Question

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

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

	₹
Sundry Creditors	27,000
Profit and Loss A/c (Dr.)	8,000
Cash in Hand	6,000
Bank Loan	20,000
Bills Payable	5,000
Sundry Assets	1,98,000
Capital A/cs:
Mehta	1,12,000
Menon	48,000

Additional Information:

1. Bills Payable falling due on 31st May, 2016 were retired on the date of dissolution of the firm, at a rebate of 6% per annum.
2. The bankers accepted the furniture (included in sundry assets) having a book value of ₹ 18,000 in full settlement of the loan given by them.
3. Remaining assets were sold for ₹ 1,50,000.
4. Liability on account of outstanding salary not recorded in the books, amounting to ₹ 15,000 was met.
5. Menon agreed to take over the responsibility of completing the dissolution work and to bear all expenses of realization at an agreed remuneration of ₹ 2,000. The actual realization expenses were ₹ 1,500 which were paid by the firm on behalf of Menon.

You are required to prepare:

1. Realisation Account, and
2. Partner’s Capital Accounts.

Hints:

1. There will be no entry for payment of Bank Loan.
2. Entry for remuneration and realisation expenses:
   

   Realisation A/c    ...Dr.	2,000	-
   To Menon’s Capital A/c	-	500
   To Cash A/c	-	1,500

Answer 1

Dr.	Realisation A/c			Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Sundry Assets A/c	1,98,000	By Sundry Creditors A/c		27,000
To Bank A/c (Bills payable)	4,950	By Bank Loan A/c		20,000
To Investments A/c	27,000	By Bills Payable A/c		5,000
To Accrued Income A/c	15,000	By Cash A/c (Assets realised)		1,50,000
To Menon’s Capital A/c	500	By Loss on Realisation t/f to Capital A/c:
To Cash	1,500	Mehta	31,465
		Menon	13,485	44,950
	2,46,950			2,46,950

 

Dr.	Partner’s Capital A/c				Cr.
Particulars	Mehta	Menon	Particulars	Mehta	Menon
To Profit & loss A/c	5,600	2,400	By Balance b/d	1,12,000	48,000
To Realisation A/c - Loss	31,465	13,485	By Realisation A/c	-	500
To Cash A/c (Final Payment)	74,935	32,615
	1,12,000	48,500		1,12,000	48,500

Working notes:

(1) Rebate on B/P = `5,000xx6/100xx2/12` = ₹ 50

(2) Entry for remuneration and Realisation expenses:

Realisation A/c      ...Dr.	2,000	-
To Menon’s Capital A/c	-	500
To Cash A/c	-	1,500