Question

Pass Journal entries for the following at the time of dissolution of the firm of X and Y after the assets (other than cash) and outside liabilities have been transferred to the Realisation Account:

1. Sale of Assets – ₹ 50,000.
2. Payment of Liabilities ₹ 10,000.
3. A commission of 5% was allowed to X, a partner, on sale of assets.
4. Realisation expenses were ₹ 15,000. The firm had agreed with X, to reimburse him ₹ 10,000.
5. The firm was required to pay ₹ 5,000 as compensation to an employee for an injury suffered, which was a contingent liability not accepted by the firm.
6. Z, a debtor, whose account of ₹ 6,000 was written off as bad earlier, paid 60% of the amount.
7. Investment (Book Value ₹ 10,000) realised at 150%.
8. Realisation expenses were ₹ 10,000. The firm had agreed with Y, a partner, to reimburse him up to ₹ 7,500.

Hints:

(e) Dr Realisation A/c and Cr. Bank A/c by ₹ 5,000;

(h) Realisation Account will be debited by ₹ 7,500.

Answer 1

Journal Entry
Date	Particulars	L.F.	Debit (₹)	Credit (₹)
(a)	Bank/Cash A/c   ...Dr.		50,000	-
	To Realisation A/c		-	50,000
	(Being the amount realised from the sale of assets)
(b)	Realisation A/c   ...Dr.		10,000	-
	To Bank/Cash A/c		-	10,000
	(Being the external liabilities paid off)
(c)	Realisation A/c   ...Dr.		3,250	-
	To X’s Capital A/c		-	3,250
	(Being 5% commission allowed to X on sale of assets: 5% of ₹65,000 [₹50,000 from (a) + ₹ 15,000 from (g)]) [Note: If commission is only on item (a), the amount will be 5% of ₹ 50,000 = ₹ 2,500]
(d)	Realisation A/c   ...Dr.		10,000	-
	To X’s Capital A/c		-	10,000
	(Being the agreed amount of expenses reimbursed to partner X; the remaining ₹ 5,000 is borne by X)
(e)	Realisation A/c   ...Dr.		5,000	-
	To Bank/Cash A/c		-	5,000
	(Being compensation paid to an employee for injury)
(f)	Bank/Cash A/c   ...Dr.		3,600	-
	To Realisation A/c		-	3,600
	(Being bad debts recovered from debtor Z; 60% of ₹ 6,000)
(g)	Bank/Cash A/c   ....Dr.		15,000	-
	To Realisation A/c		-	15,000
	(Being investment realised at 150% of book value: 150% of ₹ 10,000)
(h)	Realisation A/c   ...Dr.		7,500	-
	To Y’s Capital A/c		-	7,500
	(Being the agreed limit of expenses reimbursed to partner Y; the remaining ₹ 2,500 is borne by Y)