Question

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:

BALANCE SHEET OF MICHAEL, JACKSON AND JOHN as at 31.3.2017
Liabilities	Amount	Amount	Assets	Amount	Amount
Creditors		11,500	Bank		6,000
Loan		3,500	Debtors	48,400
Capitals:			Less: Provision for Doubtful Debts	2,400	46,000
Michael	50,000		Stock in Trade		16,000
Jackson	25,000		Furniture		2,000
John	14,000	89,000	Sundry Assets		34,000
		1,04,000			1,04,000

It was agreed that:

1. Michael was to take over Furniture at ₹ 2,600 and Debtors amounting to ₹ 40,000 at ₹ 34,400 and the Creditors of ₹ 10,000 were to be paid by him at this figure.
2. Jackson was to take over all the stock in trade at ₹ 14,000 and some of the other Sundry Assets at ₹ 28,800 (being 10% less than book value).
3. John was to take over the remaining Sundry Assets at 90% of the book value and assumed the responsibility for the discharge of the loan.
4. The remaining debtors were sold to a debt collecting agency for 50% of the book value. The expenses of dissolution ₹ 600 were paid by John.

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

Answer 1

Realisation Account
Particulars	₹	Particulars	₹
To Debtors A/c	48,400	By Provision for Doubtful Debts A/c	2,400
To Stock-in-Trade A/c	16,000	By Creditors A/c	11,500
To Furniture A/c	2,000	By Loan A/c	3,500
To Sundry Assets A/c	34,000	By Michael’s Capital A/c – Furniture	2,600
To Michael’s Capital A/c – Creditors taken over	10,000	By Michael’s Capital A/c – Debtors	34,400
To John’s Capital A/c – Loan taken over	3,500	By Jackson’s Capital A/c – Stock	14,000
To Bank A/c – Remaining Creditors	1,500	By Jackson’s Capital A/c – Sundry Assets	28,800
To John’s Capital A/c – Dissolution Expenses	600	By John’s Capital A/c – Sundry Assets	1,800
		By Bank A/c – Remaining Debtors	4,200
		By Michael’s Capital A/c – Loss	7,680
		By Jackson’s Capital A/c – Loss	2,560
		By John’s Capital A/c – Loss	2,560
Total	1,16,000	Total	1,16,000

Working note:

Loss on Realisation = ₹ 12,800

Loss shared in the ratio 3 : 1 : 1:

Michael = ₹ 7,680

Jackson = ₹ 2,560

John = ₹ 2,560

Partners’ Capital Accounts
Particulars	Michael (₹)	Jackson (₹)	John (₹)	Particulars	Michael (₹)	Jackson (₹)	John (₹)
To Realisation A/c – Assets taken over	37,000	42,800	1,800	By Balance b/d	50,000	25,000	14,000
To Realisation A/c – Loss	7,680	2,560	2,560	By Realisation A/c – Liabilities taken over	10,000	—	3,500
To Bank A/c	15,320	—	13,740	By Realisation A/c – Expenses paid	—	—	600
				By Bank A/c – Cash brought in	—	20,360	—
Total	60,000	45,360	18,100	Total	60,000	45,360	18,100

 

Bank Account
Particulars	₹	Particulars	₹
To Balance b/d	6,000	By Realisation A/c – Creditors	1,500
To Realisation A/c – Debtors realised	4,200	By Michael’s Capital A/c	15,320
To Jackson’s Capital A/c	20,360	By John’s Capital A/c	13,740
Total	30,560	Total	30,560