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Question
Pass necessary journal entries on the dissolution of a partnership firm in the following cases :
1) Expenses of dissolution were Rs 9,000.
2) Expenses of dissolution Rs 3,400 were paid by a partner, Vishal
3) Shiv, a partner, agreed to do the work for dissolution for a commission of Rs 4,500. He also agreed to bear the dissolution expenses. Actual dissolution expenses Rs 3,900 were paid from the firm's bank account.
4) Naveen, a partner, agreed to look after the dissolution work for which he was allowed a remuneration of Rs 3,000. Naveen also agreed to bear the dissolution expenses. Actual expenses on dissolution Rs 2,700 were paid by Naveen.
5) Vivek, a partner, was appointed to look after the dissolution work for a remuneration of Rs 7,000. He agreed to bear the dissolution expenses. Actual dissolution expenses Rs 6,500 were paid by Rishi, another partner, on behalf of Vivek.
6) Gaurav, a partner, was appointed to look after the work of dissolution for a commission of Rs 12,500. He agreed to bear the dissolution expenses. Gaurav took over furniture of Rs 12,500 as his commission. The furniture had already been transferred to realisation account.
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Solution
| Journal | ||||
| Date | Particulars | L.F. |
Debit Rs |
Credit Rs |
|
1
2
3-A
3-B
4
5-A
5-B
6
|
Realisation A/c Dr To Bank A/c (Being expenses are borne and paid by the firm) Realisation A/c Dr To Vishal’s Capital A/c (Being expenses paid by a partner on behalf of the firm) Realisation A/c Dr To Shiv’s Capital A/c (Being Remuneration paid) Shiv’s Capital A/c Dr To Bank A/c (Being Expenses paid by the firm) Realisation A/c Dr. To Neveen’s Capital A/c (Being Remuneration paid) Realisation A/c Dr To Vivek 's Capital A/c (Being Remuneration paid) Vivek 's Capital A/c Dr To Rishi's Capital A/c (Being expenses paid by one partner, borne by other) No Entry
|
9,000
3,400
4,500
3,900
3,000
7,000
6,500
|
9,000
3,400
4,500
3,900
3,000
7,000
6,500
|
|
RELATED QUESTIONS
An account opened to find out the profit or loss on sale of assets and settlement of liabilities.
If an asset is taken over by partner from firm his capital account will be ___________.
K and P were partners in a firm sharing profits in the ratio of 7:5. On 31-1-2016 their firm was dissolved. After transferring assets (other than cash) and outsiders liabilities to the realization account, you are given the following information:
(a) Raman, a creditor for Rs.4, 20,000 accepted building valued at Rs.8, 00,000 and paid the balance to the firm by a cheque.
(b) Rajeev, a second creditor for Rs.1, 70,000 accepted machinery valued at Rs.1, 65,000 in full settlement of his claim.
(c) Ranjan, a third creditor for Rs.90,000 accepted investments of Rs.45,000 and a bank draft of Rs.43,000 in his favour in full settlement of his claim.
(d) P we appointed to do the work of dissolution for which he was allowed Rs.2,000. Actual expenses of dissolution Rs.2,400 were paid by P.
Pass necessary journal entries for the above transactions in the books of K and P.
Distinguish between ‘Dissolution of partnership’ and Dissolution of partnership firm ‘on the basis of closure of Books.
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.
Answer in one sentence only.
What is dissolution of partnership firm?
Answer in one sentence only.
Which accounts are not transferred to Realisation account?
Answer in one sentence only.
In what proportion is the balance on Realisation Account transferred to Partners’ Capital / Current Accounts?
Write the word / term / phrase, which can substitute the following statement.
Liability likely to arise in future on happening of certain events.
State whether the following statement is True or False.
On dissolution Bank Overdraft is transferred to Realisation Account.
State whether the following statement is True or False with reason.
Dissolution takes place when the relation among the partners comes to an end.
Deficiency of Insolvent partner will be suffered by solvent partners in their ___________ ratio.
Select the most appropriate alternative from those given below :
Partnership is compulsorily dissolved when the partners of the firm become ____________
Select the most appropriate alternative from those given below :
All activities of the partnership firm cease (stop) on ____________ of firm.
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.
Mahesh, Suresh and Jayesh were partners of the firm. They decided to dissolve the firm on 31st March, 2012. Their Balance Sheet as on that date was as under:
Balance Sheet as on 31st March, 2012
| Liabilities | Amount (Rs) | Assets | Amount (Rs) | |
| Creditors | 18000 | Cash at Bank | 9600 | |
| Loan | 4500 | Sundry Assets | 51000 | |
| Capitals | Debtors | 72600 | 69000 | |
| Mahesh | 82500 | Less : R.D.D. | 3600 | |
| Suresh | 30000 | Stock | 23400 | |
| Jayesh | 21000 | Furniture | 3000 | |
| 156000 | 156000 | |||
The firm was dissolved as follows:
1) Mahesh will accept furniture for Rs 2,000 and agreed accept the debtors of book value of Rs 60,000 at on agreed value of Rs 51,000.
2) Suresh will accept stock at an agreed value Rs 20,000, and Sundry Assets of Book value Rs 24,000 at Rs 23,500.
3) Jayesh will accept remaining Sundry Assets for Rs 25,000 He will further accept the liability of loan along with due interest at 12% p.a.
Interest for three months on this loan was outstanding and was not recorded in the books.
4) Expenses of dissolution were Rs 1,000 and outstanding expenses of Rs 1,200 were to be paid from the firm.
5) The remaining debtors were realised Rs 7,000.
Prepare:
1) Realisation A/c
2) Partner’s Capital A/c
3) Bank A/c
Gautam, Viral and Ashwin were Partners 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: | Building | 73,900 | |
| Gautam | 75000 | Furniture | 44,100 |
| Virat | 45000 | Stock | 25,400 |
| Reserve Fund | 27,000 |
Debtors |
33,600 |
| Creditors | 48,500 | Cash | 15,000 |
| Bank Loan | 11,500 | Ashwin’s Capital | 15,000 |
| 207000 | 207000 |
The firm was dissolved due to insolvency of Ashwin and the following was the result.
(i) The realisation of Assets were as follows:
a) The stock was completely damaged and could realise worth Rs 16,500 only.
b) Building was sold for Rs 49,800.
c) Furniture was realised by the firm at Rs 23,100 less than the book value.
d) A Customer who owes Rs 14,400 became insolvent and nothing could be recovered from his private estate.
(ii) Creditors were paid for Rs 36,900 in full settlement and Bank Loan was discharged fully.
(iii) The expenses of realisation Rs 4,100
(iv) Ashwin became insolvent and the firm could recover only Rs 4,000 from his private estate.
Prepare Realisation A/c, Partner’s Capital A/c and cash A/c to close the books of the firm.
State whether the following statement is True or False.
At the time of disolution of a partnership firm all assets should be transfered to realiasation account.
Jay , Ajay and Vijay were partners sharing profits and losses in the proportion of 2 : 2 : 1 . Following is their balance sheet as on 31.03.2013.
Balance sheet as on 31st March 2013
| Liabilities | Amount (₹) | Assets | Amount (₹) | |
| Capital A/c | Machinery | 50000 | ||
| Jay | 60000 | Stock | 20000 | |
| Ajay | 20000 | Debtors | 55000 | 52000 |
| Vijay | 20000 | Less : R.D.D. | (3000) | |
| General Reserve | 6000 | Investments | 24000 | |
| Creditors | 40000 | Profit and loss A/c | 18000 | |
| Jay's Loan A/c | 8000 | Bank | 4000 | |
| Bills Payable | 14000 | |||
| 168000 | 168000 | |||
On the above date the partners decided to dissolve the firm.
(1) Assets were realised as :
Machinery ₹45000 ; Stock ₹ 18000;
Investment ₹ 21000 ; Debtors ₹ 45000
(2) Dissolution expenses were ₹ 3000.
(3) Goodwill of the firm realised ₹ 24000.
Prepare : (1) Realisation Account (2) Partner's Capital Account (3) Bank Account.
Partnership is completely dissolved when the partners of the firm become _________.
Realisation account is __________ on realisation of assets.
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.
Write the word/phrase/term/ which can substitute the following statement.
Expenses incurred on dissolution of firm.
State whether the following statement is True or False with reason.
At the time of the dissolution of partnership, all assets should be transferred to Realisation 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.
Complete the table.
| 1) | Debit side total of Realisaton A/c | Credit side total of Realisation A/c | Loss on Realisations |
| ₹ 20,000 | ? | ₹ 4,000 | |
| 2) | Creditors | Bills Payable | Third-Party Liabilities |
| ₹16,000 | ₹12,000 | ? | |
| 3) | Credit side total Profit ion of Realisaton A/c | Debit side total of Realisation A/c | Profit of realisation |
| ₹ 21,000 | ₹16,000 | ? | |
| 4) | Debit side total of Capital A/c | Credit side total of Capital A/c | Cash brought by partner |
| ₹ 51,000 | ? | ₹ 17,000 | |
| 5) | capital deficiency | Cash brought by Insolvent Partner | Insolvent loss |
| ? | ₹ 7,000 | ₹ 21,000 |
Ganesh and Kartik are partners sharing Profits and Losses equally. They decided to dissolve the firm on 31st March 2018. Their Balance Sheets was as under :
| Balance Sheets as on 31st March 2018. | |||
| Liabilities | Amount ₹ | Assets | Amount ₹ |
| Creditors | 18,400 | Building | 88,000 |
| Bills Payable | 5,600 | Furniture | 12,000 |
| Reserve Fund | 20,000 | Debtors | 32,000 |
| Capital A/c : | Stock | 24,000 | |
| Ganesh | 40,000 | Bills Receivable | 4,000 |
| Kartik | 80,000 | Cash | 4,000 |
| 1,64,000 | 1,64,000 | ||
Assets were realised as under :
Building ₹82,000, Debtors ₹ 22,000, Stock ₹ 20,000. Bills Receivable ₹ 3,200 and Ganesh agreed to take over Furniture for ₹10,000. Realisation Expenses amounted to ₹ 2,000.
Show Realisation A/c, Partners’ Capital A/c and Cash A/c.
A firm is dissolved with the consent of all the partners or in accordance with a contract between the partners is known as ______
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.
Complete the following table:
| Debit side total of Realisation A/c | Credit side total of Realisation A/c | Loss on Realisation |
| ₹ 30,000 | ? | ₹ 24,000 |
| ? | ₹ 10,000 | ₹ 40,000 |
Following is the Balance sheet of Ram, Shyam and Murari as on 31st March, 2023.
| Liabilities | Amount (₹) | Assets | Amount (₹) |
| Capital | Furniture | 10,800 | |
| Ram | 18,000 | Debtors | 72,000 |
| Shyam | 10,800 | Stocks | 86,400 |
| Creditors | 1,44,000 | Cash | 3,600 |
| Ram's Loan | 36,000 | 3,600 | 36,000 |
| 2,08,800 | 2,08,800 |
Due to the inability to pay the creditors, the firm is dissolved, Shyam and Murari cannot pay anything. Ram can contribute only ₹ 5,400 from his private estate. Stock realised ₹ 54,000. Debtors realised ₹ 57,600 and Furniture is sold for ₹ 3,600. Realisation Expenses amounted to ₹ 10,800.
Prepare necessary Ledger account to close the books of the firm.
______ means winding-up of partnership firm.
Mita and Sita, sharing profits in, the ratio 2 : 1, decided to dissolve their partnership firm on 31st March, 2022, on which date their Balance Sheet was as under:
| Balance Sheet of Mita and Sita as on 31st March, 2022 |
|||||
| Liabilities | (₹) | Assets | (₹) | ||
| Sundry Creditors | 40,000 | Land & Building | 29,000 | ||
| Sita's Son's Loan | 2,000 | Plant & Machinery | 20,000 | ||
| Bank Overdraft | 8,000 | Stock | 3,000 | ||
| Capital Accounts: | Debtors | 26,400 | 26,000 | ||
| Mita | 20,000 | 30,000 | Less: Provision for Doubtful Debts |
400 | |
| Sita | 10,000 | Bank | 2,000 | ||
| 80,000 | 80,000 | ||||
The partnership firm was dissolved on the date of the Balance Sheet subject to the following adjustments:
- Trade creditors accepted plant and machinery at an agreed valuation of 10% less than the book value and the balance in cash in full settlement of their claims.
- Debtors of ₹ 1,000 proved bad.
- Sita took over the stock at a discount of 20%.
- Realisation expenses of ₹ 1,100 were paid by the firm.
You are required to prepare the Realisation Account.
Lal, Bal and Pal were partners sharing profits and losses in the ratio of 2 : 2 : 1. The following is the Balance Sheet as on 31st March, 2020.
| Balance sheet as on 31st March 2020 | ||||
| Liabilities | Amount (₹) | Assets | Amount (₹) | |
| Capital A/c | Machinery | 50,000 | ||
| Lal | 60,000 | Investments | 24,000 | |
| Bal | 20,000 | Debtors | 55,000 | 52,000 |
| Pal | 20,000 | Less: R.D.D. | (3,000) | |
| General Reserve | 6,000 | Stock | 20,000 | |
| Creditors | 48,000 | Profit and loss A/c | 18,000 | |
| Bills Payable | 14,000 | Bank | 4,000 | |
| 168000 | 168000 | |||
On the above date the partners decided to dissolve the firm.
(1) Assets were realised as:
| Machinery | ₹ 45000 |
| Stock | ₹ 18000 |
| Investment | ₹ 21000 |
| Debtors | ₹ 45000 |
(2) Dissolution expenses were ₹ 3000.
(3) Goodwill of the firm realised ₹ 24000.
Prepare:
- Realisation Account
- Partner's Capital Account
- 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 partnership deed provide that interest on capital will be allowed @10% p.a. The amount of interest on Ishita's capital will be:
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.
