Chapter 5 Dissolution of Partnership Firm Solutions

Question - 11 : -
Journalise the following transactions regarding Realisation expenses:
[a] Realisation expenses amounted to ₹ 2,500.
[b] Realisation expenses amounting to ₹ 3,000 were paid by Ashok, one of the partners.
[c] Realisation expenses ₹ 2,300 borne by Tarun, personally.
[d] Amit, a partner was appointed to realise the assets, at a cost of ₹ 4,000. The actual amount of Realisation amounted to ₹ 3,000.

Answer - 11 : -

Journal
	Particulars		L.F.	Amount ₹	Amount ₹
(a)	Realisation A/c	Dr.		2,500
	To Bank A/c				2,500
	(Realisation expenses paid)

(b)	Realisation A/c	Dr.		3,000
	To Ashok’s Capital A/c				3,000
	(Realisation expenses paid by Ashok)

(c)	No entry, as all Realisation expenses are borne personally by Tarun

(d)	Realisation A/c	Dr.		4,000
	To Amit’s Capital A/c				4,000
	(Realisation expenses paid to Amit)

Question - 12 : -
Record necessary journal entries in the following cases:
[a] Creditors worth ₹ 85,000 accepted ₹ 40,000 as cash and Investment worth ₹ 43,000, in full settlement of their claim.
[b] Creditors were ₹ 16,000. They accepted Machinery valued at ₹ 18,000 in settlement of their claim.
[c] Creditors were ₹ 90,000. They accepted Buildings valued ₹ 1, 20,000 and paid cash to the firm ₹ 30,000.

Answer - 12 : -

Journal
	Particulars		L.F.	Amount ₹	Amount ₹
(a)	Realisation A/c	Dr.		40,000
	To Cash A/c				40,000
	(Creditors worth ₹ 85,000 accepted 40,000 as cash and investment worth ₹ 43,000 in their full settlement)

(b)	No Entry
	(Creditors ₹ 16,000 accepted Machinery ₹ 18,000 in the full settlement. No entry is required since both asset and liability are already transferred to the Realisation Account)

(c)	Cash A/c	Dr.		30,000
	To Realisation A/c				30,000
	(Creditors worth ₹ 90,000 accepted buildings worth ₹ 1,20,000 and returned ₹ 30,000 as cash after settlement of claim to the firm)

Question - 13 : - There was an old computer which was written-off in the books of Accounts in the previous year. The same has been taken over by a partner Nitin for ₹ 3,000. Journalise the transaction, supposing. That the firm has been dissolved.

Answer - 13 : -

Journal
Particulars		L.F.	Amount ₹	Amount ₹
Nitin’s Capital A/c	Dr.		3,000
To Realisation A/c				3,000
(Unrecorded computer taken over by Nitin)

Question - 14 : -
What journal entries will be recorded for the following transactions on the dissolution of a firm:
[a] Payment of unrecorded liabilities of ₹ 3,200.
[b] Stock worth ₹ 7,500 is taken by a partner Rohit.
[c] Profit on Realisation amounting to ₹ 18,000 is to be distributed between the partners Ashish and Tarun in the ratio of 5:7.
[d] An unrecorded asset realised ₹ 5,500.

Answer - 14 : -

Journal
	Particulars		L.F.	Amount ₹	Amount ₹
(a)	Realisation A/c	Dr.		3,200
	To Bank A/c				3,200
	(Unrecorded liabilities paid)

(b)	(Rohit’s Capital A/c	Dr.		7,500
	To Realisation A/c				7,500
	(Stock is taken over by Rohit)

(c)	Realisation A/c	Dr.		18,000
	To Ashish’s Capital A/c				7,500
	To Tarun’s Capital A/c				10,500
	(Profit on Realisation is transferred to Partners’ Capital Account)

(d)	Bank A/c	Dr.		5,500
	To Realisation A/c				5,500
	(Unrecorded asset sold)

Question - 15 : -
Give journal entries for the following transactions:
1. To record the Realisation of various liabilities and assets,
2. A Firm has a Stock of ₹ 1, 60,000. Aziz, a partner took over 50% of the Stock at a discount of 20%,
3. Remaining Stock was sold at a profit of 30% on cost,
4. Land and Building (book value ₹ 1,60,000) sold for ₹ 3,00,000 through a broker who charged 2%, commission on the deal,
5. Plant and Machinery (book value ₹ 60,000) was handed over to a Creditor at an agreed valuation of 10% less than the book value,
6. Investment whose face value was ₹ 4,000 was realised at 50%.

Answer - 15 : -

Journal
	Particulars		L.F.	Amount ₹	Amount ₹
1)
(a)	For Transfer of Assets
	Realisation A/c	Dr.		–
	To Assets A/c (Individually)				–
	(Assets transferred to Realisation Account)

(b)	For Transfer of Liabilities
	Liabilities A/c (Individually)	Dr.		–
	To Realisation A/c				–
	(Liabilities transferred to Realisation Account)

(c)	For sale of Asset
	Cash/Bank A/c	Dr.		–
	To Realisation A/c				–
	(Assets sold)

(d)	For liabilitiy paid
	Realisation A/c	Dr.		–
	To Cash/Bank A/c				–
	(Liabilities paid)

2)	Aziz’s Capital A/c	Dr.		64,000
	To Realisation A/c				64,000
	(Aziz, a partner took over 50% of stock at 20% discount, the value of the total stock was ₹ 1,60,000) [1,60,000 × (50/100) × (80/100) = ₹ 64,000]

3)	Bank A/c	Dr.		1,04,000
	To Realisation A/c				1,04,000
	(Stock worth ₹ 80,000 sold at a profit of 30% on cost) [80,000 × (130/100 = ₹ 1,04,000)]

4)	Bank A/c	Dr.		2,94,000
	To Realisation A/c				2,94,000
	(Land and Building sold for ₹ 3,00,000 and 2% commission paid to the broker)

5)	No entry
	(Plant and Machinery ₹ 60,000 handed over to the creditors at a discount of 10%. No entry is required as both the asset and liability are already transferred to the Realisation Account)

6)	Bank A/c	Dr.		2,000
	To Realisation A/c				2,000
	(Investments worth ₹ 4,000 were realised at 50%)

Question - 16 : -
How will you deal with the Realisation expenses of the firm of Rashim and Bindiya in the following cases?
1. Realisation expenses amounts to ₹ 1, 00,000,
2. Realisation expenses amounting to ₹ 30,000 are paid by Rashim, a partner.
3. Realisation expenses are to be borne by Rashim for which he will be paid ₹ 70,000 as remuneration for completing the dissolution process. The actual expenses incurred by Rashim were ₹ 1, 20,000.

Answer - 16 : -

Books of Rashim and Bindiya Journal
	Particulars		L.F.	Amount ₹	Amount ₹
1)	Realisation A/c	Dr.		1,00,000
	To Bank A/c				1,00,000
	(Realisation expenses paid)

2)	Realisation A/c	Dr.		30,000
	To Rashim’s Capital A/c				30,000
	(Realisation expenses borne by Rashim)

3)	Realisation A/c	Dr.		70,000
	To Rashim’s Capital A/c				70,000
	(Realisation expenses borne by Rashim and remuneration to him for dissolution ₹ 70,000)

Question - 17 : -
The book value of assets (other than cash and bank) transferred to Realisation Account is ₹ 1, 00,000. 50% of the assets are taken over by a partner Atul, at a discount of 20%; 40% of the remaining assets are sold at a profit of 30% on cost; 5% of the balance being obsolete, realised nothing and remaining assets are handed over to a Creditor, in full settlement of his claim.

You are required to record the journal entries for Realisation of assets.

Answer - 17 : -

Journal
Particulars		L.F.	Amount ₹	Amount ₹
Realisation A/c	Dr.		1,00,000
To Sundry Assets A/c				1,00,000
(Assets other than cash and bank transferred to Realisation Account)

Atul’s Capital A/c	Dr.		40,000
To Realisation A/c				40,000
(Atul took over 50% of assets worth ₹ 1,00,000 at 20% discount) [1,00,000 × (50/100) × (80/100)]

Bank A/c	Dr.		26,000
To Realisation A/c				26,000
(Assets worth ₹ 20,000, i.e. 40% of assets of ₹ 50,000 are sold at a profit of 30%) [50,000 × (40/100) × (130/100)]

No entry is made for obsolescence of the assets and the assets given to the creditors in the full settlement as these are already transferred to the Realisation Account and adjusted)

Question - 18 : -
Record necessary journal entries to record the following unrecorded liabilities and assets in the books of Paras and Priya:
1. There was an old furniture in the firm which had been written-off completely in the books. This was sold for ₹ 3,000,
2. Ashish, an old customer whose Account for ₹ 1,000 was written-off as bad in the previous year, paid 60%, of the amount,
3. Paras agreed to take over the firm’s goodwill (not recorded in the books of the firm), at a valuation of ₹ 30,000,
4. There was an old typewriter which had been written-off completely from the books. It was estimated to realize ₹ 400. It was taken away by Priya at an estimated price less 25%,
5. There were 100 shares of ₹ 10 each in Star Limited acquired at a cost of ₹ 2,000 which had been written-off completely from the books. These shares are valued @ ₹ 6 each and divided among the partners in their profit sharing ratio.

Answer - 18 : -

Books of Paras and Priya Journal
	Particulars		L.F.	Amount ₹	Amount ₹
1)	Bank A/c	Dr.		3,000
	To Realisation A/c				3,000
	(Unrecorded furniture sold)

2)	Bank A/c	Dr.		600
	To Realisation A/c				600
	(Bad Debt recovered which was previously written off as bad)

3)	Paras’s Capital A/c	Dr.		30,000
	To Realisation A/c				30,000
	(Unrecorded goodwill taken over by Paras)

4)	Priya’s Capital A/c	Dr.		300
	To Realisation A/c				300
	(Unrecorded Typewriter estimated ₹ 400 taken over by Priya at 25% less price)

5)	Paras’s Capital A/c	Dr.		300
	Priya’s Capital A/c	Dr.		300
	To Realisation A/c				600
	(100 shares of ₹ 10 each which were not recorded in the books taken @ ₹ 6 each by Paras and Priya and divided between them in their profit sharing ratio)

Question - 19 : - All partners wish to dissolve the firm. Yastin, a partner wants that her loan of ₹ 2, 00,000 must be paid off before the payment of capitals to the partners. But, Amart, another partner wants that the capitals must be paid before the payment of Yastin’s loan. You are required to settle the conflict giving reasons.

Answer - 19 : -

As per section 48 of Partnership Act 1932, at the time of dissolution, loans and advances from the partners must be paid off before the settlement of their capital accounts. Hence, Yastin’s argument is correct that her loan of ₹ 2, 00,000 must be paid off before the payment of partners’ capital.

Question - 20 : -
What journal entries would be recorded for the following transactions on the dissolution of a firm after various assets (other than cash) on the third party liabilities have been transferred to Realisation Account?
1. Arti took over the Stock worth ₹ 80,000 at ₹ 68,000.
2. There was unrecorded Bike of ₹ 40,000 which was taken over By Mr. Karim.
3. The firm paid ₹ 40,000 as compensation to employees.
4. Sundry creditors amounting to ₹ 36,000 were settled at a discount of 15%.
5. Loss on Realisation ₹ 42,000 was to be distributed between Arti and Karim in the ratio of 3:4.

Answer - 20 : -

Journal
	Particulars		L.F.	Amount ₹	Amount ₹
1	Arti’s Capital A/c	Dr.		68,000
	To Realisation A/c				68,000
	(Arti took over stock worth ₹ 80,000 at ₹ 68,000)

2.	Karim’s Capital A/c	Dr.		40,000
	To Realisation A/c				40,000
	(Karim took over an unrecorded bike of ₹ 40,000)

3.	Realisation A/c	Dr.		40,000
	To Bank A/c				40,000
	(Compensation paid to the employees )

4.	Realisation A/c	Dr.		30,600
	To Bank A/c				30,600
	(Creditors amounting ₹ 36,000 were settled at a discount of 15%) [36,000 × (85/100)]

5.	Arti’s Capital A/c	Dr.		18,000
	Karim’s Capital A/c	Dr.		24,000
	To Realisation A/c				42,000
	(Loss on Realisation transferred to Partners’ Capital Account)

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Chapter 5 Dissolution of Partnership Firm Solutions

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