G1 6.3 Partnership - Dissolution

6. PARTNERSHIP ACCOUNTING Dissolution of Firm Question 30: A, B and C are partners in a firm sharing profits and losses in the ratio of 3:2:1. They decided to dissolve the partnership business as on 31-12-12. Following is the B/S on the date of dissolution: Balance Sheet of newly reconstituted firm as on 31.12.2006 ₹

Liabilities Capital Accounts A B C Bank overdraft Sundry Creditors

Assets Machinery 20,000 Furniture 10,000 Stock 2,000 Debtors 6,000 12,000 50,000

₹ 31,000 3,000 10,000 6,000

50,000

Following assets were realised in cash: Machinery at ₹22,000; 50% of the stock at ₹3,500; & Debtors were collected at 15% less than their book values. Remaining 50% of the stock was taken over by A at ₹3,200. Furniture was taken over by B at ₹2,400. Realization expenses were ₹300. Pass necessary journal entries to close the books of the firm and also prepare Realization A/c, Bank A/c & Partners‟ Capital A/c. Answer: Realization A/c To Machinery A/c

Dr 50,000 31,000

To Furniture A/c To Stock A/c To Debtors A/c

3,000 10,000 6,000

A capital A/c B Capital A/c

Dr Dr

To Realization A/c

5,600

Sundry Creditors A/c Dr. Dr 12,000 To Realization A/c 12,000

A Capital A/c Dr B Capital A/c Dr C Capital A/c Dr To Realization A/c

Bank A/c Dr. To Realization A/c

Dr 30,600

Bank A/c To C Capital A/c

Realization A/c Dr. To Bank A/c

Dr 12,000

Realization A/c Dr. To Bank A/c

Financial Accounting

30,600

12,000 Dr

3,200 2,400

A Capital A/c B Capital A/c To Bank A/c

7,050 4,700 2,350 14,100 350 350

Dr Dr

9,750 2,900 12,650

300 300

6.3.1

Realization A/c ₹

Particulars To Machinery A/c

₹

Particulars

31,000 By Sundry Creditors. A/c

Furniture A/c

3,000

Stock A/c

10,000

Debtors A/c

6,000

12,000

Bank A/c (assets realised) A Capital A/c (Stock taken over)

3,200

B Capital A/c (furniture taken over)

2,400

Bank A/c (sundry creditors) 12,000

Partners‟ Capital A/cs (loss):

Bank A/c (expenses)

[A 7,050/ B-4,700/C-2,350]

300 62,300

A 3,200 7,050

14,100

62,300

Bank A/c 30,600 By Balance b/d (Note 1) 6,000 350 Realization A/c (creditors) 12,000 Realization A/c (expenses) 300 Capital A/c 12,650 (A-₹9,750; B-₹2,900) 30,950 30,950

To Realization A/c C‟s Capital A/c

Particulars To Realization A/c Realization A/c (loss) Bank A/c

30,600

Partners’ Capital A/c B C Particulars 2,400 ---- By Balance b/d 4,700 2,350 Bank A/c

A B C 20,000 10,000 2,000 ------350

9,750 2,900 ---20,000 10,000 2,350

20,000 10,000 2,350

Working Note: (1) Bank overdraft represents adverse balance in the Bank Account. therefore, it should not be transferred to Realization Account. [CA PE II N08, 8 marks] Question 31: Dissolution of Firm: X, Y and Z are partners of the firm XYZ and Co., sharing Profits and Losses in the ratio of 4:3:2. Following is the Balance sheet of the firm as at 31st March, 2008: Liabilities

₹

Partners‟ Capitals:

Assets Fixed Assets

₹ 5,00,000

X

4,00,000 Stock in trade

3,00,000

Y

3,00,000 Sundry debtors

5,00,000

Z

2,00,000 Cash in hand

General Reserve

90,000

Sundry Creditors

3,20,000 13,10,000

Partnership Accounting

10,000

13,10,000

6.3.2

Partners of the firm decided to dissolve the firm on the above said date. It was found that a credit purchase of ₹20,000 in January, 2008 had not been recorded in the books of the firm. Fixed assets realized ₹520,000 and book debts ₹440,000. Stocks were valued at ₹250,000 and it was taken over by partner Y. Creditors allowed discount of 5% and the expenses of realization amounted to ₹6,000. You are required to prepare: (i) Realization A/c; (ii) Partners capital A/c; and (iii) Cash account. Answer: Realization A/c ₹

Particulars To Fixed assets

₹

Particulars

5,00,000 By Creditors

3,20,000

Stock in trade

3,00,000

Cash (5,20,000+4,40,000)

9,60,000

Debtors

5,00,000

Y (Stock taken over)

2,50,000

Cash – Expenses

6,000

Cash –Creditors

Capital a/c (Loss)

3,23,000

(3,40,000x 95% )

X

44,000

Y

33,000

Z

22,000

16,29,000

16,29,000

Partners’ Capital A/c Particulars To

X

Y

Z

Realization Account

44,000

33,000

22,000

Realization Account

-

2,50,000

-

3,96,000

47,000

1,98,000

4,40,000

3,30,000

2,20,000

Cash

By

Particulars

X

Y

Z

Balance b/d

4,00,000

3,00,000

2,00,000

40,000

30,000

20,000

4,40,000

3,30,000

2,20,000

General reserve

Cash A/c Particulars To Balance b/d Realization A/c

₹

Particulars

10,000 By Realization A/c (Expenses) 9,60,000

₹ 6,000

Realization A/c (Creditors)

3,23,000

(Fixed assets and

X Capital A/c

3,96,000

book debts realized)

Y Capital A/c

47,000

Z Capital A/c

1,98,000

9,70,000

Financial Accounting

9,70,000

6.3.3

There are two methods followed to share the deficiency of the insolvent partner: (a) Garner Vs. Murray Rule (b) Indian Partnership Act, 1932.

[CMA INTER J09, 4 Marks] Question: State briefly the rule Garner vs. Murray Answer: Garner vs. Murray Rule: (The third partner who became insolvent was Mr. Wilkins) The deficiency of the insolvent partner shall be taken over by the solvent partners. The following steps are taken:

1. The loss on Realization shall be shared between all the partners (including the insolvent partner) in their profit sharing ratio. 2. The solvent partners shall bring in cash equal to the amount of loss suffered by them. 3. The deficiency of the insolvent partner shall be taken over by the solvent partners in their capital contribution ratio (fixed or fluctuating capitals) [Deed is silent]

Indian Partnership Act, 1932 As per the Indian Partnership Act, 1932, the deficiency of the insolvent partner is shared as follows:

1. The loss on Realization shall be shared between all the partners (including the insolvent partner) in their profit-sharing ratio. 2. The deficiency of the insolvent partner shall be taken over by the solvent partners in their capital contribution ratio (fixed or fluctuating capitals) Note: As per Indian Partnership Act, the solvent partners shall not bring in cash, their share of loss on Realization. Question 32: Dissolution of Firms (Single Partner Insolvent and Profit on Realization): Balance Sheet As At 31st March, 1995 Liabilities

₹

₹

Capital Accounts:

Assets Land

₹

₹ 50,000

F.Kapil

200,000

Buildings

250,000

S.Kapil

200,000

Office Equipment

125,000

R.Dev

100,000

500,000 Computers

Current Accounts: F.Kapil

50,000

S.Kapil

150,000

R.Dev

110,000

Loan from NBFC Current Liabilites

Debtors

400,000

Stocks

300,000

Cash at Bank 310,000 Other Current Assets

75,000 22,600

500,000 Current A/c 70,000 1380,000

Partnership Accounting

70,000

B.Dev

87,400 1380,000

6.3.4

The partners have been sharing profits and losses in the ratio of 4:4:1:1. It has been agreed to dissolve the firm on 1.4.1995 on the basis of the following understanding: a. The following assets are to be adjusted to the extent indicated with respect to the book values: Land 200% Buildings 120% Computers 70% Debtors 95% Stocks 90% b. In the case of loan, the lenders are to be paid at a prepayment premium of 1%. c. B. Dev is insolvent and no amount is recoverable from him. His father, R. Dev however, agrees to bear 50% of his deficiency. The balance of the deficiency is agreed to be apportioned according to law. Assuming that the realization of the assets and discharged of liabilities is carried out immediately show the Cash A/c, Realization Account and the partner‟s Accounts. Answer: In the books of M/s Kapil and Dev Cash A/c (Bank Column) ₹

Particular To Balance b/d

₹

Particular

75,000 By Realization A/c (S. Liabilities)

Realization A/c (S. Assets) 12,46,600

5,75,000

Partner‟s capital A/cs: F. Kapil

2,42,600

S.Kapil

3,42,600

R.Dev

1,61,400

13,21,600

13,21,600

Realization A/c Particular

₹

To Land

₹

Particular

₹

50,000 By Current Liabilities

Building

2,50,000

Loan from NBFC

Office equipments

1,25,000

Cash A/c:

Computers

70,000

70,000 5,00,000

Land

1,00,000

Debtors

4,00,000

Buildings

3,00,000

Stocks

3,00,000

Office Equipment

1,25,000

Other Current Assets

22,600

Cash A/c: Current Liabilities

70,000

Loan from NBFC

5,05,000

Financial Accounting

5,75,000

Computers

49,000

Debtors

3,80,000

Stock

2,70,000

Other current assets

₹

22,600 12,46,600

6.3.5

Partner‟s Current A/c: Profit on realization: F.Kapil

9,600

S.Kapil

9,600

R.Dev

2,400

B.Dev

2,400

24,000 18,16,600

18,16,600

Partners’ Current A/c [₹ in thousands] Particular By Balance b/d

Partners‟ Capital

F.K

-

S.K

R.D

B.D

Particular

F.K

To - 87.4 Balance b/d

-

59.6 159.6 112.4

Realization

59.6 159.6 112.4 87.4

B.D A/c

1

Cash A/c

-

-

17.0

17.0

9.6

-

-

2.4

2.4

- 85.0

200.0 200.0 100.0

- Current A/c

242.6 342.6 161.4

9.6

B.D

59.6 159.6 112.4 87.4

Capital A/c - 85.0 Balance b/d 51

R.D

50.0 150.0 110.0

Partners‟ Capital

Current A/c

S.K

- F. K

59.6 159.6 112.4

1

S. K1 R.DA/c

-

1

259.6 359.6 212.4 85.0

-

-

- 17.0

-

-

- 17.0

-

-

- 51.5

259.6 359.6 212.4 85.0

Question 33: Dissolution of Firm (Garner Vs Murray) Neptune, Jupiter, Venus and Pluto had been carrying on business in partnership sharing profits and losses in the ratio of 3 : 2 : 1 : 1. They decide to dissolve the partnership on the basis of the following Balance Sheet as on 30 th April, 2003: Liabilities Capital A/c Neptune Jupiter General Reserve

₹ 100,000 60,000

₹

₹

Assets Premises Furniture 160,000 Stock 56,000 Debtors

₹ 120,000 40,000 100,000 40,000

1

F. Kapil S. Kapil First 50% of loss

R. Dev

S. Dev

42.5 Dr 42.5 Cr

Second 50% of loss

17 Dr

17 Dr

8.5 Dr 42.5 Cr

Total

17 Dr

17 Dr

51 Dr 85.0 Cr

Partnership Accounting

6.3.6

Capital Reserve Sundry Creditors Mortgage Loan

14,000 Cash 20,000 Capital Overdrawn: 80,000 Venus 10,000 Pluto 12,000 3,30,000

8,000

22,000 3,30,000

1. The assets were realised as under: Particulars Debtors Stock Furniture Premises 2. Expenses of dissolution amounted to ₹4,000.

₹ 24,000 60,000 16,000 90,000

3. Further Creditors of ₹12,000 had to be met. 4. General Reserve unlike Capital Reserve was built up by appropriation of profits. You are required to draw up the Realization A/c, Partners‟ Capital Accounts and the Cash Account assuming that Venus became insolvent and nothing was realised from his private estate. Apply the principles laid down in Garner vs. Murray. Answer: Realization A/c Particulars ₹ Particulars To Sundry assets A/c (transfer): By Sundry creditors A/c Premises 1,20,000 Mortgage Loan Furniture 40,000 Cash A/c (assets sold): Stock 1,00,000 Premises Sundry Debtors 40,000 Furniture Cash A/c (creditors paid) 32,000 Stock Cash A/c (loan paid) 80,000 Debtors Cash A/c (expenses) 4,000 Loss transferred to Capital Accounts: Neptune Jupiter Venus Pluto 4,16,000

Particulars To Balance b/d To Realization A/c (assets realised) To Capital A/c (Realization loss) Neptune Jupiter Pluto To Pluto's Capital A/c

Financial Accounting

Cash A/c ₹ 8,000 By By 1,90,000 By By By 54,000 36,000 18,000 1,08,000 2,000 3,08,000

₹

₹ 20,000 80,000

90,000 16,000 60,000 24,000 1,90,000

54,000 36,000 18,000 18,000 1,26,000 4,16,000

Particulars ₹ Realization A/c (creditors) 32,000 Realization A/c (expenses) 4,000 Mortgage loan 80,000 Neptune's Capital A/c 1,18,857 Jupiter's Capital A/c 73,143

3,08,000

6.3.7

Partners’ Capital A/c Particulars

Neptune

Jupiter

Venus

Pluto

To

Particulars

Neptune

Jupiter

Venus

Pluto

1,00,000

60,000





By

Balance b/d





10,000

12,000

Balance b/d

Realisation

54,000

36,000

18,000

18,000

GR

24,000

16,000

8,000

8,000

V's Capital

11,143

6,857





CR

6,000

4,000

2,000

2,000

1,18,857

73,143





Cash A/c

54,000

36,000



18,000

N's Capital





11,143



J's Capital





6,857



Cash A/c







2,000

1,84,000

1,16,000

28,000

30,000

Cash A/c

1,84,000

1,16,000

28,000

30,000

Question 34: Dissolution of firm [All are insolvent]: A, B and C are equal partners, B/S Dec 31, 2002 Balance Sheet Liabilities

₹

Assets

Sundry Creditors

5,000 Cash in hand

A‟s Loan

1,000 Stock

Capital A/cs:

₹ 50 800

Debtors

1,000

A

800 Plant & Mach.,

2,000

C

500 Furniture & Fittings Land & Buildings B‟s Capital (overdrawn) 7,300

800 2,000 650 7,300

Due to lack of liquidity and weak financial position of the partners, the firm is dissolved. A and C are not able to contribute anything and a sum of ₹200 received from B. All of them are declared insolvent. The assets are realised: Stock ₹500; Plant and Machinery ₹1,000; Furniture and Fittings ₹200; Land & Buildings ₹800; and Debtors ₹550 only. Realization expenses amounted to ₹50. You are required to close the firm‟s books. Answer: Realization A/c Particulars ₹ Particulars To Stock A/c 800 By Cash A/c: Debtors A/c 1,000 Stock Plant & Mach. A/c 2,000 Plant & Machinery Furniture & Fittings A/c 800 Furniture & Fittings Land & Buildings A/c 2,000 Land & Buildings Cash A/c (realization exp.,) 50 Debtors Partners‟ Capital 6,650

Partnership Accounting

₹

₹

500 1,000 200 800 550 3,050 3,600 6,650

6.3.8

Cash A/c ₹ Particulars ₹ To To Bal. b/d 50 By By Realization A/c (expenses) 50 To Realization A/c (assets realised) 3.050 By Creditors A/c (final payment) 3,250 To B Capital A/cs 200 3,300 3,300 Particulars

Sundry Creditors A/c To To Cash A/c (payment) 3,250 By Balance b/d To Deficiency A/c 1,750 5,000

B‟s Capital A/c C‟s Capital A/c

To

Particulars A To Balance b/d -Realization A/c (loss) 1,200 Deficiency A/c

600 1,800

5,000 5,000

Deficiency A/c 1,650 By Sundry Creditors A/c 1,750 700 A‟s Capital A/c 600 2,350 2,350

Partners’ Capital A/c B C Particulars A B C 650 -- By Balance b/d 800 -500 1,200 1,200 Cash A/c -200 -(final dividend) --A Loan A/c 1,000 --Deficiency A/c -- 1,650 700 1,850 1,200 1,800 1,850 1,200

Piecemeal Distribution: represents the process of “Pay as and when you realize” strategy. Two methods of piecemeal distribution (1) Highest Relative Capital Method or Proportionate Capital Method or Absolute Surplus Capital Method. (2) Maximum Loss Method. Question 35: Piecemeal Distribution [Capital Proportionate Method / Maximum Loss Method]: A, B and C are partners share profit and loss in the ratio of 5:3:2. Their capital balance of A, B and C as on the date of dissolution are 12,000, 3,000 and 5,000. The assets realized after paying liabilities as ₹4,000, ₹5,000 ₹3,000 and ₹3,000 in I, II, III and IV realization. From the given information prepare a statement of distribution of realizable amount under (a) capital proportionate method (b) maximum loss method Answer: Ratio Partners Capital Capital per share

Capital Proportionate Method Order of payment 5 3 2 A B C 12000 3000 5000 2400 1000 2500

Financial Accounting

Ratio

6.3.9

Capital requirement based on lowest Share Excess Capital per share Capital requirement based on lowest Share Excess

5000 3000 2000 7000 --- 3000 1400 1500 7000 2800 -200

III – A, B & C

[5:3:2]

II – A & C I – C only

[5:2] Full

Cash Distribution under Capital Proportionate Method Partners A B Opening Balance 12000 3000 I Realization ₹4000 200 3800 2714 Balance after I Realization 9286 3000 II Realization – ₹5000 [A and C 5:2 Ratio] 3571 --Balance after II Realization 5715 3000 III Realization – ₹3000 [A, and C] 1000 715 [A, B and C] 2000 1000 600 Balance after III Realization 4000 2400 IV Realization – ₹3000 1500 900 Deficiency 2500 1500

C 5000 200 1086 3714 1429 2285 285 400 1600 600 1000

Maximum Loss Method Capital Less Maximum loss after I Realization (20,000 – 4,000) (distributed in profit and loss ratio)

Total A 20000 12000 16000 8000

4000 Adjustment of B‟s Loss in capital ratio to A&C [12:5] Cash Paid out of I Realization 4000 Balance after I Realization 16000 Less Maximum Loss after II Realization (16,000 – 5,000) 11000 5000 Adjustment of B‟s Loss in Capital Ratio 300 Cash Paid out of II Realization 5000 Balance after II Realization 11000 Less Maximum Loss after III Realization (11,000 – 3,000) 8000 Cash paid out of III Realization 3000 Balance after III Realization 8000 Less Maximum Loss after IV Realization (8,000 – 3,000) 5000 Cash Paid out of IV Realization 3000 Deficiency 5000 +/–

B C 3000 5000 4800 3200

4000 -1800 1800 -1270 1800 -530 2730 -- 1270 9270 3000 3730 5500 3300 2200 3770 -300 1530 -211 300 -89 3559 -- 1441 5711 3000 2289 4000 2400 1600 1711 600 689 4000 2400 1600 2500 1500 1000 1500 900 600 2500 1500 1000

[CA INTER N95][CMA RTP D11 & J11] Question 36: Piecemeal Distribution for Dissolution of Firm (Capital Proportionate Method) Balance Sheet Liabilities

₹

Assets

Creditors

2,00,000 Fixed Assets

Bank Loan

5,00,000 Cash and Bank

Partnership Accounting

₹ 45,00,000 2,00,000

6.3.10

L‟s Loan

10,00,000

Capital L

15,00,000

M

10,00,000

S

5,00,000

Total

47,00,000

47,00,000

Partners share profits equally. A firm of Chartered Accountants is retained to realise the assets and distribute the cash after discharge of liabilities. Their fees which are to include all expenses are fixed at ₹100,000. No loss is expected on Realization since fixed assets include valuable land and building. Realizations are: Installments

Amount in ₹

I [including cash]

5,00,000

II

15,00,000

III

15,00,000

IV

30,00,000

V

30,00,000

The Chartered Accountant firm decided to pay off the partners in „Higher Relative Capital Method‟. You are required to prepare a statement showing distribution of cash with necessary workings. Answer: Statement of Piecemeal Distribution (Under Higher Relative Capital method) [₹ in ‘000] Particulars

Amt

Crs

Bank

Avail Balance due

L’s

Capital A/c

Loan

L

M

S

200.0

500.0

1000 1500.0 1000.0

500.0

400 114.3

285.7

85.7

214.3

300

85.7

214.3

-

-

-

-

1000

-

-

1000

-

-

-

200

-

-

-

200.0

-

-

-

-

- 1300.0 1000.0

500.0

1500

-

-

-

300

-

-

-

Installment I (less liquidator expenses & fees) [500 – 100] - Payment to creditors and bank loan [Ratio 2:5] Balance Due after Installment I Installment II -

Payment to Creditors and bank loan in full settlement

-

Repayment of L‟s Loan Payment to L towards relative higher capital (W.N.1)

-

Payment to L towards higher relative

Financial Accounting

-

-

-

1000 1500.0 1000.0

500.0

1500

Balance due after installment II Installment III

-

300.0

-

-

6.3.11

capital (WN2) Payment to L & M towards excess capital (WN 1&2) -

Payment to all the partners equally

1000

-

-

-

500.0

500.0

-

200

-

-

-

66.7

66.7

66.6

-

-

-

433.3

433.3

433.4

-

-

- 1000.0 1000.0 1000.0

-

-

-

-

-

- 1000.0 1000.0 1000.0

-

-

- 1566.7 1566.7 1566.6

Balance due after Installment IV - Installment IV: Equal pay to all partners

3000

Realization of profit credited to Partners - 5th Installment: Equal pay to all partners

3000

Realization profit credited to partners

566.7

566.7

566.6

Working Notes: Scheme of payment of surplus amount of ₹200,000 out of second Installment: So Mr. L should get ₹5,00,000 first which will bring down his capital account balance from ₹15,00,000 to ₹10,00,000. Accordingly, surplus amounting to ₹2,00,000 will be paid to Mr. L towards higher relative capital. Scheme of payment of ₹15,00,000 realised in 3rd Installment:

i.

ii. –

Payment of ₹300,000 will be made to Mr. L to discharge higher relative capital. This makes the higher capital of both Mr. L and Mr. M ₹500,000 as compared to capital of Mr. S.

–

Payment of ₹500,000 each of Mr. L & Mr. M to discharge the higher capital.

–

Balance ₹200,000 equally to L, M and S, i.e., ₹66,667, ₹66,667 and ₹66,666 respectively. Payment

Capital Proportionate Method Partners Profit sharing ratio (i)

L

M

S

1

1

1

₹

₹

₹

Capital Balance (ii)

15,00,000 10,00,000 5,00,000

Capital per share (ii/i)

15,00,000 10,00,000 5,00,000

Capital required taking S‟s Capital (iii)

5,00,000

Order

5,00,000 5,00,000 III – [L, M & S]

Excess Capital (iv) = (ii) – (iii)

10,00,000

5,00,000

Excess Capital per share (iv/i)

5,00,000

5,00,000

Capital required taking M‟s Capital (v)

5,00,000

5,00,000

Higher Relative Excess v = (iv) – (iv)

5,00,000

Ratio

1:1:1

II – [L & M]

1:1

I – [L]

Full

[CA INTER N99][CMA INTER D02, 8 Marks] Question 37: Dissolution of Firm (Piecemeal Distribution: Maximum Loss Method): A, B and C are partners sharing profits and losses in the ratio of 5:3:2. Their capitals were ₹9,600, ₹6,000 and ₹8,400 respectively. After paying creditors, the liabilities and assets of the firm were:

Partnership Accounting

6.3.12

Liability

₹

Liability for loans from :

₹

Assets Investments

1,000

Spouses of partners

2,000 Furniture

2,000

Partners

1,000 Machinery

1,200

Stock

4,000

The assets realized in full in the order in which they are listed above, B is insolvent. You are required to prepare a statement showing the distribution of cash as and when available, applying maximum possible loss procedure. Answer: Statement of Distribution of Cash Realization

Partners’ Capitals

Loan Spouse partners

Balances due i.

6,000

8,400

1,000

1,000

9,600

6,000

8,400

1,000

1,000

-

-

9,600

6,000

8,400

Maximum loss 22,800 (Total Due 24,000 - cash available 1,200) allocated to partners [P/L ratio i.e. 5 : 3 : 2]

11,400

6,840

4,560

Amounts at credit

(1,800)

(840)

3,840

1,800

840

3,640

–

–

1,200

9,600

6,000

7,200

1,000

Sale of furniture

2,000

Balance after furniture iii. Sale of machinery

Amount paid Balances in capital accounts Sale of stock Maximum possible loss 18,800 (22,800 – 4,000) Allocated to partners in the ratio 5 : 3 : 2 Amounts at credit and cash paid Balances in capital accounts left unpaid—Loss

Financial Accounting

1,000

1,200

Deficiency of A and B written off against C [CR]

iv.

C

9,600

Balance after investment ii.

B

1,000

Sale of investments

2,000

A

4,000 (9,400) (5,640) (3,760)

200

360

3,440

9,400

5,640

3,760

6.3.13

ADDITIONAL PROBLEMS DISSOLUTION OF A PARTNER [CMA INTER D07, 5+2+5=12 Marks] Question: Dissolution: ASHA, REKHA, and ASHOK are partners sharing Profits and Losses in the ratio of 5:3:2 respectively. On March 31, 2007 they decided to dissolve the partnership firm and on that date their Balance Sheet was as follows: Liabilities

₹

₹

Capital : Asha 96,000 Ashok 84,000 1,80,000 General Reserve 24,000 Creditors 72,000 Bills Payable 24,000 Mrs.Ashok‟s Loan 12,000 Investment Fluctuation Fund 6,000

Assets ₹ Cash at Bank Debtors 50,400 Less : Provision 2,400 Rekha‟s Cpital Land & Building Stock Furniture Bills Receivable Investments

3,18,000

₹ 12,000 48,000 12,000 96,000 54,000 36,000 30,000 30,000 3,18,000

The terms of dissolution are as follows: a) ₹22,800 were paid to a Creditor as against only ₹15,600 provided for in the books of Accounts b) There was a bad debt of ₹8,400 and discount of 10% was allowed to Debtors. c) Bills payable were due on an average after 3 months were paid immediately at a discount of 12% p.a. d) Investment realized ₹26,400; Land and Building was sold for ₹1,20,000, Stock realized 20% less. e) Ashok agreed to pay Mrs. Ashok‟s loan and took over furniture at ₹33,600 f) A rebate of 1,200 was given to Bills Receivable and Expenses of dissolution were ₹3,600 which were paid by Rekha. Prepare Realisation Account, Bank Account and Partners‟ Capital Account to close the books of firm. Answer: Realisation A/c Particulars Amount Particulars Amount To Debtors A/c 50,400 By Provision A/c 2,400 Land & Building 96,000 Creditors A/c (72,000 + 79,200 A/c 7,200) Stock A/c 54,000 Bills Payable A/c 24,000 Furniture A/c 36,000 Mrs.Ashok loan A/c 12,000 Bills Receivable 30,000 Investment Fluctuation 6,000 A/c Fund A/c Investment A/c 30,000 Ashok Capital A/c 33,600 Cash A/c Cash A/c Creditors 79,200 Debtors 35,640 Bills Payable 21,120 Investment 26,400 Expenses 3,600 1,03,920 Land & Building 1,20,000 Ashok Capital A/c 12,000 Stock 43,200

Partnership Accounting

6.3.14

Bills Receivable Partner Capital A/c Asha Ashok Rekha

28,800 2,54,040 540 324 216

4,12,320

Asha 96,000 12,000

Ashok Rekha 84,000 7,200 4,800

33,600

Partner’s Capital A/c Ashok Rekha Particulars -12,000 By Balance c/d 2,160 1,440 General Reserve A/c --Realisation A/c

12,000

--

540

324

--

--

82,260

88,716 --

Particulars Asha To Balance -Creditors A/c 3,600 Realisation A/c Realisation A/c Cash A/c

1,080 4,12,320

216

1,20,000 91,200 13,656

Cash A/c

8,856

1,20,000 91,200 13,656

Cash A/c Particulars Amount Particulars Amount To Balance b/d 12,000 By Realisation A/c 1,03,920 Realisation A/c 2,54,040 Partner Capital A/c Rekha Partner Capital A/c 8,856 Asha Capital 82,260 Ashok Capital 88,716 1,70,976 2,74,896 2,74,896

Financial Accounting

6.3.15