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Question
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.
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Solution
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Realisation Account |
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|
Dr. |
|
Cr. |
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Particulars |
Amount Rs |
Particulars |
Amount Rs |
||
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To Plant |
2,20,000 |
By Creditors |
75,000 |
||
|
To Investments |
70,000 |
By Bills Payable |
40,000 |
||
|
To Stock |
50,000 |
By Outstanding Salary |
35,000 |
||
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To Debtors |
60,000 |
By Bank A/c |
|
||
|
To Bank |
|
Plant 85,000 |
|
||
|
Creditors 75,000 |
|
Stock 33,000 |
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||
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Bills Payable 40,000 |
|
Debtors 47,000 |
|
||
|
Outstanding Salary 35,000 |
1,50,000 |
Investments 66,500 |
2,31,500 |
||
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To Bank |
|
By Partner’s Capital A/cs-Loss |
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||
|
Outstanding Bill for Repair 7,500 |
|
Srijan 81,030 |
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||
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Dishonoured of Discounted Bill 15,000 |
22,500 |
Raman 81,030 |
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||
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To Srijan’s Capital A/c-Commission (2,31,500*.05) |
11,575 |
Manan 40,515 |
2,02,575 |
||
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|
5,84,075 |
|
5,84,075 |
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Partners' Capital Account |
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| Particulars | Srijan | Raman | Manan | Particulars | Srijan | Raman | Manan |
| To Balance b/d | ---------- | ---------- | 10,000 | By Balance b/d | 2,00,000 | 1,50,000 | --------- |
| To Profit &Loss A/c | 32,000 | 32,000 | 16,000 | By Realisation A/c-Commission | 11,575 | ||
| To RealisationA/c-Loss |
81,030 |
81,030 |
40,151 | ||||
| To Bank A/c |
98,545 |
36,970 | ---------- | By Bank A/c | ---------- | ---------- | 66,515 |
| 2,11,575 | 1,50,000 | 66,515 | 2,11,575 | 1,50,000 | 66,515 | ||
|
Bank Account |
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Dr. |
|
Cr. |
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Particulars |
Amount Rs |
Particulars |
Amount Rs |
||
|
Balance b/d |
10,000 |
To Realisation A/c-Recorded liabilities repaid |
1,50,000 |
||
|
To Realisation A/c-Assets realised |
2,31,500 |
To Realisation A/c-Unrecorded liabilities repaid |
22,500 |
||
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To Manan’s Capital A/c |
66,515 |
To Srijan’s Capital A/c |
98,545 |
||
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To Raman’s Capital A/c |
36,970 |
||
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|
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||
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|
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||
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|
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|
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|
3,08,015 |
|
3,08,015 |
||
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RELATED QUESTIONS
Dissolution expenses are credited to ______.
State whether the following statement is True or False with reason.
The debit balance of insolvent partner’s Capital Account is known as a capital deficiency.
Mr. Aaba and Mr. Baba are equal partners whose Balance Sheet as on 31 st March, 2012 was as under:
Balance Sheet as on
31st March, 2012
| Liabilities | Amount(Rs.) | Assets | Amount(Rs.) |
| Sundry Creditors | 16000 | Cash in hand | 500 |
|
Capital A/c Aaba Baba |
2000 2000 |
Stock | 4500 |
| Debtors | 4000 | ||
| Plant and machinery | 5000 | ||
| Furniture | 2000 | ||
| Land and Building | 4000 | ||
| 20000 | 20000 |
Due to weak financial position of the partners the firm is dissolved.
Aaba and Baba are not able to contribute anything from their private estate, hence they are declared insolvent.
The assets are realised as follows :-
Stock Rs. 3,000, Plant and Machinery Rs. 3,000, Furniture Rs. 1,000, Land and Building Rs. 2,000 and Debtors Rs. 1,000 only.
Realisation expenses amounted to Rs. 500.
You are required to prepare necessary Ledger Accounts to close the books of the firm.
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.
G and H were partners in a firm sharing profits in the ratio of 9: 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) Mohan, a creditor of Rs 2,30,000 accepted debtors of Rs 2,00,000 at a discount of 10% and the balance was paid to him by cheque.
(b) Sohan, a second creditor for Rs 7,00,000 accepted land of the book value of Rs 10,00,000 at Rs 15,00,000 and paid the balance to the firm by cheque.
(c) Ram, a third creditor for Rs 80,000 took over stock of book value of Rs 40,000 at Rs 30,000 and investments of Rs 48,000 in full settlement of his claim.
(d) Loss on dissolution was Rs 48,000.
Pass necessary journal entries for the above transactions in the books of G and H.
C and D were partners in a firm sharing profits in the ratio of 3:2. On 28-2-2016 the firm was dissolved. After transferring assets (other than cash) and outsiders' liabilities to realization account you are given the following information :
(a) A creditor for Rs 2 00,000 accepted building of Rs 2,80,000 at Rs 2,20,000 and paid the firm Rs 20,000.
(b) A second creditor for Rs 75,000 accepted furniture at Rs 60,000 in full settlement of his claim.
(c) A third creditor amounting to Rs 80,000 accepted Rs 20,000 in cash and investments of the book value of Rs 65,000 in full settlement of his claim.
(d) Loss on dissolution was Rs 7,500. Pass necessary journal entries for the above transactions in the books of the firm assuming that all payments were made by cheque.
Give the word/term/phrase which can substitute the following statement.
Assets which are not recorded in the books of account.
Aniket Ltd issued 40,000 equity shares of ` 100 each payable as follows :
On application Rs 20
On allotment Rs 30
On first call Rs 30
On second call Rs 20
The company received applications for 50,000 equity shares. Allotment of shares was made on pro-rata basis. Excess application money were adjusted to allotment. Share allotment and calls were made and also received, except Mr. Sanish who was holding 1,000 shares failed to pay both the calls. His shares were forfeited after the second call.
Record the above transactions in the books of Aniket Ltd
Answer in one sentence only.
What is dissolution of partnership firm?
Write the word / term / phrase, which can substitute the following statement.
Debit balance of an insolvent Partner’s Capital Account.
Write the word / term / phrase, which can substitute the following statement.
Liability likely to arise in future on happening of certain events.
In case of dissolution assets and liabilities are transferred to ______ A/c.
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 ____________
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
(When one partner becomes insolvent)
Rahul, Rohit and Ramesh were partners in a firm sharing profit and losses in the ratio of 2:2:1 respectively.The Balance Sheet as on 31st March, 2012 was as follows:
Balance Sheet as on 31st December, 2011
| Liabilities | Amount (Rs) | Assets | Amount (Rs) | |
| Sundry Creditors | 20000 | Cash at Bank | 8000 | |
| Bills payable | 5000 | Stock | 20000 | |
| General Reserve | 6000 | Debtors | 16000 | 15000 |
| Rahul’s Loan A/c | 16000 | Less : R.D.D | 1000 | |
| Capital Account | Plant and Machinery | 30000 | ||
| Rahul | 25000 | Furniture | 6000 | |
| Rohit | 10000 | Ramesh’s Capital A/c | 3000 | |
| 82000 | 82000 | |||
The firm was dissolved on the above date:
- The Assets realised as follows:
Debtors Rs 9,000, Plant and Machinery Rs 26,000, Stock Rs 14,000 and Furniture Rs 3,000. - The Creditors were paid Rs 18,000 in full settlement and the bills payable were paid in full.
- The realisation expenses amounted to Rs 3,000.
- Ramesh become insolvent and was able to bring in only Rs 1,800 from his private estate.
Prepare:
- Realisation A/c
- Bank A/c and
- Partner’s Capital A/c
(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 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.
Following is the balance sheet as on 31 st march 2016 of M/s . Jay and Ajay :
Balance sheet as on 31st MArch 2016
| Liabilities | Amount | Assets | Assets | |
| Capital A/cs : | Cash at bank | 18000 | ||
| Jay | 150000 | Stock | 75000 | |
| Ajay | 150000 | Furniture | 90000 | |
| Reserve fund | 30000 | Investment | 30000 | |
| Loan from Jay | 3000 | Machinery | 90000 | |
| Bills payable | 6000 | Buildings | 45000 | |
| Creditors | 30000 | Debtors | 24000 | 21000 |
| Less : R.D.D | 3000 | |||
| 369000 | 369000 | |||
The firm was dissolved on 31st March , 2016 and the assets realised were as under :
(1) Jay look over the investment at ₹ 27600 and Ajay took over the furniture at ₹ 84000.
(2) The assets were realised as follows :
Stock 73500 ;
Debtors 22500 ;
Machinery 84000 ;
Building 42000
(3) The creditors were paid off at a discount of 900 and other liabilities were paid in full.
(4) Dissolution expenses were 4200
(5) Jay and Ajay were sharing profits and losses in the ratio of 3 : 2.
Prepare :
1) Realisation Account
2) Capital Account of all partners
3) Bank Account
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:
- 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.
- Land and building (book value ₹ 3,00,000) were sold for ₹ 4,00,000 through a broker who charged 2% commission.
- 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.
- 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.
Partnership is completely dissolved when the partners of the firm become _________.
Insolvent partners capital A/c Debit side is ₹ 15,000 & insolvent partner brought cash ₹ 6,000. Calculate the amount of Insolvency Loss to be distributed among the solvent partners.
Shailesh and Shashank were partners sharing Profits and Losses in the ratio of 3:2. Their Balance Sheet as on 31st March 2019 was as follows.
| Balance Sheets as on 31st December 2019. | |||
| Liabilities | Amount ₹ | Assets | Amount ₹ |
| Capital Account : | Building | 7000 | |
| Shailesh | 10,000 | Plant | 9,000 |
| Shashank | 6,000 | Debtors | 14,000 |
| Current Account : | Stock | 5,000 | |
| Shailesh | 3,000 | Bank | 6,000 |
| Shashank | 2,000 | ||
| Creditors | 17,400 | ||
| Bills payable | 2,600 | ||
| 41,000 | 41,000 | ||
The firm was dissolved on the above date and the assets realised as under.
1. Plant ₹ 8,000, Building ₹ 6,000, Stock ₹ 4,000 and Debtors ₹ 12,000.
2. Shailesh agreed to pay of the Bills Payable.
3. Creditors were paid in full.
4. Dissolution expenses were ₹ 1,400
Prepare Realisation A/c, Partners Current A/c, Partners Capital A/c, and Bank A/c
Sangeeta, Anita, and Smita were in partnership sharing Profits and Losses in the ratio 2: 2: 1. Their Balance Sheet as on 31st March 2019 was as under:
| Balance Sheets as on 31st March, 2019 | |||
| Liabilities | Amount (₹) | Assets | Amount (₹) |
| Capital: | Land | 2,10,000 | |
| Sangeeta | 60,000 | Plant | 20,000 |
| Anita | 40,000 | Goodwill | 15,000 |
| Smita | 30,000 | Debtors | 1,25,000 |
| Sangeeta’s Loan A/c | 1,20,000 | Loans and Advances | 15,000 |
| Sundry Creditors | 1,20,000 | Bank | 5,000 |
| Bills Payable | 20,000 | ||
| 3,90,000 | 3,90,000 | ||
They decided to dissolve the firm as follows:
1. Assets realised as; Land recovered ₹ 1,80,000; Goodwill for ₹ 75,000; Loans and Advances realised ₹ 12,000; 10% of the Debts proved bad;
2. Sangeeta took Plant at book value.
3. Creditors and Bills payable paid at 5% discount.
4. Sangeeta’s Loan was discharged along with ₹ 6,000 as Interest.
5. There was a contingent liability in respect of bills of ₹ 1,00,000 which was under discount. Out of them, a holder of one bill of ₹ 20,000 became insolvent
Show Realisation Account, Partners Capital Account, and Bank Account.
The dissolution of partnership may take place in the following ways?
A firm is dissolved with the consent of all the partners or in accordance with a contract between the partners is known as ______
Pick the odd one out: (In reference to Dissolution partnership firm)
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:
Complete the following table:
| Debit side total of Capital A/c |
Credit side total of Capital A/c |
Cash brought by Partner |
| ₹ 51,000 | ? | ₹ 17,000 |
Aditya, Abhinav and Ankit were partners in a firm sharing profits in the ratio of 4: 3 : 3. On 31st March, 2022, the firm was dissolved. Aditya was appointed to complete the dissolution process for which he was allowed a remuneration of ₹ 42,000. Aditya also agreed to bear dissolution expenses. Actual expenses on dissolution amounted to ₹ 33,000 which were paid by Aditya. Aditya’s Capital Account will be credited by:
Pass necessary Journal Entries for the following transactions on the dissolution of a partnership firm of Mita and Sonu on 31st March, 2022 after the various assets other than cash and third party liabilities have been transferred to the Realisation Account.
- Creditors of ₹ 90,000 took over Land and Building of ₹ 2,00,000 in full settlement of their claim.
- Sonu took over debtors amounting to ₹ 50,000 at ₹ 40,000.
- Realisation expenses ₹ 1,800 were paid by Sonu.
- A machine which was not recorded in the books was taken over by Mita at ₹ 11,000 while its expected market value was ₹ 15,000.
- Sortu agreed to pay off his wife's loan of ₹ 20,000.
- Profit on dissolution amounted at ₹ 50,000.
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 ______.
Assertion: A revaluation account is prepared at the time of dissolution of a partnership.
Reason: A revaluation account is prepared to determine the net gain/loss on realisation of assets and settlement of liabilities.
Which one of the following is correct?
