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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. |
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Cr. |
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Particulars |
Amount Rs |
Particulars |
Amount Rs |
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To Plant |
2,20,000 |
By Creditors |
75,000 |
||
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To Investments |
70,000 |
By Bills Payable |
40,000 |
||
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To Stock |
50,000 |
By Outstanding Salary |
35,000 |
||
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To Debtors |
60,000 |
By Bank A/c |
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||
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To Bank |
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Plant 85,000 |
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Creditors 75,000 |
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Stock 33,000 |
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Bills Payable 40,000 |
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Debtors 47,000 |
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||
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Outstanding Salary 35,000 |
1,50,000 |
Investments 66,500 |
2,31,500 |
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To Bank |
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By Partner’s Capital A/cs-Loss |
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Outstanding Bill for Repair 7,500 |
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Srijan 81,030 |
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Dishonoured of Discounted Bill 15,000 |
22,500 |
Raman 81,030 |
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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 |
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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 | ||
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Bank Account |
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Dr. |
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Cr. |
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Particulars |
Amount Rs |
Particulars |
Amount Rs |
||
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Balance b/d |
10,000 |
To Realisation A/c-Recorded liabilities repaid |
1,50,000 |
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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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3,08,015 |
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3,08,015 |
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RELATED QUESTIONS
An account opened to find out the profit or loss on sale of assets and settlement of liabilities.
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:
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Pass necessary journal entries for the above transactions in the books of G and H.
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(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.
Pass necessary journal entries on the dissolution of a partnership firm in the following cases :
1) Expenses of dissolution Rs 500 were paid by John, a partner.
2) Joney, a partner, agreed to bear the dissolution expenses for a commission of 750. Actual dissolution expenses 650 were paid by Joney
3) Bony, partner agreed to look after the dissolution work for a remuneration of Rs 3,700. He also agreed to bear the dissolution expenses. Actual dissolution expenses Rs 4,200 were paid by Bony from the firm’s cash.
4) Sony, a partner, was appointed to look after the dissolution work for a remuneration of Rs 10,000. Sony agreed to bear the dissolution expenses. Sony took away stock worth Rs 10,000 as his remuneration. The stock had already been transferred to realisation account.
5) Vikky, a partner, agreed to look after the dissolution work for a remuneration of Rs 12,000. Vikky also agreed to bear the dissolution expenses. Actual dissolution expenses Rs 12,500 were paid by another partner, Clive, on behalf of Vikky.
6) Dissolution expenses were Rs 5,000
Prachi, Ritika and Ishita were partners in a firm sharing profits and losses in the ratio of 5 : 3: 2. In spite of repeated reminders by the authorities, they kept dumping hazardous material into a nearby river. The court ordered for the dissolution of their partnership firm on 31st March 2012. Prachi was deputed to realise the assets and pay the liabilities. She was aid Rs 1,000 as the commission for her services. The financial position of the firm was as follows:
| Liabilities | Rs | Assets | Rs |
|
Creditors Investment Fluctuation Fund Capitals Prachi Ritika |
2,00,000 30,000 30,000 40,000 |
Furniture Stock Investments Cash Ishita's Capital
|
37,000 5,500 15,000 9,000 18,000
|
| 84,500 | 84,500 |
Give the word/term/phrase which can substitute the following statement.
Assets which are not recorded in the books of account.
If any unrecorded liability is paid on dissolution of the firm ___________ is debited.
Answer in one sentence only.
What is a capital deficiency?
Answer in one sentence only.
Who is called insolvent person?
Answer in one sentence only.
Who should bear the capital deficiency of an insolvent partner?
Write the word / term / phrase, which can substitute the following statement.
Conversion of assets into cash on dissolution of firm.
State whether the following statement is True or False with reason.
Dissolution takes place when the relation among the partners comes to an end.
X, Y and Z were carrying on business. They share profits and losses in the ratio of 5:3:2 respectively. Their Balance Sheet as on 31st March, 2010 was as under:
Balance Sheet as on 31st March, 2010
| Liabilities | Amount (Rs) | Assets | Amount (Rs) | |
| Sundry Creditors | 21000 | Plant and Machinery | 20000 | |
| Y’s loan | 5000 | Investment | 8000 | |
| Reserve fund | 20000 | Stock | ||
| Capital Account: | Debtors | 18000 | 17000 | |
| X | 20000 | Less : R.D.D | 1000 | |
| Y | 10000 | Cash in hand | 2000 | |
| Z | 4000 | Cash at Bank | 3000 | |
| 80000 | 80000 | |||
On the above date the firm was dissolved and the assets realised as under:
1) Investment Rs 5,000, Stock Rs 24,000 and Debtors Rs 15,000.
2) The Plant and Machinery was taken over by Mr. ‘X’ at book value.
3) Sundry Creditors and Mr. ‘Y’ loan were paid in full.
4) Realisation expenses incurred Rs 1,000.
Prepare Realisation Account, Partner’s Capital Account and Bank Account
(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
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.
What is a Realisation Account?
Realisation account is __________ on realisation of assets.
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.
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.
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.
Creditors ₹ 30,000, Bills Payable ₹ 20,000 and Bank Loan ₹ 10,000. Available Bank Balance ₹ 40,000 what will be the amount that creditors will get in case of all partner's insolvency.
Leela, Manda, and Kunda are partners in the firm ‘Janki Stores’ sharing Profits and Losses in the ratio of 3:2:1 respectively. On 31st March 2018, they decided to dissolve the firm when their Balance Sheet was as under.
| Balance Sheets as on 31st March 2018. | |||
| Liabilities | Amount (₹) | Assets | Amount (₹) |
| Creditors | 28,800 | Building | 1,02,000 |
| Bills Payable | 21,600 | Machinery | 73,000 |
| Capital A/c’s | Motor Car | 1,67,600 | |
| Leela | 2,27,160 | Goodwill | 45,600 |
| Manda | 1,44,000 | Investment | 62,400 |
| Kunda | 1,08,000 | Debtors | 30,600 |
| Stock | 45,000 | ||
| Bank | 3,360 | ||
| 5,29,560 | 5,29,560 | ||
Leela agreed to take over the Building at ₹ 1,23,600. Manda took over Goodwill, Stock, and Debtors at Book values and agreed to pay Creditors and Bills payable. Motor Car and Machinery realised ₹ 1,51,080 and ₹ 31,680 respectively. Investments were taken by Kunda at an agreed value of ₹ 55,440. Realisation expenses amounted to ₹ 6,800.
Pass necessary entries in the books of ‘Janki Stores.’
Seeta and Geeta are partners in the firm sharing Profits and Losses in the ratio of 4:1. They decided to dissolve the partnership on 31st March 2020 on which date their Balance Sheet stood as follows.
| Balance Sheets as on 31st March 2020 | ||||
| Liabilities | Amount (₹) | Assets | Amount (₹) | Amount (₹) |
| Capital: | Furniture | 14,000 | ||
| Seeta | 90,000 | Plant | 65,000 | |
| Geeta | 40,000 | Trademark | 8,000 | |
| Sundry Creditors | 35,000 | Sundry Debtors | 48,000 | 45,000 |
| Bank Loan | 15,000 | Less: R.D.D | 3,000 | |
| Stock | 30,000 | |||
| Cash in hand | 10,000 | |||
| Advertisement Suspense | 8,000 | |||
| 1,80,000 | 1,80,000 | |||
Additional Information:
- Plant and Stock taken over by Seeta ₹ 78,000, and ₹ 22,000 respectively.
- Debtors Realised 90% of the Book Value and Trademark at ₹ 5,000. and Goodwill was realised for ₹ 7,000.
- Unrecorded assets estimated ₹ 4,500 was sold for ₹ 1,500.
- ₹ 1,000 Discount were allowed by creditors while paying their claim.
- The Realisation Expenses amounted to ₹ 3,500.
You are required to prepare Realisation A/c, Cash A/c, and Partners Capital A/c.
On which of the following grounds the court may order a partnership firm to be dissolved?
Consider the following statements
Statement 1: "The firm is dissolved automatically, on the retirement all partners."
Statement 2: A firm dissolves on the retirement of a partner.
At the time of dissolution, all assets are transferred to Realisation Account at their ______.
Which of the following is the characteristic of a partnership firm?
Pick the odd one out.
On dissolution of the firm, ______ will be debited to the Realisation Account.
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.
Total assets of a partnership firm, which was dissolved were ₹ 30,00,000 and its total liabilities were ₹ 6,00,000. Assets were realised at 80% and liabilities were settled at 5% less. If dissolution expenses were ₹ 30,000 the profit or loss on dissolution was ______.
Pass the necessary journal entries for the following transactions on the dissolution of the partnership firm of Tina and Rina after various assets (other than cash) and external liabilities have been transferred to Realisation Account:
- An unrecorded asset of ₹ 18,000 was taken over by Tina at ₹ 16,000.
- Rina agreed to pay her brother's loan of ₹ 23,000.
- Stock of ₹ 30,000 was taken over by a creditor of ₹ 40,000 in full settlement.
- Expenses of dissolution ₹ 40,000 were paid by Rina.
- Creditors were paid ₹ 18,800 in full settlement of their account of ₹ 20,000.
- Tina's loan of ₹ 15,000 was paid through a cheque.
Sun and Kiran are partners sharing profits and losses equally. They decided to dissolve their firm. Assets and Liabilities have been transferred to Realisation Account. Pass necessary Journal entries for the following:
- All partners are agreed that the process of realisation at the time dissolution will be accomplished by Sun for which he will be paid ₹ 10,000 along with the amount of expense which amounted to 2% of total value realised from the Assets on dissolution. Some assets were sold for Cash at a cumulative Value of ₹ 12,00,000 and the remaining were taken over by creditors at a valuation of ₹ 3,00,000.
- Deferred Advertisement Expenditure A/c appeared in the books at ₹ 28,000.
- Out of the Stock of ₹ 1,20,000; Kiran (a partner) took over 1/3 of the stock at a discount of 25% and 50% of remaining stock was took over by a Creditor of ₹ 30,000 in full settlement of his claim. Balance amount of stock realized at ₹ 25,000.
- An outstanding bill for repairs and renewal of ₹ 3,000 was settled through an unrecorded asset which was valued at ₹ 10,000. Balance being settled in Cash.
Insolvent partner Capital A/c debit side total is ₹ 25,000 and credit side total is ₹ 10,000. Calculate deficiency.
Read the following hypothetical situation and answer question on the basis of the same.
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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:
