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Question
Give the word/term/phrase which can substitute the following statement.
The account which shows realisation of assets and discharge of liabilities.
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Solution
The account which shows realisation of assets and discharge of liabilities. - Realisation Account
Explanation: The account that shows realisation of assets and discharge of liabilities is Realisation Account. It is opened to ascertain the profit or the loss on sale of assets and settlement of liabilities.
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RELATED QUESTIONS
If an asset is taken over by partner from firm his capital account will be ___________.
Distinguish between 'Dissolution of partnership' and 'Dissolution of partnership firm' on the basis of court's intervention.
Distinguish between 'Dissolution of Partnership' and 'Dissolution of Partnership Firm on the basis of 'Economic Relationship'.
Lal and Pal were partners in a firm sharing profits in the ratio of 3: 7. On 1.4.2015 their firm was dissolved. After transferring assets (other than cash) and outsider's liabilities to realisation account, you are given the following information:
(a) A creditor of Rs.3,60,000 accepted machinery valued at Rs.5,00,000 and paid to the firm Rs.1,40,000.
(b) A Second creditor for Rs.50,000 accepted stock at Rs.45,000 in full settlement of his claim.
(c) A third creditor amounting to Rs.90,000 accepted Rs.45,000 in cash and investments worth Rs.43,000 in full settlement of his claim.
(d) Loss on dissolution was Rs.15,000.
Pass necessary journal entries for the above transactions in the books of firm assuming that all payments were made by cheque.
Prem and Suresh were partners in a firm sharing profits in the ratio of 7: 8. On 1.4.2015 their firm was dissolved. After transferring assets (other than cash) and outsider's liabilities to realisation account, you given the following information :
(a) Raman, a creditor of Rs 4, 00,000 accepted land valued at Rs 7,00,000 and paid Rs 3,00,000 to the firm.
(b) Gopal, a second creditor for Rs 1,05,000 accepted Rs 90,000 in cash and investments of Rs 14,000 in full settlement of his account.
(c) Hari, a third creditor amounting to Rs 75,000 accepted stock of the book value of Rs 60,000 for Rs 45,000 and the balance was paid to him by cheque.
(d) Loss on dissolution was Rs 45,000.
Pass necessary journal entries for the above transactions in the books of the firm.
R and L were partners in a firm sharing profits in the ratio of 13:7. On 4-3-2016 their firm was dissolved. After transferring assets (other than cash) and outsiders liabilities to the realization account, you are given the following information :
(a) Subh, a creditor for Rs 4,90,000 accepted building at Rs 6,50,000 and paid the balance to the firm by a cheque.
(b) Sudha, a second creditor for Rs 1, 80,000 accepted machinery of the book value of Rs 1,80,000 at Rs 1,76,000 in full settlement of his claim.
(c) Sudhir, a third creditor for Rs 2,00,000 accepted investments of Rs 1,20,000 and a bank draft of Rs 79,000 in full settlement of his claim.
(d) Loss on dissolution was Rs 30,000. Pass necessary journal entries for the above transactions in the books of the firm
Devendra and Ganesh were partners sharing profits and losses in the ratio of 3: 2. They dissolved the partnership firm on 31st March 2013 when their position was as follows:
The assets realised as follows:
| Balance Sheet as on 31.03.2013 | |||
| Liabilities | Amount Rs | Assets | Amount Rs. |
| Sundry Creditor | 12,500 | Debtors 56,250 | |
| Bank Overdraft | 10,000 | Less: R.D.D. 6,250 | 50000 |
| Reserve Fund | 15,000 | Stock | 112500 |
| Capital Accounts: | Furniture | 25000 | |
| Devendra 1,15,000 | Motor Car | 37500 | |
| Ganesh 75,000 | Cash in hand | 2500 | |
| 227500 | 227500 | ||
(1) Debtors Rs. 45,000, stock Rs. 1,00,000 and goodwill Rs. 12,500
(2) The motor car was taken over by Devendra for Rs. 35,000 and furniture by Ganesh for Rs. 30,000.
(3) The creditors were paid Rs. 11,250 in full settlement.
(4) The realisation expenses were Rs. 5,000.
Pass necessary journal entries in the books of the firm.
Moli, Bhola and Raj were partners in a firm sharing profits and losses in the ratio of 3 : 3 : 4. Their partnership deed provided for the following :
(i) Interest on capital @ 5% p.a.
(ii) Interest on drawing @ 12% p.a.
(iii) Interest on partners' loan @ 6% p.a.
(iv) Moli was allowed an annual salary of Rs 4,000; Bhola was allowed a commission of 10% of net profit as shown by Profit and Loss Account and Raj was guaranteed a profit of Rs 1,50,000 after making all the adjustments as provided in the partnership agreement.
Their fixed capitals were Moli : Rs 5,00,000; Bhola : Rs 8,00,000 and Raj : Rs 4,00,000. On 1st April, 2016 Bhola extended a loan of Rs 1,00,000 to the firm. The net profit of the firm for the year ended 31st March, 2017 before interest on Bhola's loan was Rs 3,06,000.
Prepare Profit and Loss Appropriation Account of Moli, Bhola and Raj for the year ended 31st March, 2017 and their Current Accounts assuming that Bhola withdrew Rs 5,000 at the end of each month, Moli withdrew Rs 10,000 at the end of each quarter and Raj withdrew Rs 40,000 at the end of each half year.
If any unrecorded liability is paid on dissolution of the firm ___________ is debited.
Answer in one sentence only.
What is a capital deficiency?
Akbar and Birbal were partners in a firm sharing profits and losses in the ratio of 3 : 2 respectively. Their balance sheet as on 31st march , 2013 was as follows :
Balance Sheet as on 31st March, 2013
| Liabilities | Amount | Assets | Amount | |
| Capital A/c’s: | Plant and Machinery | 40,000 | ||
| Akbar | 60,000 | Furniture | 12,000 | |
| Birbal | 40,000 | Sundry debtors | 61,000 | 60,000 |
| General reserve | 20,000 | Less: R.D.D. | 1,000 | |
| Sundry creditors | 39,700 | Stock | 28,300 | |
| Bank | 19,400 | |||
| 1,59,700 | 1,59,700 | |||
On the above date, the firm was dissolved and the assets realised were as follows :
Plant and machinery ₹ 30,000.
Sundry debtors ₹ 58,000.
Furniture was taken over by Akbar for ₹ 10,000 and stock by Birbal for 27,000.
Sundry creditors were paid ₹ 38,000 in full settlement of their claim.
Realisation expenses amounted to ₹ 2,000.
Prepare :
(1) Realisation Account
(2) Partners’ Capital Accounts
(3) Bank Account
Answer in one sentence only.
What is dissolution of partnership firm?
State whether the following statement is True or False.
At the time of dissolution loan from partner will be transferred to Realisation Account.
State whether the following statement is True or False with reason.
Realisation Loss is not transferred to the insolvent partner’s capital account.
If the number of partners in a firm falls below two, the firm stands_________.
Select the most appropriate alternative from those given below :
Realisation Account is __________on realisation of assets.
Sushil and Sumit were in partnership sharing profits and losses in the proportion of 3/5 and 2/5 respectively. On 31st March, 2005 they decide to dissolve the firm when their Balance Sheet was as under:
Balance Sheet as on 31st March, 2005
| Liabilities | Amount (Rs) | Assets | Amount (Rs) |
|
Sushil’s Capital |
20,000 | Plant and Machinery | 15,000 |
| Sumit's Capital | 18,000 | Stock | 15,000 |
| General Reserve | 5,000 |
Sundry Debtors |
22,000 |
| Sumit’s Loan A/c | 2,000 | Bank |
3,000 |
| Sundry Creditors | 10,000 | ||
| 55,000 | 55,000 |
The Assets realised as follows: Stock Rs 14,000, Plant and Machinery Rs 12,000 and Debtors Rs 20,000. The Sundry Creditors were paid Rs 9,000 in full settlement.
Prepare: Realisation Account, Partners Capital Accounts and Bank Account.
Ganesh and Chandan were partners sharing profits and losses in the proportion of 3:2. They dissolve the partnership firm on 31st March, 2011 when their position was as follows:
Balance Sheet as on 31st March, 2011
| Liabilities | Amount (Rs) |
Assets | Amount (Rs) | |
| Sundry Creditors | 25000 | Debtors | 112500 | 100000 |
| Bank overdraft | 20000 | Less : R.D.D | 12500 | |
| Reserve Fund | 30000 | Stock | 225000 | |
| Capital Accounts: | Furniture | 50000 | ||
| Ganesh | 230000 | Motor Car | 75000 | |
| Chandan | 150000 | Cash in hand | 5000 | |
| 455000 | 455000 | |||
The Assets realised as follows: Debtors Rs 90,000, Stock Rs 2,00,000, and Goodwill Rs 25,000, Motor Car was taken over by Ganesh for Rs 70,000 and Furniture by Chandan for Rs 60,000.
The Creditors were paid Rs 22,500 in full settlement. The expenses of realisation amounted to Rs 10,000.
Pass necessary journal entries in the books of the firm.
A, B and C were partners sharing profits and losses in the ratio of 3:2:1. On 31st March, 2010. Their Balance Sheet was as follows:
Balance Sheet as on 31st March, 2010
| Liabilities | Amount (Rs) | Assets | Amount (Rs) | |
| Sundry Creditors | 15400 | Cash at Bank | 3500 | |
| Bills payable | 3600 | Stock | 19800 | |
| A’s loan A/c | 10000 | Debtors | 15000 | 14000 |
| Capital Account: | Less : Provision | 1000 | ||
| A | 20000 | Join Life Policy | 4000 | |
| B | 16000 | Plant and Machinery | 43700 | |
| C | 8000 | |||
| Reserve Fund | 12000 | |||
| 85000 | 85000 | |||
The firm was dissolved on 31st March, 2010 and the assets realised as follows:
1) Join Life Policy was taken over by Mr. A at Rs 5,000.
2) Stock realised Rs 18,000, Debtors realised Rs 14,500, Plant and Machinery was sold for Rs 36,000.
3) Liabilities were paid in full. In addition one bill for Rs 700 under discount was dishonoured and had to be taken up by the firm.
4) There were no realisation expenses.
Give the Journal entries and necessary Ledger Accounts to close the books of the firm.
(When all partners become insolvent)
Shiv, Sadashiv and Sadanand are Partners in a firm sharing Profit and Losses equally whose Balance-sheet as on 31st December, 2011 stood as follows:
Balance Sheet as on 31st December, 2011
| Liabilities | Amount (Rs) | Assets | Amount (Rs) |
| Capital Accounts | Sadanand’s Capital A/c | 2000 | |
| Shiv | 6000 | Buildings | 18300 |
| Sadashiv | 4000 |
Machinery |
12700 |
| Parvati’s Loan | 10000 |
Debtors |
9100 |
| Sundry Creditors | 30000 |
Bank |
7900 |
| 50000 | 50000 |
Shiv, Sadashiv and Sadanand were declared bankrupt and hence the firm was dissolved as on that date:
(i) The sundry Assets realised as follows:
Building Rs 10,900, Machinery Rs 8,200, Debtors Rs 6,800.
(ii) Realisation expenses amounted to Rs 1,300.
(iii) Sadanand was unable to contribute anything-
Whereas Rs 1,100 and Rs 900 were recovered from the realisation of private estate of Shiv and Sadashiv respectively.
You are required to close the books of the firm.
Ganga, Yamuna and Godavari are in Partnership sharing profits and losses equally. Their Balance sheet as on 31st December, 2011 was as follows:
Balance Sheet as on 31st December, 2011
| Liabilities | Amount (Rs) | Assets | Amount (Rs) |
| Capital Accounts | Currnet Accounts | ||
| Ganga | 25000 | Yamuna | 20000 |
| Yamuna | 10000 | Godavari | 4000 |
| Godavari | 5000 | Premises | 17200 |
| Ganga’s Currnet A/c | 3000 | Machinery | 10800 |
| Sundry Creditors | 4000 | Debtors | 9600 |
| Bank loan | 3000 | Cash | 6400 |
| 50000 | 50000 |
Godavari was declared insolvent and hence the firm was dissolved as on that date. Premises was sold at Rs 14,800, Machinery realised Rs 6,400. Bad debts and discount allowed to Debtors amounted to Rs 1,600. Sundry creditors agreed to receive 80 paise in a rupee (Rs) in full satisfaction of their claim. Bank Loan was settled at 60% of book value. During the course of dissolution a liability under an action for damages was settled for Rs 1,400 against Rs 2,100 provided in the books of the firm. The expenses of realisation amounted to Rs 900. Goodwill contributed Rs 1,900 from her private Property.
Prepare necessary ledger accounts in the books of the firm.
State the difference between dissolution of partnership and dissolution of partnership firm.
What is a Realisation Account?
Ram, Laxman and Bharat were partners sharing profit and losses in the ratio of 2 : 2 : 1. Following is the Balance Sheet as on 31st March, 2016 :
Balance Sheet as on 31st March, 2016
| Liabilities | Amount (Rs.) |
Assets | Amount (Rs.) |
| Capital A/c : | Machinery | 2,00,000 | |
| Ram | 2,40,000 | Stock | 80,000 |
| Laxman | 80,000 | Debtors 2,20,000 | |
| Bharat | 80,000 | Less : R.D.D. (12,000) | 2,08,000 |
| General Reserve | 24,000 | Investment | 96,000 |
| Creditors | 1,92,000 | Profit and Loss A/c | 72,000 |
| Bills Payable | 56,000 | Bank balance | 16,000 |
| 6,72,000 | 6,72,000 |
On the above date the partners decided to dissolve the firm:
(1) Assets were realised as under -
| Machinery | Rs. 1,80,000 |
| Stock | Rs. 72,000 |
| Investments | Rs. 84,000 |
| Debtors | Rs. 1,80,000 |
(2) Dissolution expenses were Rs. 12,000.
(3) Goodwill of the firm realised 96,000
Prepare :
(1) Realisation Account
(2) Partner's Capital Account
(3) Bank Account
State whether the following statement is ‘True’ or ‘False’
On dissolution, cash or bank account is closed automatically.
Give the word/term/phrase which can substitute the following statement.
Debit balance of Realisation account.
Give the word/term/phrase which can substitute the following statement.
An account opened to find out the Profit or Loss on realisation of Assets and settlement of Liabilities.
State whether the following statement is True or False with reason.
The firm must be dissolved on the retirement of a partner.
State whether the following statement is True or False with reason.
A solvent partner having debit balance to his Capital Account does not share the deficiency of insolvent partner Capital Account.
State whether the following statement is True or False with reason.
At the time of dissolution, a loan from the partner will be transferred to Realisation Account.
Vinod, Vijay, and Vishal are partners in a firm, sharing profit & Losses in the ratio 3:2:1. Vishal becomes insolvent and his capital deficiency is ₹ 6,000. Distribute the capital deficiency among the solvent partners.
Kalpana and Bela were partners sharing profits and losses in the ratio of 3: 2. Their Balance Sheet as on 31st March, 2019 was as follows:
| Balance Sheet as on 31st March 2019 | |||
| Liabilities | Amount (₹) | Assets | Amount (₹) |
| Capital Accounts: | Building | 14,000 | |
| Kalpana | 20,000 | Plant | 18,000 |
| Bela | 12,000 | Debtors | 28,000 |
| Current Accounts: | Stock | 10,000 | |
| Kalpana | 6,000 | Bank | 12,000 |
| Bela | 4,000 | ||
| Creditors | 34,800 | ||
| Bills Payable | 5,200 | ||
| 82,000 | 82,000 | ||
The firm was dissolved on the above date and the assets realised as under:
(1) Plant ₹ 16,000, Building ₹ 12,000, Stock ₹ 8,000 and Debtors ₹ 24,000.
(2) Kalpana agreed to pay off the Bill Payable.
(3) Creditors were paid in full.
(4) Dissolution expenses were ₹ 2,800.
Prepare: Realisation A/c, Partner's current A/c, Partner's Capital A/c and Bank A/c.
Anita and Binita are partners in a firm. Anita had taken a loan of ₹ 15,000 from the firm. How will Anita’s loan be closed in the event of dissolution of the firm?
The dissolution of partnership may take place in the following ways?
On which of the following grounds the court may order a partnership firm to be dissolved?
On dissolution of a firm, a liability taken over by a partner is credited to ______.
Which of the following is the characteristic of a partnership firm?
On dissolution of the firm, ______ will be debited to the Realisation Account.
At the time of dissolution of a firm, Creditors are ₹ 70,000; Firm’s Capital is ₹ 1,20,000; Cash Balance is ₹ 10,000. Other assets realised ₹ 1,50,000. Gain/Loss in the realisation account will be:
Charu, Dhwani, Iknoor and Paavni were partners in a firm. They had entered into partnership firm last year only, through a verbal agreement. They contributed Capitals in the firm and to meet other financial requirements, few partners also provided loan to the firm. Within a year, their conflicts arisen due to certain disagreements and they decided to dissolve the firm. The firm had appointed Ms. Kavya, who is a financial advisor and legal consultant, to carry on the dissolution process. In the first instance, Ms. Kavya had transferred various assets and external liabilities to Realisation A/c. Due to her busy schedule; Ms. Kavya has delegated this assignment to you, being an intern in her firm. On the date of dissolution, you have observed the following transactions:
- Dhwani’s Loan of ₹ 50,000 to the firm was settled by paying ₹ 42,000.
- Paavni’s Loan of ₹ 40,000 was settled by giving an unrecorded asset of ₹ 45,000.
- Loan to Charu of ₹ 60,000 was settled by payment to Charu’s brother loan of the same amount.
- Iknoor’s Loan of ₹ 80,000 to the firm and she took over Machinery of ₹ 60,000 as part payment.
You are required to pass necessary entries for all the above-mentioned transactions.
Hints:
- Dr. Dhwani’s Loan A/c by ₹ 50,000; Cr. Bank A/c by ₹ 42,000 and Realisation A/c by ₹ 8,000.
- Dr. Paavni’s Loan A/c and Cr. Realisation A/c by ₹ 40,000.
- Dr. Realisation A/c and Cr. Loan to Charu A/c by ₹ 60,000.
- Dr. Iknoor Loan A/c by ₹ 80,000; Cr. Realisation A/c by ₹ 60,000 and Bank A/c by ₹ 20,000.
A firm consisting of partners Mukund, Sachin and Yuvraj decided to dissolve the partnership They decided to take over certain assets and liabilities and continue the business separately. The Balance Sheet was as under.
| Balance Sheet as on 31st March, 2020 | |||||
| Liabilities | Amount (₹) |
Assets | Amount (₹) |
||
| Capital A/c: | Furniture | 2,000 | |||
| Mukund | 55,000 | 89,000 | Sundry Assets | 34,000 | |
| Sachin | 20,000 | Debtors | 48,400 | 46,000 | |
| Yuvraj | 14,000 | Less: RDD | 2,400 | ||
| Creditors | 12,000 | Stock | 15,600 | ||
| Loan | 3,000 | Cash | 6,400 | ||
| 1,04,000 | 1,04000 | ||||
It was agreed as under:
- Mukund is to take Furniture at ₹ 1,600 and the Debtors amounting to ₹ 40,000 at ₹ 34,400 only. He accepted the Creditors on ₹ 12,000 at that figure.
- Sachin is to take over all Stock at ₹ 14,000 and Sundry Assets worth ₹ 16,000 at ₹ 14,400 only.
- Yuvraj is to take over the remaining Sundry Assets at ₹ 16,000 and assume the responsibility for the discharge of the loan together will accrued interest on a loan of ₹ 60. which has not been recorded in accounts.
- The dissolution expenses were ₹ 540.
- The remaining debtors realised only ₹ 4,200.
- The necessary adjustments were made by partners to settle their accounts.
Prepare Realisation Account, Partners Capital Account, and Cash Account, after giving effect to the above adjustments.
Complete the table.
| Debit side total of Realisation A/c |
Credit side total of Realisation A/c |
Loss on Realisation |
| ₹ 20,000 | ? | ₹ 4,000 |
Dino, Manu and Ramu are Partners Sharing Profits and Losses in the Ratio 2 : 2 : 1. They decided to dissolved the firm on 31st March, 2020. When their position was as under.
| Balance Sheet as on 31st March, 2020 | ||||
| Liabilities | Amount (₹) |
Assets | Amount (₹) |
|
| Capital A/c: | Building | 78,000 | ||
| Dino | 26,000 | 66,000 | Computer | 45,000 |
| Manu | 22,000 | Debtors | 20,000 | |
| Ramu | 18,000 | Goodwill | 35,000 | |
| Creditors | 80,000 | Bank | 8,000 | |
| Bill Payable | 40,000 | |||
| 1,86,000 | 1,86,000 | |||
The firm was dissolved on above date and the following is the result of realisation.
- The Assets were realised as Building ₹ 40,000, Computer ₹ 30,000, Debtors ₹ 10,000.
- Realisation expenses amounted to ₹ 2,000.
- All partners were insolvent The following amount was recovered from them Dino ₹ 2,000 and Manu ₹ 2,000.
Prepare Necessary ledger account to close the books of the firm.
A, B and C are in partnership business. A used ₹ 2,00,000 belonging to the firm without the information to other partners and made a profit of ₹ 35,000 by using this amount. Which decision should be taken by the firm to rectify this situation?
On the day of dissolution of the firm ‘Roop Brothers’ had partner’s capital amounting to ₹ 1,50,000 external liabilities ₹ 35,000, Cash balance ₹ 8,000 and P & L A/c (Dr.) ₹ 7,000. If Realisation expense and loss on Realisation amounted to ₹ 5,000 and ₹ 25,000 respectively, the amount realised by sale of assets is ______.
Vinay, Premal and Monil were in partnership sharing profits and losses in the ratio 2 : 2 : 1. They decided to dissolve their partnership firm on 31st March, 2023 and their Balance Sheet on that date stood as:
| Balance Sheet as on 31st March, 2023 | |||||
| Liabilities | Amount (₹) | Amount (₹) | Assets | Amount (₹) | Amount (₹) |
| Capital : | Plant | 2,40,000 | |||
| Vinay | 1,80,000 | 3,60,000 | Debtors | 90,000 | |
| Premal | 1,20,000 | Stock | 1,50,000 | ||
| Monil | 60,000 | ||||
| Loan | 24,000 | ||||
| Sundry Creditors | 18,000 | ||||
| Bank Overdraft | 78,000 | ||||
| 4,80,000 | 4,80,000 | ||||
It was agreed that:
(1) Vinay to discharge Loan and to take Debtors at book value.
(2) Plant realised ₹ 2, 70,000.
(3) Stock realised ₹1,44,000.
( 4) Creditors were paid off at a discount of ₹ 90.
Show Realisation Account, Partner's Capital Accounts and Bank Account.
Read the following hypothetical situation and answer question on the basis of the same.
|
Nitya, Shreya and Ishita are partners in a firm. They share profit in the ratio of 5 : 3 : 2. Their fixed capital are ₹1,80,000; ₹1,60,000 and ₹2,00,000 respectively. For the year ending 31st March, 2022, Nitya withdrew ₹7,500 at the end of every quarter. |
The average number of months for which interest on drawings will be calculated, will be:
Choose the correct order in which a partnership firm, at the time of its dissolution, will apply the amount realised from the sale of its assets, including any amount contributed by the partners, towards the payment of:
P: Partners' loan
Q: Firm's debts
R: Balance of partners' capital
S: Surplus divided amongst the partners in their profit-sharing ratio
A firm having a debtor of ₹ 30,000 from whom the amount was due on 30th June, 2023, gets dissolved on 31st March, 2023. The debtor cleared his dues on the date of dissolution of the firm at a discount of 4% per annum.
Give the journal entry passed by the firm to realise the payment from the debtor.
Ira (a partner in a firm) was allowed to retain the whole of the stock as her remuneration for services rendered by her in the course of dissolution of the firm. The value of stock was ₹ 10,000 which had been transferred to the Realisation Account.
Complying with the accounting principle of full disclosure, record the above transaction in the books of the partnership firm at the time of its dissolution.
Mention the liability of a partnership firm which is not shown in its balance sheet but is paid off at the time of the dissolution of the firm.
