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Question
Pass the necessary journal entries for the following transaction of the dissolution of the firm of James and Haider who were sharing profits and losses in the ratio of 2 : 1.
The various assets (other than cash) and outside liabilities have been transferred to Realisation Account:
(i) James agreed to pay off his brother’s loan Rs 10,000
(ii) Debtors realized Rs 12,000
(iii) Haider took over all investment at Rs 12,000
(iv) Sundry creditors Rs 20,000 were paid at 5% discount
(v) Realisation expenses amounted to Rs 2,000
(vi) Loss on realization was Rs 10,200.
Solution
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Journal |
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Date |
Particulars |
L.F. |
Debit Amount Rs |
Credit Amount Rs |
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(i) |
Realisation A/c |
Dr. |
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10,000 |
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To James’s Capital A/c |
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10,000 |
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(James agreed to pay his brother’s loan) |
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(ii) |
Bank A/c |
Dr. |
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12,000 |
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To Realisation A/c |
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12,000 |
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(Debtors realized) |
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(iii) |
Haider’s Capital A/c |
Dr. |
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12,000 |
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To Realisation A/c |
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12,000 |
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(Haider took over investment) |
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(iv) |
Realisation A/c |
Dr. |
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19,000 |
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To Bank A/c |
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19,000 |
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(Sundry creditors Rs 20,000 paid at a discount of Rs 1,000) |
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(v) |
Realisation A/c |
Dr. |
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2,000 |
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To Bank A/c |
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2,000 |
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(Realisaiton expenses paid) |
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(vi) |
James’s Capital A/c |
Dr. |
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6,800 |
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Haider’s Capital A/c |
Dr. |
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3,400 |
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To Realisation A/c |
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10,200 |
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(Loss on Realisation transferred to Partners’ Capital Accounts) |
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RELATED QUESTIONS
Chopra, Shah and Patel were partners sharing profits in the ratio of 3:2:1. On 31.3.2014 their firm was dissolved. The assets were realized and liabilities were paid off. The accountant prepared Realisation Account, Partner's Capital Accounts and Cash Account but forgot to post few amounts in these accounts.
You are required to complete the below give accounts by posting correct amounts
| Realisation Account | |||
| Dr. | Cr. | ||
| Particulars |
Amount Rs |
Particulars |
Amount Rs |
| To Plant and Machinery | 1,60,000 | By Sundry Creditors | 1,50,000 |
| To Stock | 1,50,000 | By Mrs. Chopra Loan | 1,30,000 |
| To Sundry Debtors | 2,00,000 | By Repairs and Renewals Reserve | 12,000 |
| To Prepaid Insurance | 4,000 | By Provision for Bad debts | 10,000 |
| To Investment | 30,000 | By Cash A/c – (Assets sold) | |
| To Chopra’s Capital A/c (Mrs. Chopra’s Loan) |
1,30,000 | Plant 1,20,000 | |
| To Cash A/c (Dishonored Bill) | 50,000 | Stock 1,20,000 | |
| To Cash (Creditors) | 1,50,000 | Debtors 1,60,000 | 3,80,000 |
| To Cash (Expenses) | 8,000 | By Chopra’s Capital A/c (Investment) |
20,000 |
| ----------------- | ------- | ||
| 8,82,000 | 8,82,000 | ||
| Capital Account | |||||||
| Dr. | Cr. | ||||||
| Particulars |
Chopra Rs |
Shah Rs |
Patel Rs |
Particulars |
Chopra Rs |
Shah Rs |
Patel Rs |
| To Realisation | 20,000 | ----- | ------ | By bal b/d | |||
| -------- | -------- | -------- | -------- | By Realisation (Loan) |
1,30,000 | ||
| -------- | -------- | -------- | -------- | ------------- | -------- | -------- | -------- |
| 2,30,000 | 1,50,000 | 30,000 | 2,30,000 | 1,50,000 | 30,000 | ||
| Cash Account | |||
| Dr. | Cr. | ||
| Particulars |
Amount Rs |
Particulars |
Amount Rs |
| --------------- | -------- | By Realisation A/c (Dishonored Bill) |
50,000 |
| --------------- | -------- | By Realisation (Sundry Creditors) | 1,50,000 |
| To Patel’s Capital A/c | 10,000 | --------------- | -------- |
| By Chopra’s Capital A/c | 1,20,000 | ||
| By Shah’s Capital A/c | 90,000 | ||
| 4,18,000 | 4,18,000 | ||
Hanif and Jubed were partners in a firm sharing profits in the ratio of their capitals. On the 31st March 2013 their Balance Sheet was as follows:
| Balance Sheet of Hanif and Jubed as on 31st March 2013 | |||
| Liabilities | Rs | Assets | Rs |
|
Creditors Workman Companion Fund General Reserve Hanif’s Current Account Capital's: Hanif 10,00,000 Jubed 5,00,000 |
1,50,000 3,00,000 75,000 25,000
15,00,000 |
Bank Debtors Stock
Furniture Machinery Jubed’s Current Account |
2,00,000 3,40,000 1,50,000
4,60,000 8,20,000 80,000 |
| 20,50,000 | 20,50,000 | ||
On the above date the firm was dissolved:
a. Debtors were realised at a discount of 5%, 50% of the stock was taken over by Hanif at 10% less than the book value. Remaining stock was sold for Rs 65,000.
b. Furniture was taken over by Jubed for Rs 1,35,000. Machinery was sold as scrap for Rs 74,000.
c. Creditors were paid in full.
d. Expenses on realisation Rs 8,000 were paid by Hanif.
Prepare Realisation Account.
Niyati, Kartik, and Ratik were partners in firm sharing profits and losses in the ratio of 5 : 3: 2. The firm was dissolved on 31st March 2019 by the order of the court. After transfer of assets (other than cash) and external liabilities to Realization Account, the following transactions took place:
(a) An unrecorded liability of the firm of ₹ 45,000 was paid by Niyati.
(b) Creditors, to whom ₹ 67,000 were due to be paid, accepted furniture at ₹ 35,000 and the balance was paid to them in cash.
(c) Kartik had given a loan of ₹ 18,000 to the firm which was paid to him.
(d) Stock worth ₹ 85,000 was taken over by Ratik at ₹ 72,000.
(e) Expenses on dissolution amounted to ₹ 6,000 and were paid by Kartik.
(f) Loss on dissolution amounted to ₹ 40,000.
Pass the necessary journal entries for the above transactions in the books of the firm.
At the time of dissolution of a partnership firm, its Balance Sheet showed the stock of ₹ 30,000 comprising easily marketable items, obsolete items and a few miscellaneous other items. These items were realized as:
- Easily Marketable Items: 65% of the total inventory in full.
- Obsolete items: 20% of the total inventory had to be discarded.
- The miscellaneous other items in the stock are at 40% of their book value.
You are required to pass the journal entry for the realisation of stock.
Sita and Gita were partners sharing profits and losses in the ratio of 4 : 5. They dissolved their partnership on 31st March, 2021, when their Balance Sheet showed the following balances:
| Particulars | (₹) |
| Sita’s Capital | 30,000 |
| Gita’s Capital | 35,000 |
| Gita’s Current A/c (Dr) | 2,000 |
| Contingency Reserve | 18,000 |
| P/L A/c (Dr) | 4,500 |
On the date of dissolution:
- The firm, upon realisation of assets and settlement of liabilities, made a profit of ₹ 9,000.
- Gita paid the realisation expenses of ₹ 2,000.
- Gita discharged the outstanding salary of the manager of the firm of ₹ 1,000 which was unrecorded in the books.
You are required to prepare the Partners’ Capital Accounts.
When is Realisation Account opened?
Which account is debited on payment of dissolution expenses?
Write the word/term/phrase, which can substitute each of the following statements.
"Debit balance of an insolvent Partner's Capital Account".
Partnership is compulsorily dissolved when the partners of the firm become ______
On taking responsibility for payment of a liability of ₹ 50,000 by a partner, the account credited will be:
At the time of dissolution of the firm, at which stage the balance of the partner's capital accounts is paid?
On dissolution of the firm, the amount received from the sale of the unrecorded asset is credited to ______.
If goodwill is already appearing in the books of accounts at the time of retirement of a partner, then it should be written off in ______.
On dissolution, if a partner undertakes to make payment of a liability of the firm is debited to ______.
T, U and V were partners in a firm sharing profits and losses in the ratio of 2 : 1 : 2. Their firm was incurring huge losses thus it had to be closed. After transferring assets (other than cash in hand and bank) and third party liabilities to Realization Account the following transactions took place:
- T took away 50% of the stock at book value less 10% for ₹ 90,000, and the remaining stock was sold for ₹ 40,000.
- Creditors of ₹ 78,000 took over machinery of ₹ 80,000 in full settlement of their claim.
- ₹ 5,000 debtors previously written off were recovered.
- Mrs. V's loan of ₹ 72,000 was paid by the firm.
- Loss on dissolution was ₹ 80,000.
Pass necessary journal entries for the above transactions in the book of T. U and V.
On the dissolution of the firm, Partner Rex agreed to take over the responsibility of completing the dissolution work at an agreed remuneration of ₹ 1000 and to bear all realisation expenses. The actual realisation expenses amounted to ₹ 1,300 which were paid by the firm on Rex's behalf.
What amount will be debited by the firm to the Realisation Account?
Adit and Shiv were partners sharing profits and losses in the ratio of 5 : 4. They dissolved their partnership firm on 31st March 2023, when their Balance Sheet showed the following balances:
| Particulars | (₹) |
| Adit's Capital | 40,000 |
| Shiv's Capital | 30,000 |
| Adit's Current A/c (Cr.) | 3,000 |
| Shiv's Current A/c (Dr.) | 6,000 |
| Loan by the firm to Shiv | 22,000 |
| Profit & Loss Account (Dr.) | 4,500 |
On the date of dissolution of the firm:
- The firm suffered a loss of ₹ 18,000 upon realisation of assets and settlement of liabilities.
- The expenses of dissolution of ₹ 3,000, to be borne by Shiv, were paid by the firm on his behalf.
- The firm had furniture of ₹ 15,000. Adit took over some pieces of the furniture at ₹ 9,000 (being 10% less than the book value). Shiv took over the remaining furniture at 80% of its book value.
You are required to prepare the Partners Capital Accounts.
