Question

A and B shared profits in the ratio of 7 : 3. They dissolved the firm and appointed A to realise the assets. A is to receive 6% commission on the amount realised from Stock, Debtors, B/R and Shares. 

The position of the firm was as follows:

Liabilities	Amount (₹)	Assets	Amount (₹)
Creditors	60,000	Plant and Machinery	20,000
Repairs and Renewals Reserve	4,000	Prepaid Insurance	1,200
Bank Loan	20,000	Stock	60,000
A’s Capital A/c	50,000	100 Shares in D.C.M. Ltd.	5,000
B’s Capital A/c	20,000	Sundry Debtors	38,000
		B/R	6,000
		Cash at Bank	8,800
		A’s Current A/c	5,000
		Profit & Loss Account	10,000
	1,54,000		1,54,000

Informations:

1. A realised the assets as follows: Full amount from Sundry Debtors and B/R except from one for ₹ 2,000 being insolvent. Stock realised ₹ 52,000; Shares in D.C.M. were sold for ₹ 60 each.
2. Half the trade creditors accepted plant and machinery at an agreed valuation of 10% less than the book value and cash of ₹ 7,000 in full settlement of their claims.
3. Remaining creditors were paid off at a discount of 10%. Expenses of realisation amounted to ₹ 700.
4. One quarter’s tax amounting to ₹ 1,500 was due and had to be paid.
5. There was a contingent liability amounting to ₹ 13,000. It was settled for ₹ 6,000.
6. Bank Loan was discharged along with interest due for two months @ 18% p.a.

Prepare necessary accounts.

Hints:

1. Creditors for ₹ 30,000 accept Plant and Machinery at ₹ 18,000 and Cash ₹ 7,000. The balance of ₹ 5,000 will be treated as discount. Remaining Creditors of ₹ 30,000 are paid ₹ 27,000 in full settlement. Hence, the total Cash paid to Creditors = ₹ 7,000 + ₹ 27,000 = ₹ 34,000
2. Commission paid to A (For sale of assets) 6% on ₹ 1,00,000 = ₹ 6,000.
3. Repairs and Renewals Reserve will be transferred to the Credit side of Capital A/cs.

Answer 1

Dr.	Realisation A/c				Cr.
Particulars	Amount (₹)	Amount (₹)	Particulars	Amount (₹)	Amount (₹)
To Plant and Machinery A/c		20,000	By Creditors A/c		60,000
To Prepaid Insurance A/c		1,200	By Repairs and Renewals Reserve A/c		4,000
To Stock A/c		60,000	By Bank Loan A/c		20,000
To 100 Shares in D.C.M. Ltd. A/c		5,000	By Bank A/c (Assets realised)		1,00,000
To Sundry Debtors A/c		38,000	Sundry Debtors	38,000
To B/R A/c		6,000	B/R	4,000
To Bank A/c (Liabilities paid):		60,600	Stock	52,000
Creditors	34,000		Shares	6,000
Contingent liability	6,000		By Loss on Realisation t/f to Capital A/c:		15,000
Bank Loan	20,600		A	10,500
To Bank A/c (Exp. of Realisation)		700	B	4,500
To Bank A/c (Tax paid)		1,500
To A’s Capital A/c (Commission)		6,000
		1,99,000			1,99,000

 

Dr.	Partner’s Capital A/c				Cr.
Particulars	A	B	Particulars	A	B
To Drawings A/c	5,000	-	By Balance b/d	50,000	20,000
To Advertisment Suspense A/c	7,000	3,000	By Realisation A/c (Commission)	6,000	-
To Realisation A/c (Loss)	10,500	4,500
To Bank A/c (Final Payment)	33,500	12,500
	56,000	20,000		56,000	20,000

 

Dr.	Bank A/c		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Balance b/d	8,800	By Realisation A/c (Liabilities paid)	60,600
To Realisation A/c (Asset realised)	1,00,000	By Realisation A/c (Expenses)	700
		By Realisation A/c (Tax)	1,500
		By A’s Capital A/c	33,500
		By B’s Capital A/c	12,500
	1,08,800		1,08,800