Question

A, B and C sharing profits and losses in the ratio of 3 : 2 : 1 agreed to dissolve their partnership firm on 31st March, 2024. 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 ₹ 3,000. Their financial position as at that date was as follows:

Liabilities	Amount (₹)	Amount (₹)	Assets	Amount (₹)
Accounts Payable		40,000	Goodwill	20,000
Mortgage Loan		30,000	Lease	75,000
Advance from B		25,000	Patents	6,000
Employees’ Saving Bank		16,000	Stock	50,000
Capitals:		1,46,000	Accounts Receivable	25,000
A	80,000		Equipment	20,000
B	66,000		300 Shares in X Ltd.	36,000
			Cash	13,000
			C’s Capital	12,000
		2,57,000		2,57,000

Informations:

1. Stock was valued at ₹ 40,000 and this was taken over by A and B equally. Lease realised ₹ 1,10,000; Equipments at ₹ 18,000; and Accounts Receivable at ₹ 20,000 and other assets proved valueless.
2. Actual realisation expenses paid by A amounted to ₹ 1,800.
3. There was an unrecorded asset of 10,000 which was taken over by A at ₹ 12,000.
4. A bill of ₹ 3,200 due for sales tax was received during the course of realisation and this was also paid.
5. Sunil, an old customer whose account was written off as bad in the previous year, paid ₹ 2,500 which is not included in the above stated accounts receivable.
6. Market value of the Shares in X Ltd. is ₹ 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.

Hints:

(1) 

Cash realised from sale of shares:	₹
150 Shares @ ₹ 100 each	15,000
Less: 2% of 15,000	300
	14,700

(2) No entry need to be passed for realisation expenses off ₹ 1,800 paid by A.

Only the following entry may be passed for ₹ 3,000 promised to be paid to A:

Realisation A/c    ...Dr.	3,000	-
To A	-	3,000

(3) Accounts Payable, Mortgage Loan, Advance from B and Employees’ Saving Bank will be paid in full.

Answer 1

Dr.	Realisation A/c				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Goodwill A/c		20,000	By Accounts Payable A/c		40,000
To Lease A/c		75,000	By Mortgage Loan A/c		30,000
To Patents A/c		6,000	By Employees’ Saving Bank A/c		16,000
To Stock A/c		50,000	By A’s Capital A/c (Stock)		20,000
To Accounts Receivable A/c		25,000	By B’s Capital A/c (Stock)		20,000
To Equipment A/c		20,000	By Cash A/c: (Assets realised)		1,48,000
To 300 Shares in X Ltd. A/c		36,000	Lease	1,10,000
To A’s Capital A/c (Amount payable to A)		3,000	Equipment	18,000
To Cash A/c: (Liabilities paid)		89,200	Accounts Receivable	20,000
Sales tax paid	3,200		By A’s Capital A/c (unrecorded asset taken over)		12,000
Accounts Payable	40,000		By Cash A/c (Amount recovered)		2,500
Mortgage Loan	30,000		By Cash A/c (Sales of shares)		14,700
Employees’ Saving Bank	16,000		By A’s Capital A/c (Shares)		7,500
			By B’s Capital A/c (Shares)		5,000
			By C’s Capital A/c (Shares)		2,500
			By Loss on Realisation t/f to Capital A/c:		6,000
			A	3,000
			B	2,000
			C	1,000
		3,24,200			3,24,200

 

Dr.	Partner’s Capital A/c						Cr.
Particulars	A	B	C	Particulars	A	B	C
To Balance b/d	-	-	12,000	By Balance b/d	80,000	66,000	-
To Realisation A/c (Assets taken over)	20,000	20,000	-	By Realisation A/c	3,000	-	-
To Realisation A/c (unrecorded taken over)	12,000	-	-	By Cash A/c (Amount brought in)	-	-	15,500
To Realisation A/c (Shares taken over)	7,500	5,000	2,500
To Realisation A/c (Loss)	3,000	2,000	1,000
To Cash A/c (Final Payment)	40,500	39,000	-
	83,000	66,000	15,500		83,000	66,000	15,500

 

Dr.	Cash A/c		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Balance b/d	13,000	By Realisation A/c (Liabilities paid)	89,200
To Realisation A/c (Asset realised)	1,48,000	By Advance from B A/c	25,000
To Realisation A/c (Amount recovered from customer)	2,500	By A’s Capital A/c	40,500
To Realisation A/c (Sale of shares)	14,700	By B’s Capital A/c	39,000
To C’s Capital A/c	15,500
	1,93,700		1,93,700

Working note:

Cash realised from sale of shares:	₹
150 Shares @ ₹ 100 each	15,000
Less: 2% of 15,000	300
	14,700