accepted plant and machinery at an agreed valuation of 10% less than the book value and cash of Rs. 7,000 in full settlement of their claims.

3. Remaining creditors were paid off at a discount of 10%. Expenses of realisation amounted to Rs. 700.

4. One quarter's tax amounting to Rs. 1,500 was due and had to be paid.

5. There was a contingent liability amounting to Rs. 13,000. It was settled for Rs. 6,000.

6. Bank Loan was discharged along with interest due for two months @ 18% p.a.

Prepare necessary accounts.

Solution  62     

Question 63 (new).  Pass necessary Journal entries for the following transaction, at the time of dissolution of the firm:
1. Realisation Expenses Rs. 3,000 paid.
2. Realisation Expenses paid by the firm Rs. 2,000; Mr. X one of the partners has to bear these expenses.
3. Y, one of the partners, took over a machine for Rs. 20,000.
4. Z, one of the partners agreed to take over the creditors of Rs. 30,000 for Rs. 20,000.
5. A, one of the partners has given loan to the firm of Rs. 10,000. It was paid back to him at the time of dissolution.
6. Profit and Loss Account balance of Rs. 50,000 appeared on the assets side of the Balance Sheet.

Solution  63 (new). 

Question 63.      E, F and were partners in a firm sharing profits in the ratio of 2:2:1. On March 31, 2017, their firm was dissolved. On the date of dissolution, the Balance Sheet of the firm was as follows:

F was appointed to undertake the process of dissolution for which he was allowed a remuneration of Rs. 5,000. F agreed to bear the dissolution expenses. Assets realized as follows:

(i) The Land & Building was sold for Rs. 1,08,900.

(ii) Furniture was sold at 25% of book value.

(iii) Machinery was sold as scrap for Rs. 9,000.

(iv) All Debtors were realised at full value.

Creditors were payable on an average of 3 months from the date of dissolution. On discharging the Creditors on the date of dissolution, they allowed a discount of 5%.

Pass necessary Journal entries for dissolution in the books of the firm.

Solution  63

Point of Knowledge:-

(i) When expenses are paid by the firm:

Realisation A/c       Dr.

To Cash/Bank A/c

(Being Realisation expenses paid in cash)

(ii) When expenses of realisation are paid by a partner on behalf of the firm:

Realisation A/c       Dr.

To Partner’s Capital A/c

(Being Remuneration expenses paid by the partner)

Question 64 (new).   P and Q share profits and losses in 5:3. What Journal entries would be passed for the following transactions on the dissolution of their firm, after various assets (other than cash) and third party liabilities have been transferred to Realisation Account? 
(i) Profit and Loss Account (Dr. Balance) appeared in the books at Rs. 30,000.
(ii) P was asked to look into the dissolution of the firm for which he was allowed a commission of Rs. 2,500.
(iii) Q took over part of the stock at Rs. 6,400 (being 20% less than the book value).
(iv) An unrecorded liabilities amounting to Rs. 10,000 was settled at Rs. 8,000.
(v) Mother Car of the book value of Rs. 80,000 taken over by Creditors of the book value of Rs. 60,000 in full settlement.

Solution  64 (new).  

Question 64.      A, B and C shared profits in the ratio of 1:2:2. Following is their Balance Sheet on the date of dissolution :

Information:

(i) Land & Buildings were sold at 80% of the book value.

(ii) Stock was given to bills payable in full settlement

(iii) Sundry creditors accepted machinery and paid Rs. 10,000 to the firm.

(iv) Debtors were all good.

(v) An unrecorded asset estimated at Rs. 60,000 was taken over by partner B at Rs. 50,000.

(vi)Firm had to pay Rs.40,000 asw Workmen Compensation.

(vii) A’s Loan was settled by giving him an unrecorded asset of Rs. 75,000 at Rs.  60,000 and the balance in cash.

(viii) Partner A is to be paid remuneration of Rs. 20,000 for dissolution work Realisation expenses of Rs. 15,000 were paid by the firm.

Prepare necessary accounts.

Solution  64      

Question 65 (new).  Ravi and Mukesh were partners in a firm sharing profit and losses equally. On 31st March, 2019 their firm was dissolved. On the date of dissolution their Balance sheet showed stock of Rs. 60,000 and creditors of Rs. 70,000. After transferring stock and creditors to realisation account the following transactions took palace:
(i) Ravi took over 40% of total stock at 20% discount.
(ii) 30% of total stock was taken over by creditors of Rs. 20,000 in full settlement.
(iii) Remaining stock was sold for cash at a profit of 25%.
(iv) Remaining creditors were paid in cash at a discount of 10%.
Pass necessary journal entries for the above transactions in the books of the firm.

Solution  65 (new).

Question 65.      Susan, Geeta and Rashi are partners sharing profits and losses in the ratio of 5: 3:2. Their Balance Sheet as at 31st March, 2017, is as under:

The partners decided to dissolve their partnership on 31st March, 2017.

The following transactions took place at the time of dissolution :

(a) Realization expenses of Rs. 2,000 were paid by Susan on behalf of the firm.

(b) Geta took over the goodwill for her own business at Rs. 40,000.

(c) Building was taken over by Rashi at Rs. 3,00,000.

(d) Only 80% of the debtors paid their dues.

(e) Furniture was sold for Rs. 97,000.

(f) Bank Loan was settled along with interest of Rs. 5,000.

You are required to prepare the Realization Account

Solution  65        

Point of Knowledge:-

(i) When expenses are paid by the firm:

Realisation A/c       Dr.

To Cash/Bank A/c

(Being Realisation expenses paid in cash)

(ii) When expenses of realisation are paid by a partner on behalf of the firm:

Realisation A/c       Dr.

To Partner’s Capital A/c

(Being Remuneration expenses paid by the partner)