Dissolution of a Partnership Firm 5.

Payment of an unrecorded liability (which Realisation A/c ...Dr. Paid amount

does not exist in the Balance Sheet) To Cash/Bank A/c

Payment of realisation expenses by Realisation A/c ...Dr. Amount of payment

any partner To Partner’s Capital A/c

Credit balance of Realisation Account Realisation A/c ...Dr. In profit-sharing ratio

(Gain or Profit) To Partners’ Capital A/cs

Debit balance of Realisation Account Partners’ Capital A/cs ...Dr. In profit-sharing ratio
(Loss) To Realisation A/c

Notes:

1. When an asset or liability is taken to the Realisation Account any related fund or reserve is also transferred
to Realisation Account and not to Partners’ Capital Accounts.
2. If the question is silent about the realisation of an asset, its value is assumed to be nil.
3. If the question is silent about the payment of a liability, then it has to be paid out in full.
4. Bank overdraft is taken to the Bank/Cash A/c and not transferred to Realisation Account but bank loan is
transferred to Realisation Account.
5. Loan taken from a partner is passed through Cash or Bank Account.
6. Loan given to a partner is transferred (debited) to his Capital Account.

Solved Questions

Illustration 1.
Following was the Balance Sheet of Fox and Wolf as at 31st March, 2018, when they
decided to dissolve the firm:
Liabilities ` Assets `
Creditors 88,500 Cash at Bank 4,500
Ms. Wolf’s Loan 40,000 Stock 18,000
Bills Payable 23,000 Debtors 42,000
Capital A/cs: Furniture 12,000
Fox 30,000 Machinery 1,06,500
Wolf 24,000 54,000 Profit and Loss A/c 22,500
2,05,500 2,05,500

The assets realised: Stock—` 10,500; Debtors—` 27,750; Machinery—` 88,500. Furniture
was taken by Fox at ` 7,500. Bills Payable were paid in full, while Creditors were settled
at 2% discount. Ms. Wolf accepted ` 38,500 in full settlement of her Loan Account. There
was a claim for damages against the firm for ` 4,000 which was settled at ` 2,000.
One customer, whose account was written off as bad, now paid ` 1,800, which is not
included in ` 27,750 given above. Actual Realisation Expenses amounted to ` 2,100.
Prepare Realisation Account, Partners’ Capital Accounts and Bank Account to close the
books of the firm. (ISC 1995, Modified)
5.4 Double Entry Book Keeping (Section A)—ISC XII

Solution: In the Books of Fox and Wolf

Dr. REALISATION ACCOUNT Cr.
`
Particulars Particulars `
To Sundry Assets (Transfer): By Sundry Liabilities (Transfer):
Stock A/c 18,000 Creditors A/c 88,500
Debtors A/c 42,000 Bills Payable A/c 23,000
Furniture A/c 12,000 Ms. Wolf’s Loan A/c 40,000 1,51,500
Machinery A/c 1,06,500 1,78,500 By Bank A/c (Assets Realised):
To Bank A/c (Liabilities Paid): Stock 10,500
Bills Payable 23,000 Debtors 27,750
Creditors 86,730 Machinery 88,500 1,26,750
Ms. Wolf’s Loan 38,500 By Fox’s Capital A/c (Furniture Taken Over) 7,500
Claim for Damages 2,000 1,50,230 By Bank A/c (Recovery of Bad Debts) 1,800
To Bank A/c (Expenses) 2,100 By Loss on Realisation:
Fox’s Capital A/c 21,640
Wolf’s Capital A/c 21,640 43,280
3,30,830 3,30,830

Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.

Particulars Fox (`) Wolf (`) Particulars Fox (`) Wolf (`)
To Profit and Loss A/c 11,250 11,250 By Balance b/d 30,000 24,000
To Realisation A/c 7,500 ... By Bank A/c 10,390 8,890
(Furniture Taken Over) (Balancing Figure)
To Realisation A/c (Loss) 21,640 21,640
40,390 32,890 40,390 32,890

Dr. BANK ACCOUNT Cr.

Particulars ` Particulars `
To Balance b/d 4,500 By Realisation A/c (Liabilities Paid) 1,50,230
To Realisation A/c: By Realisation A/c (Expenses) 2,100
Assets Realised 1,26,750
Recovery of Bad Debts 1,800 1,28,550
To Fox’s Capital A/c (Cash Brought in) 10,390
To Wolf’s Capital A/c (Cash Brought in) 8,890
1,52,330 1,52,330

Notes: 1. Profit-sharing ratio is not given. Therefore, profits/losses shall be shared equally.
2. Claim for damages was ` 4,000 but it was settled for ` 2,000. Therefore, payment of ` 2,000 shall
be debited to Realisation Account.
Illustration 2.
X, Y and Z are sharing profits as 2 : 3 : 5 and their Balance Sheet as at 31st March, 2018
is as follows:
BALANCE SHEET as at 31st March, 2018
`
Liabilities Assets `
Capital A/cs: Building 10,00,000
X 3,50,000 Equipments 2,00,000
Y 4,50,000 Stock 8,00,000
Z 5,50,000 13,50,000 Sundry Debtors 6,00,000
Sundry Creditors 3,00,000 Cash at Bank 3,00,000
Bank Loan 6,00,000
X ’s Loan 6,50,000
29,00,000 29,00,000
Dissolution of a Partnership Firm 5.5

The firm was dissolved on the above date. Close the books of the firm on the basis of
the following information:
(i) An unrecorded asset was realised at ` 75,000.
(ii) A debt of ` 2,50,000 previously written off as bad was received.
(iii) Sundry Creditors took a computer included in Equipments, in part payments of
` 2,00,000. They were paid the balance at 10% discount. The remaining Equipments
were sold for ` 30,000.
(iv) Building realised ` 9,75,000 and Sundry Debtors realised ` 5,50,000.
(v) Bank Loan was settled by handing over the entire Stock to them along with a payment
of ` 50,000 by cheque.
(vi) Y was to get a remuneration of ` 60,000 for completing the dissolution process and
he had to bear Realisation Expenses which amounted to ` 56,000 paid by the firm.

Solution:
Dr. REALISATION ACCOUNT Cr.
`
Particulars Particulars `

To Building A/c 10,00,000 By Sundry Creditors A/c 3,00,000

To Equipments A/c 2,00,000 By Bank Loan A/c (Note) 6,00,000
To Stock A/c 8,00,000 By Bank A/c (Assets Realised):
To Sundry Debtors A/c 6,00,000 Unrecorded Asset 75,000
To Bank A/c (Bank Loan) 50,000 Bad Debts Recovered 2,50,000
To Bank A/c (Sundry Creditors Paid) 90,000 Building 9,75,000
(` 1,00,000 – ` 10,000) Sundry Debtors 5,50,000
To Y’s Capital A/c (Remuneration) 60,000 Equipments 30,000 18,80,000
By Loss transferred to:
X’s Capital A/c 4,000
Y’s Capital A/c 6,000
Z’s Capital A/c 10,000 20,000
28,00,000 28,00,000

Dr. X’s LOAN ACCOUNT Cr.

`
Particulars Particulars `
To Bank A/c (Repayment of Loan) 6,50,000 By Balance b/d 6,50,000
6,50,000 6,50,000

Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.

Particulars X (`) Y (`) Z (`) Particulars X (`) Y (`) Z (`)

To Realisation A/c (Loss) 4,000 6,000 10,000 By Balance b/d 3,50,000 4,50,000 5,50,000
To Bank A/c (Expenses) ... 56,000 ... By Realisation A/c ... 60,000 ...
To Bank A/c 3,46,000 4,48,000 5,40,000
(Final Payment)
3,50,000 5,10,000 5,50,000 3,50,000 5,10,000 5,50,000
5.6 Double Entry Book Keeping (Section A)—ISC XII

Dr. BANK ACCOUNT Cr.

`
Particulars Particulars `

To Balance b/d 3,00,000 By Realisation A/c (Bank Loan) 50,000

To Realisation A/c (Assets Realised) 18,80,000 By Realisation A/c (Sundry Creditors Paid) 90,000
By Y’s Capital A/c (Expenses) 56,000
By X’s Loan A/c (Repayment) 6,50,000
By X’s Capital A/c (Final Payment) 3,46,000
By Y’s Capital A/c (Final Payment) 4,48,000
By Z’s Capital A/c (Final Payment) 5,40,000
21,80,000 21,80,000

Note: Bank overdraft is not transferred to Realisation Account whereas bank loan is transferred to
Realisation Account.

Illustration 3.
X, Y and Z were the partners in a firm sharing profits in the ratio of
2 : 2 : 1. The firm was dissolved on 31st March, 2018. After transfer of assets and external
liabilities to Realisation Account the following transactions took place:
(i) R, a Creditor, to whom ` 60,000 were due to be paid, accepted Office Furniture at
` 40,000 and the balance was paid to him in cash.
(ii) S, a Creditor, to whom ` 1,60,000 were due to be paid, took over Machinery at
` 2,00,000. Balance was paid by him in cash.
(iii) T, an Unrecorded Creditor of ` 90,000 was paid by X at a discount of 10%.
(iv) An Unrecorded Computer of ` 20,000 was taken over by Y at a discount of 10%.
(v) Workmen Compensation Reserve ` 30,000; Workmen Compensation paid ` 15,000.
(vi) Prepaid Insurance of ` 10,000 and Goodwill of ` 50,000 were also appearing in the
Balance Sheet but no other additional information was given related to these two items.
Pass necessary Journal entries for the above transactions in the books of the firm.
Solution: JOURNAL

Date Particulars   L.F. Dr. (`) Cr. (`)

(i ) Realisation A/c ...Dr. 20,000
  To Bank A/c 20,000
(Being the balance cash paid to the creditor)

(ii) Bank A/c ...Dr. 40,000

  To Realisation A/c 40,000
(Being the net proceeds received from the creditor who took over
machinery at ` 2,00,000)

(iii) Realisation A/c ...Dr. 81,000

 To X’s Capital A/c 81,000
(Being an unrecorded liability taken over by X at a discount of 10%)

(iv) Y’s Capital A/c ...Dr. 18,000

  To Realisation A/c 18,000
(Being an unrecorded computer taken over by Y at a discount of 10%)
Dissolution of a Partnership Firm 5.7

(v) (a) Realisation A/c ...Dr. 15,000

To Bank A/c 15,000
(Being the liability discharged)
(b) Workmen Compensation Reserve A/c ...Dr. 15,000
To X’s Capital A/c 6,000
To Y’s Capital A/c 6,000
To Z’s Capital A/c 3,000
(Being the transfer of excess workmen compensation reserve)
(vi) No Journal entry is required since there is no realisation.

Illustration 4.
X, Y and Z commenced business on 1st April, 2015 with capitals of ` 5,00,000; ` 4,00,000
and ` 3,00,000 respectively. Profits and losses were shared in the ratio of 4 : 3 : 3. Capitals
carried interest at 5% p.a. During 2015–16 and 2016–17 they made profits of ` 2,00,000
and ` 2,50,000 (before allowing interest on capital). Drawings of each partner were
` 50,000 per year. After completion of the venture for which the firm was constituted,
it was dissolved on 31st March, 2017. Creditors on that date were ` 1,20,000. The assets
realised ` 13,00,000 net.
Give necessary accounts to close the books of the firm.
Solution:
In this problem, Balance Sheet on the date of dissolution is not given. Further, partners’
capitals and book value of assets on the date of dissolution are also not given. Hence, first
of all balances of partners’ capitals will be ascertained. After that, Balance Sheet on the
date of dissolution, i.e., 31st March, 2017, shall be prepared to ascertain the value of assets.

Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.

Date Particulars X (`) Y (`) Z (`) Date Particulars X (`) Y (`) Z (`)
2016 2015
March 31 To Bank A/c 50,000 50,000 50,000 April 1 By Bank A/c 5,00,000 4,00,000 3,00,000
(Drawings) 2016
To Balance c/d 5,31,000 4,12,000 3,07,000 March 31 By Interest on
Capital A/c 25,000 20,000 15,000
By Profit and
Loss App. A/c 56,000 42,000 42,000
(Net Profit)
(` 2,00,000 –
` 60,000)
5,81,000 4,62,000 3,57,000 5,81,000 4,62,000 3,57,000
2017 2016
March 31 To Bank A/c 50,000 50,000 50,000 April 1 By Balance b/d 5,31,000 4,12,000 3,07,000
(Drawings) 2017
To Balance c/d 5,82,550 4,38,850 3,28,600 March 31 By Interest on
Capital A/c 26,550 20,600 15,350
By Profit and
Loss App. A/c 75,000 56,250 56,250
(Net Profit)
(` 2,50,000 –
` 62,500)
6,32,550 4,88,850 3,78,600 6,32,550 4,88,850 3,78,600
5.8 Double Entry Book Keeping (Section A)—ISC XII

MEMORANDUM BALANCE SHEET

as at 31st March, 2017
`
Liabilities Assets `

Creditors 1,20,000 Sundry Assets 14,70,000

Capital A/cs: X 5,82,550 (Balancing Figure)
Y 4,38,850
Z 3,28,600 13,50,000
14,70,000 14,70,000

Dr. REALISATION ACCOUNT Cr.

`
Particulars Particulars `

To Sundry Assets A/c 14,70,000 By Creditors A/c 1,20,000

To Bank A/c 1,20,000 By Bank A/c 13,00,000
By Loss transferred to:
X ’s Capital A/c 68,000
Y’s Capital A/c 51,000
Z’s Capital A/c 51,000 1,70,000
15,90,000 15,90,000

Dr. PARTNERS’ CAPITAL ACCOUNTS (AFTER REALISATION) Cr.

Particulars X (`) Y (`) Z (`) Particulars X (`) Y (`) Z (`)

To Realisation A/c 68,000 51,000 51,000 By Balance b/d 5,82,550 4,38,850 3,28,600
(Loss)
To Bank A/c 5,14,550 3,87,850 2,77,600
(Balancing Figure)
5,82,550 4,38,850 3,28,600 5,82,550 4,38,850 3,28,600

Dr. BANK ACCOUNT Cr.

`
Particulars Particulars `

To Realisation A/c 13,00,000 By Realisation A/c 1,20,000

By X ’s Capital A/c (Final Payment) 5,14,550
By Y’s Capital A/c (Final Payment) 3,87,850
By Z’s Capital A/c (Final Payment) 2,77,600
13,00,000 13,00,000

Illustration 5 (Considering GST).

Kumar, Sham and Ram were partners in a firm sharing profits and losses in the ratio of
5 : 3 : 2. Due to a difference of opinion, they decided to dissolve the firm with effect from
1st April, 2018 on which date its Balance Sheet was as under:
Dissolution of a Partnership Firm 5.9

BALANCE SHEET as at 1st April, 2018

Liabilities ` Assets `
Capital A/cs: Plant and Machinery 80,000
Kumar 60,000 Furniture 45,000
Sham 40,000 Car 25,000
Ram 30,000 1,30,000 Stock-in-Trade 30,000
Current A/cs: Sundry Debtors 71,000
Kumar 8,000 Cash at Bank 14,000
Sham 10,000 18,000 Current A/c:
Sundry Creditors 1,20,000 Ram 3,000
2,68,000 2,68,000

The following information is given:

(i) Plant and Machinery of book value ` 40,000 were taken by Kumar at an agreed value
of ` 45,000 and the remaining Machinery realised ` 50,000.
(ii) Furniture realised ` 40,000.
(iii) Car was taken by Sham for ` 30,000.
(iv) Sundry Debtors included a Bad Debt for ` 1,200 and the rest were realised at a cash
discount of 10%.
(v) Stock worth ` 5,000 was taken by Ram for ` 5,200 and the rest realised at 20% above
their book value.
(vi) A Creditor for ` 2,000 was untraceable and other creditors accepted payment allowing
15% discount.
(vii) Realisation Expenses paid to an agency carrying out dissolution amounted to ` 5,000.
(viii) Sale of Plant and Machinery, Furniture, Car, Stock and Realisation Expenses are
subject to levy of CGST and SGST @ 9% each.
You are required to pass the Journal entries, prepare Realisation Account, CGST and SGST
Accounts, Bank Account, and Partners’ Capital Accounts showing final payments to them.
Solution: JOURNAL

Date Particulars   L.F. Dr. (`) Cr. (`)

(i) Realisation A/c ...Dr. 2,51,000

To Plant and Machinery A/c 80,000
To Furniture A/c 45,000
To Car A/c 25,000
To Stock-in-Trade A/c 30,000
To Sundry Debtors A/c 71,000
(Being the assets transferred)
(ii) Sundry Creditors A/c ...Dr. 1,20,000
To Realisation A/c 1,20,000
(Being the liability transferred)
(iii) Kumar’s Capital A/c ...Dr. 53,100
To Realisation A/c 45,000
  To Outut CGST A/c 4,050
  To Output SGST A/c 4,050
(Being the machinery taken by Kumar, CGST and SGST charged @ 9% each)
5.10 Double Entry Book Keeping (Section A)—ISC XII

(iv) Bank A/c ...Dr. 59,000

To Realisation A/c 50,000
To Output CGST A/c 4,500
To Output SGST A/c 4,500
(Being the balance machinery sold, charged CGST and SGST @ 9% each)

(v) Bank A/c ...Dr. 47,200

To Realisation A/c 40,000
To Output CGST A/c 3,600
To Output SGST A/c 3,600
(Being the furniture sold, charged CGST and SGST @ 9% each)

(vi) Sham’s Capital A/c ...Dr. 35,400

To Realisation A/c 30,000
To Output CGST A/c 2,700
To Output SGST A/c 2,700
(Being the car sold to Sham, charged CGST and SGST @ 9% each)

(vii) Bank A/c ...Dr. 62,820

To Realisation A/c 62,820
(Being the Debtors realised)

(viii) Ram’s Capital A/c ...Dr. 6,136

To Realisation A/c 5,200
To Output CGST A/c 468
To Output SGST A/c 468
(Being the stock taken by Ram, charged CGST and SGST @ 9% each)

(ix) Bank A/c ...Dr. 35,400

To Realisation A/c 30,000
To Output CGST A/c 2,700
To Output SGST A/c 2,700
(Being the balance stock sold, charged CGST and SGST @ 9% each)

(x) Realisation A/c ...Dr. 1,00,300

To Bank A/c 1,00,300
(Being the creditors paid)

(xi) Realisation A/c ...Dr. 5,000

Input CGST A/c ...Dr. 450
Input SGST A/c ...Dr. 450
To Bank A/c 5,900
(Being the realisation expenses paid along with CGST and SGST @ 9% each)

(xii) Output CGST A/c ...Dr. 18,018

To Input CGST A/c 450
To Bank A/c 17,568
(Being the Output CGST deposited after setting off Input CGST)

(xiii) Output SGST A/c ...Dr. 18,018

To Input SGST A/c 450
To Bank A/c 17,568
(Being the Output SGST deposited after setting off Input SGST)
Dissolution of a Partnership Firm 5.11

Dr. OUTPUT CGST ACCOUNT Cr.

`
Particulars Particulars `
To Input CGST A/c 450 By Kumar’s Capital A/c 4,050
To Bank A/c (Balancing Figure) 17,568 By Bank A/c 4,500
By Bank A/c 3,600
By Sham’s Capital A/c 2,700
By Ram’s Capital A/c 468
By Bank A/c 2,700
18,018 18,018

Dr. OUTPUT SGST ACCOUNT Cr.

`
Particulars Particulars `
To Input SGST A/c 450 By Kumar’s Capital A/c 4,050
To Bank A/c (Balancing Figure) 17,568 By Bank A/c 4,500
By Bank A/c 3,600
By Sham’s Capital A/c 2,700
By Ram’s Capital A/c 468
By Bank A/c 2,700
18,018 18,018

Dr. INPUT CGST ACCOUNT Cr.

`
Particulars Particulars `
To Bank A/c 450 By Output CGST A/c 450

Dr. INPUT SGST ACCOUNT Cr.

`
Particulars Particulars `
To Bank A/c 450 By Output SGST A/c 450

Dr. REALISATION ACCOUNT Cr.

`
Particulars Particulars `

To Sundry Assets (Transfer): By Sundry Creditors A/c 1,20,000

Plant and Machinery A/c 80,000 By Kumar’s Capital A/c 45,000
Furniture A/c 45,000 (Plant and Machinery Taken Over)
Car A/c 25,000 By Sham’s Capital A/c 30,000
Stock-in-Trade A/c 30,000 (Car Taken Over)
Sundry Debtors A/c 71,000 2,51,000 By Ram’s Capital A/c 5,200
To Bank A/c (Payments): (Stock Taken Over)
Sundry Creditors— 1,00,300 By Bank A/c (Assets Realised):
85% of ` (1,20,000 – 2,000) Machinery 50,000
Realisation Expenses 5,000 1,05,300 Furniture 40,000
To Gain (Profit) on Realisation: Debtors— 62,820
Kumar’s Capital A/c 13,360 90% of ` (71,000 – 1,200)
Sham’s Capital A/c 8,016 Stock— 30,000 1,82,820
Ram’s Capital A/c 5,344 26,720 120% of ` (30,000 – 5,000)
3,83,020 3,83,020
5.12 Double Entry Book Keeping (Section A)—ISC XII

Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.

Particulars Kumar (`) Sham (`) Ram (`) Particulars Kumar (`) Sham (`) Ram (`)
To Partner’s Current A/c ... ... 3,000 By Balance b/d 60,000 40,000 30,000
To Realisation A/c 45,000 ... ... By Partners’ Current A/cs 8,000 10,000 ...
(Plant and Machinery) By Realisation A/c 13,360 8,016 5,344
To Output CGST A/c 4,050 (Gain)
To Output SGST A/c 4,050
To Realisation A/c ... 30,000 ...
(Car Taken Over)
To Output CGST A/c 2,700
To Output SGST A/c 2,700
To Realisation A/c ... ... 5,200
(Stock Taken Over)
To Output CGST A/c 468
To Output SGST A/c 468
To Bank A/c 28,260 22,616 26,208
(Final Payment)
81,360 58,016 35,344 81,360 58,016 35,344

Dr. BANK ACCOUNT Cr.

`
Particulars Particulars `
To Balance b/d 14,000 By Realisation A/c 1,00,300
To Realisation A/c 50,000 By Realisation A/c 5,000
To Output CGST A/c 4,500 By Input CGST A/c 450
To Output SGST A/c 4,500 By Input SGST A/c 450
To Realisation A/c 40,000 By Output CGST A/c (CGST Deposited) 17,568
To Output CGST A/c 3,600 By Output SGST A/c (SGST Deposited) 17,568
To Output SGST A/c 3,600 By Kumar’s Capital A/c (Final Payment) 28,260
To Realisation A/c 62,820 By Sham’s Capital A/c (Final Payment) 22,616
To Realisation A/c 30,000 By Ram’s Capital A/c (Final Payment) 26,208
To Output CGST A/c 2,700
To Output SGST A/c 2,700
2,18,420 2,18,420

Note: Balances of Partners’ Current Accounts are transferred to Capital Accounts.

Illustration 6.
A and B were partners sharing profits and losses in the ratio of 3 : 2. On 31st March,
2018, their Balance Sheet was as follows:

`
Liabilities Assets `
Capital A/cs: Computers 60,000
A 2,00,000 Furniture 50,000
B 1,00,000 3,00,000 Machinery 1,50,000
General Reserve 30,000 Cash at Bank 70,000
Mrs. A’s Loan 50,000 Debtors 1,00,000
Sundry Creditors 70,000 Less: Provision for Doubtful Debts 10,000 90,000
Profit and Loss A/c 20,000
Advertisement Suspense A/c 10,000
4,50,000 4,50,000
Dissolution of a Partnership Firm 5.13

The firm was dissolved and the assets and liabilities were settled as follows:
(i) Debtors realised ` 95,000 and machinery was sold for ` 1,30,000.
(ii) Half of the creditors accepted furniture at 25% less than the book value subject to
levy of GST, which was paid by them and cash of ` 10,000. Remaining creditors
were paid out at a discount of 10%.
(iii) An unrecorded asset (Bill of Exchange) of ` 6,900 was handed over to an unrecorded
liability of ` 6,000 in full settlement.
(iv) A took over computers for ` 57,800.
(v) He also agreed to pay his wife’s loan.
(vi) A liability in respect of workmen compensation of ` 10,000 is paid.
(vii) Realisation Expenses of ` 5,000 were paid by B on behalf of firm to an agency
handling dissolution of the firm.
(viii) Sale of assets and payment of realisation expenses are subject to levy of CGST
and SGST @ 9% each.
Pass the Journal entries, prepare Realisation Account, CGST and SGST (Output and Input)
Accounts, Partners’ Capital Accounts and Bank Account to close the books of the firm.
Solution: JOURNAL

Date Particulars   L.F. Dr. (`) Cr. (`)

Realisation A/c ...Dr. 3,60,000

To Computers A/c 60,000
  To Furniture A/c 50,000
To Machinery A/c 1,50,000
  To Debtors A/c 1,00,000
(Being the assets transferred)

Provision for Doubtful Debts A/c ...Dr. 10,000

Mrs. A’s Loan A/c ...Dr. 50,000
Sundry Creditors A/c ...Dr. 70,000
To Realisation A/c 1,30,000
(Being the outside liabilities transferred)

A’s Capital A/c ...Dr. 18,000

B’s Capital A/c ...Dr. 12,000
To Profit and Loss A/c 20,000
To Advertisement Suspense A/c 10,000
(Being the debit balance of fictitious assets debited to Partners’ Capital Accounts)

General Reserve A/c ...Dr. 30,000

To A’s Capital A/c 18,000
To B’s Capital A/c 12,000
(Being the Genaral Reserve credited to Partners’ Capital Accounts)
5.14 Double Entry Book Keeping (Section A)—ISC XII

Bank A/c ...Dr. 95,000

To Realisation A/c 95,000
(Being the Debtors realised)
Bank A/c ...Dr. 1,53,400
To Realisation A/c 1,30,000
To Output CGST A/c 11,700
To Output SGST A/c 11,700
(Being the machinery sold, CGST and SGST charged)
Realisation A/c ...Dr. 41,500
Bank A/c ...Dr. 6,750
To Output CGST A/c 3,375
To Output SGST A/c 3,375
To Bank A/c 41,500
(Being the furniture given to 50% of creditors at 25% less CGST and SGST
charged plus ` 10,000, Balance creditors paid at 10% Discount) (Note)
No entry for (iii) as both assets and liability are unrecorded
A’s Capital A/c ...Dr. 68,204
To Realisation A/c 57,800
To Output CGST A/c 5,202
To Output SGST A/c 5,202
(Being the computers taken by A, CGST and SGST charged)
Realisation A/c ...Dr. 50,000
To A’s Capital A/c 50,000
(Being the liability to pay Mrs. A’s loan assumed)
Realisation A/c ...Dr. 10,000
To Bank A/c 10,000
(Being the Workmen Compensation claim paid)
Realisation A/c ...Dr. 5,000
Input CGST A/c ...Dr. 450
Input SGST A/c ...Dr. 450
To B’s Capital A/c 5,900
(Being the realisation expenses along with CGST and SGST paid by B)
Output CGST A/c ...Dr. 20,277
To Input CGST A/c 450
To Bank A/c 19,827
(Being the output CGST deposited after setting off input CGST)
Output SGST A/c ...Dr. 20,277
To Input SGST A/c 450
To Bank A/c 19,827
(Being the output SGST deposited after setting off input SGST)
A’s Capital A/c ...Dr. 1,49,576
B’s Capital A/c ...Dr. 84,420
To Bank A/c 2,33,996
(Being the final payment to the partners)
Note: Half of creditors accepted furniture at 25% less means that creditors of ` 35,000 are settled by giving furniture valued
at ` 37,500 (i.e., ` 50,000 less 25%). Giving furniture to creditors means sale of furniture on which CGST and SGST @ 9%
each is charged.
Therefore, ` 3,375 each on account of CGST and SGST is recovered.
Dissolution of a Partnership Firm 5.15

Dr. REALISATION ACCOUNT Cr.

`
Particulars Particulars `
To Sundry Assets (Transfer): By Sundry Liabilities (Transfer):
Computer 60,000 Provision for Doubtful Debts 10,000
Furniture 50,000 Sundry Creditors 70,000
Machinery 1,50,000 Mrs. A’s Loan A/c 50,000 1,30,000
Debtors 1,00,000 3,60,000 By Bank A/c (Realisation):
To Bank A/c (Payments): Debtors 95,000
Sundry Creditors 41,500 Machinery 1,30,000 2,25,000
To A’s Capital A/c (Mrs. A’s Loan) 50,000 By A’s Capital A/c (Computer taken) 57,800
To Bank A/c (Workmen Compensation Claim) 10,000 By Loss transferred to:
To B’s Capital A/c 5,000 A‘s Capital A/c 32,220
B’s Capital A/c 21,480 53,700
4,66,500 4,66,500

Dr. BANK ACCOUNT Cr.

`
Particulars Particulars `
To Balance b/d 70,000 By Realisation A/c (Creditors) 41,500
To Realisation A/c: By Realisation A/c (Workemen Comp. Claim) 10,000
Debtors 95,000 By Output CGST A/c 19,827
Machinery 1,30,000 2,25,000 By Output SGST A/c 19,827
To Output CGST A/c 11,700 By A’s Capital A/c 1,49,576
To Output SGST A/c 11,700 By B’s Capital A/c 84,420
To Output CGST A/c 3,375
To Output SGST A/c 3,375
3,25,150 3,25,150

Dr. OUTPUT CGST ACCOUNT Cr.

`
Particulars Particulars `
To Input CGST A/c 450 By Bank A/c (Machine) 11,700
To Bank A/c 19,827 By Bank A/c (Furniture) 3,375
By A’s Capital A/c (Computer) 5,202
20,277 20,277

Dr. OUTPUT SGST ACCOUNT Cr.

`
Particulars Particulars `
To Input SGST A/c 450 By Bank A/c (Machine) 11,700
To Bank A/c 19,827 By Bank A/c (Furniture) 3,375
By A’s Capital A/c (Computer) 5,202
20,277 20,277

Dr. INPUT CGST ACCOUNT Cr.

`
Particulars Particulars `
To B’s Capital A/c 450 By Output CGST A/c 450
5.16 Double Entry Book Keeping (Section A)—ISC XII

Dr. INPUT SGST ACCOUNT Cr.

`
Particulars Particulars `

To B’s Capital A/c 450 By Output SGST A/c 450

Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.

Particulars
A (`) B (`) Particulars A (`) B (`)

To Profit and Loss A/c 12,000 8,000 By Balance b/d 2,00,000 1,00,000
To Advertisement Suspense A/c 6,000 4,000 By General Reserve A/c 18,000 12,000
To Realisation A/c 57,800 ... By Realisation A/c 50,000 ...
To Output CGST A/c 5,202 ... (Mrs. A’s Loan A/c)
To Output SGST A/c 5,202 ... By Realisation A/c (Expenses) ... 5,000
To Realisation A/c (Loss) 32,220 21,480 By Input CGST A/c ... 450
To Bank A/c 1,49,576 84,420 By Input SGST A/c ... 450
2,68,000 1,17,900 2,68,000 1,17,900

Illustration 7.
A, B and C sharing profits in the ratio of 2 : 2 : 1 agreed upon dissolution of their
partnership on 31st March, 2018 on which date their Balance Sheet was as under:

Liabilities ` Assets   `

Capital A/c—A 80,000 Fixed Assets 1,00,000

Capital A/c—B 60,000 Insurance Claim Receivable 50,000
Reserve 70,000 Debtors 20,000
Creditors 37,000 Less: Provision for Doubtful Debts 1,000 19,000
Outstanding Rent 4,000 Stock 16,000
Investments Fluctuation Reserve 1,000 Investments 16,000
Bank 47,000
Capital A/c—C 4,000
2,52,000 2,52,000

(i) Investments were taken over by A at ` 12,000; Creditors of ` 20,000 were taken over
by B who has agreed to settle account with them at ` 19,800. Remaining Creditors
were paid at ` 15,000.
(ii) Insurance Claim received ` 40,000 and Fixed Assets realised ` 1,40,000.
(iii) Stock and Debtors realised ` 14,000 and ` 18,000 respectively.
(iv) One customer, whose account was written off as bad, now paid ` 1,600 which is not
included in ` 18,000 above.
(v) There was one unrecorded asset estimated at ` 6,000, half of which was handed over
to an unrecorded liability of ` 10,000 in settlement of claim of ` 5,000 and remaining
half was sold in the market which realised ` 2,600.
Dissolution of a Partnership Firm 5.17

B took over the responsibility of completing dissolution and he is granted salary of

` 800 per month. Actual Realisation Expenses amounting to ` 2,200 were paid by the firm
but were to be borne by B. Dissolution was completed and final payments were made
on 30th July, 2018.

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

Solution:
Dr. REALISATION ACCOUNT Cr.
`
Particulars Particulars `
To Sundry Assets (Transfer): By Provision for Doubtful Debts A/c 1,000
Fixed Assets A/c 1,00,000 By Investments Fluctuation Reserve A/c 1,000
Insurance Claim Receivable A/c 50,000 By Creditors A/c 37,000
Debtors A/c 20,000 By Outstanding Rent A/c 4,000
Stock A/c 16,000 By A’s Capital A/c 12,000
Investments A/c 16,000 2,02,000 (Investments Taken Over)
To B’s Capital A/c (Creditors Assumed) 19,800 By Bank A/c (Assets Realised):
To B’s Capital A/c 3,200 Stock 14,000
(Salary ` 800 × 4) Debtors 18,000
To Bank A/c (Liabilities Paid): Bad Debts Recovered 1,600
Creditors 15,000 Unrecorded Asset 2,600
Unrecorded Liabilities 5,000 Fixed Assets 1,40,000
Outstanding Rent 4,000 24,000 Insurance Claim 40,000 2,16,200
To Capital A/cs (Gain):
A 8,880
B 8,880
C 4,440 22,200
2,71,200 2,71,200

Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.

Particulars A B C Particulars A B C
` ` ` ` ` `
To Balance b/d ... ... 4,000 By Balance b/d 80,000 60,000 ...
To Realisation A/c 12,000 ... ... By Reserve Fund A/c 28,000 28,000 14,000
To Bank A/c (Actual ... 2,200 ... By Realisation A/c ... 23,000 ...
Realisastion Exp.) (Creditors + Salary)
To Bank A/c 1,04,880 1,17,680 14,440 (` 19,800 + ` 3,200)
(Final Settlement) By Realisation A/c 8,880 8,880 4,440
(Gain)
1,16,880 1,19,880 18,440 1,16,880 1,19,880 18,440
5.18 Double Entry Book Keeping (Section A)—ISC XII

Dr. BANK ACCOUNT Cr.

`
Particulars Particulars `
To Balance b/d 47,000 By Realisation A/c (Liabilities Paid) 24,000
To Realisation A/c (Assets Realised) 2,16,200 By B’s Capital A/c (Expenses) 2,200
By A’s Capital A/c (Final Payment) 1,04,880
By B’s Capital A/c (Final Payment) 1,17,680
By C’s Capital A/c (Final Payment) 14,440
2,63,200 2,63,200

Illustration 8.
X and Y are partners sharing profits and losses in the ratio of 3 : 2 as at 31st March, 2018,
their Balance Sheet stood as follows:
Liabilities ` Assets `
Creditors 1,60,000 Cash 22,000
Bills Payable 40,000 Cash at Bank 50,000
Loan from X 10,000 Stock 1,60,000
Loan from Mrs. X 30,000 Debtors 1,32,000
Employees’ Provident Fund 8,000 Less: Provision for Doubtful Debts 12,000 1,20,000
Commission Received in Advance 2,000 Plant and Machinery 60,000
Provision for Depreciation (Machinery) 20,000 Land and Building 66,000
General Reserve 50,000 Investments (Face Value ` 4,000) 20,000
Profit and Loss A/c 20,000 Other Investments 10,000
X’s Capital 1,68,000 Goodwill 25,000
Y’s Capital 52,000 2,20,000 Prepaid Insurance 7,000
Deferred Revenue Advertisement
Expenditure 20,000
5,60,000 5,60,000

Note: There is a bill for ` 2,000 under discount. The bill was received from Z.

The firm was dissolved on the given date and the following transactions took place:
(i) Y undertook to pay Mrs. X’s Loan.
(ii) X took over 50% of the Stock at a discount of 20%.
(iii) Remaining Stock was sold at a profit of 30% on cost.
(iv) ` 24,000 of the Book Debts proved bad.
(v) Land and Building sold for ` 3,00,000 through a broker who charged 2% commission.
(vi) Half the Creditors accepted Plant and Machinery at an agreed value of ` 54,000 and
accepted cash in full settlement of their claims after allowing a discount of ` 16,000.
(vii) Remaining Creditors were paid ` 74,000 in final settlement including an Investment
worth ` 4,000 unrecorded in the books.
(viii) Bills Payable falling due on 30th April, 2018 were discharged at a discount of 18% p.a.
(ix) X was to receive ` 11,100 as remuneration for completing the dissolution work and
was to bear Realisation Expenses. Realisation Expenses were ` 9,100 paid by the firm.
Dissolution of a Partnership Firm 5.19

(x) W, an old customer, whose account was written off as bad in the previous year, paid
` 1,000 which is not included in the above stated Debtors.
(xi) Z proved insolvent and a first and final dividend of 25% was received from his estate.
(xii) Investments realised 150% of their face value and Other Investments realised ` 10,000.
(xiii) Workmen Compensation Liability amounted to ` 2,400.
(xiv) Commission received in advance was returned to customers after deducting ` 400.
Prepare Realisation Account, Partners’ Capital Accounts and Bank Account.
Solution:
Dr. REALISATION ACCOUNT Cr.
Particulars ` Particulars `
To Sundry Assets (Transfer): By Provision for Doubtful Debts A/c 12,000
Stock A/c 1,60,000 By Creditors A/c 1,60,000
Debtors A/c 1,32,000 By Bills Payable A/c 40,000
Plant and Machinery A/c 60,000 By Mrs. X’s Loan A/c 30,000
Land and Building A/c 66,000 By Employees’ Provident Fund A/c 8,000
Investments A/c 20,000 By Commission Received in Advance A/c 2,000
Other Investments A/c 10,000 By Machinery Depreciation Reserve A/c 20,000
Goodwill A/c 25,000 By X’s Capital A/c (Stock) 64,000
Prepaid Insurance A/c 7,000 4,80,000 By Bank A/c (Assets Realised):
To Y’s Capital A/c (Mrs. X’s Loan) 30,000 Stock 1,04,000
To Bank A/c (Liabilities Paid): Debtors 1,08,000
Creditors (` 10,000 + ` 70,000) 80,000 Land and Building 2,94,000
Bills Payable 39,400 Investments 6,000
EPF 8,000 Other Investments 10,000 5,22,000
Commission 1,600 By Bank A/c (Bad Debts Recovered) 1,000
Liability for Workmen By Bank A/c (From Z) 500
Compensation 2,400 1,31,400
To X’s Capital A/c (Realisation Expenses) 11,100
To Bank A/c (Discounted B/R) 2,000
To Gain (Profit) on Realisation transferred to:
X’s Capital A/c 1,23,000
Y’s Capital A/c 82,000 2,05,000
8,59,500 8,59,500

Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.

Particulars X Y Particulars X Y
` ` ` `
To Realisation A/c (Stock) 64,000 ... By Balance b/d 1,68,000 52,000
To Bank A/c 9,100 ... By Realisation A/c (Mrs. X ’s Loan) ... 30,000
To Deferred Revenue By Realisation A/c (Expenses) 11,100 ...
Advertisement Expenditure A/c 12,000 8,000 By Realisation A/c (Gain) 1,23,000 82,000
To Bank A/c 2,59,000 1,84,000 By General Reserve A/c 30,000 20,000
By Profit and Loss A/c 12,000 8,000
3,44,100 1,92,000 3,44,100 1,92,000
5.20 Double Entry Book Keeping (Section A)—ISC XII

Dr. BANK ACCOUNT Cr.

Particulars ` Particulars `
To Balance b/d 50,000 By Realisation A/c (Liabilities Paid) 1,31,400
To Cash A/c 22,000 By X’s Capital A/c 9,100
To Realisation A/c (Assets Realised) 5,22,000 By Realisation A/c 2,000
To Realisation A/c (Bad Debts Recovered) 1,000 By Loan from X A/c 10,000
To Realisation A/c 500 By X’s Capital A/c (Final Payment) 2,59,000
By Y’s Capital A/c (Final Payment) 1,84,000
5,95,500 5,95,500

Illustration 9.
Asha, Rekha and Saroj sharing profit in the proportion of 1/6 : 1/3 : 1/2 agreed upon
dissolution of their partnership on 31st March, 2018 on which date their Balance Sheet
was as follows:
Liabilities ` Assets `
Capital A/cs: Sundry Assets 37,500
Asha 30,000 Debtors 7,500
Rekha 22,500 52,500 Less: Provision for Discount on Debtors 375 7,125
Mrs. Asha’s Husband’s Loan 5,000 Stock (At Invoice Price) 7,500
Creditors 13,875 Investments 13,500
Salary Outstanding 1,500 Cash in Hand 7,625
Investments Fluctuation Reserve 10,500 Cash at Bank 17,625
Reserve 7,500 Saroj’s Capital 1,500
Stock Reserve 1,500
92,375 92,375

Additional Information:

(i) Investments were taken by Asha at ` 12,000.
(ii) Creditors of ` 7,500 were taken over by Rekha, who has agreed to settle the account
with them at ` 7,425. Remaining Creditors were paid ` 5,625.
(iii) Sundry Assets realised ` 52,500.
(iv) Stock and Debtors realised ` 5,250 and ` 6,750 respectively.
(v) A customer, whose account was written off as bad, now paid ` 600, which is not
included in ` 7,500 above.
(vi) It was found that an Investment not recorded in the books was worth ` 2,250,
half of which was handed over to an unrecorded liability of ` 3,750 in settlement
of his claim of ` 1,875 and remaining half was sold in the market, which
realised ` 975.
(vii) The Expenses of Realisation amounted to ` 825.
Prepare Realisation Account, Partners’ Capital Accounts and Cash Account to close the
books of firm. [CA(P.E.I.) Nov., 2004, Modified]
Dissolution of a Partnership Firm 5.21

Solution:
Dr. REALISATION ACCOUNT Cr.
Particulars ` Particulars `
To Sundry Assets A/c 37,500 By Provision for Discount on Debtors A/c 375
To Debtors A/c 7,500 By Mrs. Asha’s Husband’s Loan A/c 5,000
To Stock A/c 7,500 By Creditors A/c 13,875
To Investments 13,500 By Salary Outstanding A/c 1,500
To Rekha’s Capital A/c (Creditors) 7,425 By Investments Fluctuation Reserve A/c 10,500
To Bank A/c (Asha’s Husband’s Loan) 5,000 By Stock Reserve A/c 1,500
To Bank A/c (Sundry Liabilities): By Asha’s Capital A/c (Investments) 12,000
Remaining Creditors 5,625 By Bank A/c (Assets Realised):
Unrecorded Liability (Note) 1,875 Sundry Assets 52,500
Salary Outstanding 1,500 9,000 Stock 5,250
To Bank A/c (Realisation Expenses) 825 Debtors 6,750
To Gain (Profit) transferred to: Unrecorded Investments 975 65,475
Asha’s Capital A/c 3,763 By Bank A/c (Bad Debts Recovered) 600
Rekha’s Capital A/c 7,525
Saroj’s Capital A/c 11,287 22,575
1,10,825 1,10,825

Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.

Particulars Asha Rekha Saroj Particulars Asha Rekha Saroj
` ` ` ` ` `
To Balance c/d ... ... 1,500 By Balance b/d 30,000 22,500 ...
To Realisation A/c 12,000 ... ... By Reserve A/c 1,250 2,500 3,750
(Investment taken) By Realisation A/c ... 7,425 ...
To Bank A/c (Bal. Fig.) 23,013 39,950 13,537 (Creditors taken over)
(Final Payment) By Realisation A/c (Gain) 3,763 7,525 11,287
35,013 39,950 15,037 35,013 39,950 15,037

Dr. BANK ACCOUNT Cr.

Particulars ` Particulars `
To Balance b/d 17,625 By Realisation A/c (Mrs. Asha’s Husband Loan) 5,000
To Cash A/c 7,625 By Realisation A/c (Sundry Liabilities) 9,000
To Realisation A/c (Bad Debts Recovered) 600 By Realisation A/c (Realisation Expenses) 825
To Realisation A/c (Assets Realised) 65,475 By Asha’s Capital A/c 23,013
By Rekha’s Capital A/c 39,950
By Saroj’s Capital A/c 13,537

91,325 91,325

Note: Unrecorded investment worth ` 1,125 was given as settlement of unrecorded liability of ` 3,750 for a claim
of ` 1,875. Balance amount of 1,875 has been paid in cash.
5.22 Double Entry Book Keeping (Section A)—ISC XII

Advanced Level Questions

Illustration 10.
Lion and Tiger were in partnership sharing profits and losses in the ratio of 3 : 1. On
31st March, 2018, the Balance Sheet of the firm was as follows:
`
Liabilities Assets `
Capital A/cs: Fixed Assets 2,10,000
Lion 2,40,000 Stock 1,12,000
Tiger 80,000 3,20,000 Sundry Debtors 1,96,000
Current A/cs: Cash at Bank 37,200
Lion 42,000
Tiger 20,000 62,000
Loan (Tiger) 30,000
Creditors 1,43,200
5,55,200 5,55,200

They decided to dissolve the partnership firm on the date of the Balance Sheet.
XYZ Ltd. agreed to take Stock and Fixed Assets excluding motor car having a book value
of ` 41,000, for a consideration of ` 4,80,000 which is to be satisfied by payment of cash
` 1,60,000, allotment of 1,600 Debentures of ` 100 each valued at ` 75 per share and the
balance by allotment of 1,600 Equity Shares of the face value of ` 100 each.
The Debtors realised ` 1,92,000 and the Creditors were settled for ` 1,40,000.
The following was the agreement between the partners:
(i) The Equity Shares should be allotted in the ratio of the Partners’ Capital Accounts as
per Balance Sheet.
(ii) Lion to take over the motor car at an agreed value of ` 42,000.
(iii) Debentures to be allotted to Tiger to the value of his loan and the remaining to be
allotted equally between the partners.
(iv) Balance remaining to be settled in cash.
You are required to show Realisation Account, Partners’ Capital Accounts, XYZ Ltd.’s
Account, Bank Account and Statement showing distribution of shares and debentures.
Solution:
Dr. REALISATION ACCOUNT Cr.
Particulars ` Particulars `
To Fixed Assets A/c 2,10,000 By Creditors A/c 1,43,200
To Stock A/c 1,12,000 By XYZ Ltd. 4,80,000
To Debtors A/c 1,96,000 By Lion’s Capital A/c 42,000
To Bank A/c (Creditors) 1,40,000 (Motor Car Taken Over)
To Gain (Profit) transferred to: By Bank A/c (Debtors) 1,92,000
Lion’s Capital A/c (3/4) 1,49,400
Tiger’s Capital A/c (1/4) 49,800 1,99,200
8,57,200 8,57,200
Dissolution of a Partnership Firm 5.23

Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.

Particulars Lion Tiger Particulars Lion Tiger
` ` ` `

To Realisation A/c 42,000 ... By Balance b/d 2,40,000 80,000

(Motor Car) By Current A/cs 42,000 20,000
To Debentures of (Transfer)

XYZ Ltd. A/c 45,000 45,000 By Realisation A/c 1,49,400 49,800
(` 1,20,000 – ` 30,000 = (Gain)
` 90,000) (divided equally)
(See Statement of Distribution
of Shares and Debentures)
To Equity Shares A/c (3 : 1) 1,50,000 50,000
To Bank A/c (Final Payment) 1,94,400 54,800
4,31,400 1,49,800 4,31,400 1,49,800

Dr. XYZ LTD. Cr.

Particulars ` Particulars `

To Realisation A/c 4,80,000 By Bank A/c 1,60,000

(Stock and Fixed Assets By Debentures of XYZ Ltd. A/c 1,20,000
excluding Motor Car) (1,600 × ` 75)
By Equity Shares of XYZ Ltd. A/c 2,00,000
(1,600 × ` 125*)

4,80,000 4,80,000

` `
* Total purchase consideration 4,80,000
Less: Cash received 1,60,000
Value of Debentures Received 1,20,000 2,80,000
Balance being value of 1,600 Equity Shares 2,00,000
∴ Issue price of a share = ` 2,00,000/1,600 = ` 125.

Dr. BANK ACCOUNT Cr.

Particulars ` Particulars `

To Balance b/d 37,200 By Realisation A/c (Creditors Paid) 1,40,000

To XYZ Ltd. 1,60,000 By Lion’s Capital A/c (Final Payment) 1,94,400
To Realisation A/c (Debtors Realised) 1,92,000 By Tiger’s Capital A/c (Final Payment) 54,800
3,89,200 3,89,200
5.24 Double Entry Book Keeping (Section A)—ISC XII

STATEMENT SHOWING DISTRIBUTION OF SHARES AND DEBENTURES

Particulars Total Lion Tiger
` ` `
(i ) Debentures of XYZ Ltd. 1,600 debentures of ` 100 each,
valued @ ` 75 per debenture 1,20,000
Less: Debentures allotted to Tiger against his Loan 30,000
Balance Distributed between Partners equally against Capital 90,000 45,000 45,000
(ii ) Equity Shares of XYZ Ltd. 1,600 shares of ` 100 each, valued @ ` 125
per share distributed in the ratio of capitals, i.e., 2,40,000 : 80,000 or 3 : 1. 1,50,000 50,000

Illustration 11.
Cat and Rat were in partnership sharing profits and losses in the ratio of 3 : 1. On 31st
March, 2018, the Balance Sheet of the firm was as follows:
`
Liabilities Assets `
Capital A/cs: Fixed Assets 21,000
Cat 24,000 Stock 11,200
Rat 8,000 32,000 Sundry Debtors 19,600
Current A/cs: Cash at Bank 3,720
Cat 4,200
Rat 2,000 6,200
Loan (Rat) 3,000
Creditors 14,320
55,520 55,520

They decided to dissolve the partnership firm as at the date of the Balance Sheet.

Elephant Ltd. agreed to take Stock and Fixed Assets excluding furniture having a book
value of ` 4,100, for a consideration of ` 48,000 which is to be satisfied by payment
of cash ` 16,000, allotment of 160 Preference Shares of ` 100 each valued at ` 75 per
share and the balance by allotment of 1,600 Equity Shares of the face value of ` 10
each.
The Debtors realised ` 19,200 and the Creditors were settled for ` 14,000.
The following was the agreement between the partners:
(i) The Equity Shares should be allotted in the ratio of the Partners’ Capital Accounts
as per Balance Sheet.
(ii) Cat to take over the furniture at an agreed value of ` 4,200.
(iii) The Preference Shares to be allotted to Rat to the value of his loan and the remaining
to be allotted equally between the partners.
(iv) Balance remaining to be settled in cash.
You are required to show: (i) Realisation Account, (ii) Partners’ Capital Accounts,
(iii) Bank Account and Statement showing distribution of shares.
Dissolution of a Partnership Firm 5.25

Solution:
Dr. REALISATION ACCOUNT Cr.
Particulars ` Particulars `

To Fixed Assets A/c 21,000 By Creditors A/c 14,320

To Stock A/c 11,200 By Elephant Ltd. 48,000
To Sundry Debtors A/c 19,600 By Cat’s Capital A/c 4,200
To Bank A/c (Creditors) 14,000 (Furniture Taken Over)
To Gain (Profit) transferred to: By Bank A/c (Debtors) 19,200
Cat’s Capital A/c (3/4) 14,940
Rat’s Capital A/c (1/4) 4,980 19,920
85,720 85,720

Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.

Particulars Cat Rat Particulars Cat Rat
` ` ` `
To Realisation A/c (Furniture) 4,200 ... By Balance b/d 24,000 8,000
To Preference Shares of By Current A/cs 4,200 2,000
Elephant Ltd. A/c 4,500 4,500 ( Transfer)
(` 12,000 – ` 3,000 = ` 9,000) By Realisation A/c 14,940 4,980
(divided equally) (See Statement (Gain)
of Distribution of Equity and
Preference Shares)
To Equity Shares of Elephant Ltd
A/c (3 : 1) 15,000 5,000
To Bank A/c (Final Payment) 19,440 5,480
43,140 14,980 43,140 14,980

Dr. ELEPHANT LTD. Cr.

Particulars ` Particulars `
To Realisation A/c 48,000 By Bank A/c 16,000
(Stock and Fixed Assets By Preference Shares of Elephant Ltd. A/c 12,000
excluding Furniture) (160 × ` 75)
By Equity Shares of Elephant Ltd. A/c 20,000
(1,600 × ` 12.5*)
48,000 48,000

` `
* Total Purchase Consideration 48,000
Less: Cash Received 16,000
Value of Preference Shares Received 12,000 28,000
Balance being value of 1,600 Equity Shares 20,000
∴ Issue price of an Equity Share = ` 20,000/1,600 = ` 12.5.
5.26 Double Entry Book Keeping (Section A)—ISC XII

Dr. BANK ACCOUNT Cr.

Particulars ` Particulars `
To Balance b/d 3,720 By Realisation A/c (Creditors Paid) 14,000
To Elephant Ltd. 16,000 By Cat’s Capital A/c (Final Payment) 19,440
To Realisation A/c (Debtors Realised) 19,200 By Rat’s Capital A/c (Final Payment) 5,480
38,920 38,920

STATEMENT SHOWING DISTRIBUTION OF EQUITY AND PREFERENCE SHARES

Particulars Total Cat Rat
` ` `
(i) Preference Shares of Elephant Ltd. 160 Preference Shares of ` 100 each,
valued @ ` 75 each 12,000
Less: Preference Shares allotted to Rat against his Loan 3,000
Balance Distributed between Partners equally against Capital 9,000 4,500 4,500
(ii) Equity Shares of Elephant Ltd. 1,600 shares of ` 10 each, valued @ ` 12.5
per share distributed in the ratio of capitals, i.e., 24,000 : 8,000 or 3 : 1. 15,000 5,000

Unsolved Questions
1. Following is the Balance Sheet as at 31st March, 2018 of A, B and C carrying on business in partnership
sharing profits and losses in the ratio of 2 : 2 : 1:

`
Liabilities Assets `

Capital A/cs: Fixed Assets 10,50,000

A 6,00,000 Sundry Debtors 4,50,000
B 3,75,000 9,75,000 Stock 1,50,000
Mortgage Loan 6,00,000 Cash at Bank 75,000
Reserve 90,000 C’s Capital A/c 90,000
Sundry Creditors 1,50,000
18,15,000 18,15,000

They decided to dissolve the partnership and the following arrangements were agreed upon:
(i) Fixed assets included:
(a) Machinery ` 82,500 taken by B at an agreed value of ` 1,35,000 after the repairing costs
amounted to ` 30,000 to be borne by the firm.
(b) Land and Building ` 7,50,000 taken by A at an agreed value of ` 9,00,000 subject to the
mortgage loan to be taken over at ` 6,00,000.
(ii) Other assets (excluding Cash at Bank) and Creditors are taken over by Welfare Limited in
consideration of issue of 5,000 debentures of ` 150 each fully paid. These debentures are taken
over at a total agreed value of ` 7,20,000 equally by A and B.
(iii) Creditors for ` 37,500 not provided for in the books had to be paid.
Prepare Realisation Account, Partners’ Capital Accounts, Bank Account assuming that the final settle-
ment was made by the partners bringing in the amounts due from them.
Dissolution of a Partnership Firm 5.27

2. Give necessary Journal entries to record the discharge of following unrecorded liabilities:
(i) There was a contingent liability in respect of bill discounted but not matured of ` 10,000. An
acceptor of one bill of ` 2,000 became insolvent and fifty paise in a rupee was recovered. The
liability of the firm on account of this bill discounted has not so far been recorded.
(ii) There was a contingent liability in respect of a claim for damages for ` 15,000. Such liability was
settled for ` 12,500 and was undertaken by a partner Mr. Ashok to pay.
(iii) The firm was required to pay ` 10,000 as compensation to an employee for an injury suffered
by him, which was a contingent liability not accepted by the firm.
(iv) ` 8,000 for damages claimed by a customer against the firm. It was agreed at 50% by a compromise
between the customer and the firm.
(v) Trade creditors were ` 3,20,000. Half the trade creditors accepted Plant and Machinery at
the value of ` 1,08,000 and cash in full settlement of their claim after allowing a discount of
` 32,000. Remaining creditors were paid 95% in final settlement.
[Hints: (i) Dr. Realisation A/c and Cr. Bank A/c by ` 20,000*.

(ii) Dr. Realisation A/c and Cr. Bank A/c by ` 1,52,000.
*` 1,60,000 – ` 1,08,000 – ` 32,000 = ` 20,000.]
3. There was one unrecorded asset estimated at ` 20,000, half of which was handed over to an unre-
corded liability of ` 20,000 in settlement of a claim of ` 13,000 and remaining half was sold in the
market at a discount of ` 500. Give necessary Journal entries.

4. Following is the Balance Sheet of Rahul and Rohit as at 31st March, 2018:
Liabilities ` Assets `
Sundry Creditors 20,000 Goodwill 10,000
Bills Payable 20,000 Building 25,000
Bank Overdraft 10,000 Plant and Machinery 25,000
Mrs. Rahul’s Loan 20,000 Investments 15,300
Rohit’s Loan 10,000 Stock 8,700
Investments Fluctuation Fund 2,800 Debtors 17,000
Employees’ Provident Fund 1,200 Less: Provision for Doubtful Debts 2,000 15,000
General Reserve 2,000 Bills Receivable 10,000
Rahul’s Capital 20,000 Cash at Bank 13,000
Rohit’s Capital 20,000 40,000 Profit and Loss A/c 4,000
1,26,000 1,26,000

The firm was dissolved on 31st March, 2018 and the following was agreed upon:
(i) Rahul agreed to pay off his wife’s Loan.
(ii) Debtors realised ` 12,000.
(iii) Rohit took all Investments at ` 12,000.
(iv) Other assets realised as follows: `
Plant and Machinery 20,000
Building 50,000
Goodwill 6,000
(v) Sundry Creditors and Bills Payable were settled at 5% discount.
(vi) Rahul accepted Stock at ` 8,000 and Rohit took over Bills Receivable at 20% discount.
(vii) Realisation Expenses amounted to ` 2,000.
Prepare Realisation Account, Partners’ Capital Accounts and Bank Account.
5.28 Double Entry Book Keeping (Section A)—ISC XII

5. Following is the Balance Sheet of A and B for the year ended 31st March, 2018:

Liabilities ` Assets `

Capital A/cs: Goodwill 30,000

A 34,000 Building 24,000
B 28,000 62,000 Furniture 4,000
A’s Loan 20,000 Stock 14,000
Reserve 12,000 Sundry Debtors 30,000
Sundry Creditors 4,000 Less: Provision for Doubtful Debts 4,000 26,000
Bills Payable 10,000 Bills Receivable 6,000
Cash 4,000
1,08,000 1,08,000

A and B shared the profits and losses equally. They decided to dissolve the partnership on the

above date.
The assets of the firm realised as follows:
Building ` 32,000; Furniture ` 4,000; Sundry Debtors ` 24,000; Goodwill Nil; Stock ` 10,000; Bills
Receivable ` 5,000. Realisation Expenses amounted to ` 3,400.
The Creditors agreed to accept ` 400 less. Compensation to Employees paid by the firm amounted
to ` 3,000. This liability was not provided for in the above Balance Sheet.
There was a printer in the firm, which was bought out of the firm’s money, was not shown in the
above Balance Sheet. This printer is now sold for ` 4,000.
Prepare Realisation Account, Partners’ Capital Accounts and Cash Account.
6. A and B were partners sharing profits and losses as to 7/11th to A and 4/11th to B. They dissolved the
partnership on 30th May, 2018. On that date their Capitals were: A ` 7,000 and B ` 4,000. There were
also dues on Loan Account to A ` 4,500 and to B ` 750. The other liabilities amounted to ` 5,000. The
assets proved to have been undervalued in the last Balance Sheet and actually realised ` 24,000.
Prepare necessary accounts showing the final settlement between partners.
7. On 1st April, 2018 A, B and C commenced business in partnership sharing profits and losses in
proportion of 1/2, 1/3 and 1/6 respectively. They deposited in their Bank Account as their Capital
` 22,000: ` 10,000 by A; ` 7,000 by B; and ` 5,000 by C. During the year, they drew ` 5,000: being
` 1,900 by A; ` 1,700 by B; and ` 1,400 by C.
On 31st March, 2019 they dissolved their partnership, A taking up Stock at an agreed value of ` 5,000;
B taking up Furniture at ` 2,000; and C taking up Debtors at ` 3,000. After paying up their Creditors,
there remained a balance of ` 1,000 at Bank.
Prepare necessary accounts showing the distribution of the cash at the Bank and of the further cash
brought in by any partner or partners as the case required.
8. X and Y were partners sharing profits and losses in the ratio of 3 : 2. They decided to dissolve the firm
on 31st July, 2018. On that date, their Capitals were: X ` 40,000 and Y ` 30,000. Creditors amounted
to ` 24,000.
Assets were realised for ` 88,500. Creditors of ` 16,000 were taken over by X at ` 14,000. Remaining
Creditors were paid at ` 7,500. The cost of Realisation came to ` 500.
Prepare necessary accounts.
Dissolution of a Partnership Firm 5.29

GUIDE TO ANSWERS

1. Gain (Profit) on Realisation—` 1,87,500; Final Payment to A—` 51,000; Amount brought in by
B—` 9,000 and C—` 34,500. Total of Bank A/c—` 1,18,500.

3. (i) Dr. Bank A/c and Cr. Realisation A/c—` 9,500*.

(ii) Dr. Realisation A/c and Cr. Bank A/c—` 7,000**.
*` 20,000 (Unrecorded Assets) – of ` 20,000 (Settlement of Liability)—` 500 = ` 9,500.
**` 20,000 – ` 13,000 = ` 7,000.

4. Gain (Profit) on Realisation—` 9,800; Final Payment: Rahul—` 35,900; Rohit—` 13,900. Total of Bank
Account—` 1,01,000.
5. Loss on Realisation—` 31,000; Final Payment: A—` 24,500; B—` 18,500. Total of Cash Account—
` 83,000.
6. Sundry Assets on the date of dissolution were: ` 21,250; Gain (Profit) on Realisation: ` 2,750;
Final Payment: A—` 8,750; B—` 5,000. Total of Bank Account—` 24,000.
7. Loss on Realisation—` 6,000; Final Payment: A—` 100; B—` 1,300; Cash brought in by C—` 400. Total
of Bank Account—` 1,400.
8. Total Sundry Assets—` 94,000; Loss on Realisation—` 3,500; X receives—` 51,900; and Y receives—
` 28,600. Total of Bank Account—` 88,500.