Question

On dissolution of the firm of Ramesh, Suresh and Naresh, Naresh had agreed to bear all realisation expenses for which he was to be paid ₹ 14,500. Actual expenses on realisation amounted to ₹ 11,000 which were paid by Naresh. The amount to be credited to Naresh’s capital account will be:

Options

• ₹ 11,000

• ₹ 3,500

• ₹ 14,500

• ₹ 25,500

Answer 1

₹ 3,500

Explanation:

Naresh agreed to bear all realisation expenses and was to be paid ₹ 14,500. However, the actual expenses on realisation amounted to ₹ 11,000, which Naresh paid. Since Naresh was to be reimbursed for the expenses he paid, he will be credited with the actual amount he paid, which is ₹ 11,000, but the amount he is entitled to receive from the firm was ₹ 14,500. The difference between the amount Naresh was promised (₹ 14,500) and the actual expenses he paid (₹ 11,000) is ₹ 3,500.

Thus, Naresh’s capital account will be credited with ₹ 3,500 as the remaining amount he was to receive after paying the actual realisation expenses.