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Gaurav, Saurabh, and Vaibhav Were Partners in a Firm Sharing Profits and Losses in the Ratio of 2: 2: 1. They Decided to Dissolve the Firm on 31st March, 2018. - Accountancy

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Journal Entry

Gaurav, Saurabh, and Vaibhav were partners in firm sharing profits and losses in the ratio of 2: 2: 1. They decided to dissolve the firm on 31st March 2018. After transferring Sundry assets (other than cash in hand and cash at Bank) and third-party liabilities to realisation account, the assets were realized and liabilities were paid off as follows:

(i) A machinery with a book value of ₹ 6,00,000 was taken over by Gaurav at 50% and stock worth ₹ 5,000 was taken over by a creditor of ₹ 9,000 in full settlement of his claim.

(ii) Land and building (book value ₹ 3,00,000) were sold for ₹ 4,00,000 through a broker who charged 2% commission.

(iii) The remaining creditors were paid ₹ 76,000 in full settlement of their claim and the remaining assets were taken over by Vaibhav for ₹ 17,000.

(iv) Bank loan of ₹ 3,00,000 was paid along with interest of ₹ 21,000.

Pass necessary journal entries for the above transactions in the books of the firm.

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Solution

Books of … 
Journal 

Date Particulars   L.F.

Debit

 Amount(₹)

Credit

 Amount(₹)

(i) Gaurav’s Capital A/c Dr.   3,00,000  
  To Realisation A/c     3,00,000
  (Being machinery taken over at 50% rate)      
  Note: There will be no journal entry for mutual exchange between the firm and creditors against stock      
         
(ii) Bank A/c Dr. 4,00,000  
  To Realisation A/c     4,00,000
  (Being Land & Building sold )      
         
  Realisation A/c Dr. 8,000  
  To Bank A/c     8,000
  (Being brokerage commission paid on sale of Land and Building @ 2% of sale consideration)      
         
(iii) Realisation A/c Dr. 76,000  
  To Bank A/c     76,000
  (Being remaining creditors were paid off in full settlement)      
         
  Vaibhav’s Capital A/c Dr. 17,000  
  To Realisation A/c     17,000
  (Being remaining assets were taken over by Vaibhav)      
         
(iv) Realisation A/c Dr. 3,21,000  
  To Bank A/c (3,00,000 + 21,000)     3,21,000
  (Being bank loan paid along with interest thereupon)      
Concept: Dissolution of Partnership Firm
  Is there an error in this question or solution?
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