1.

A, B and C started business on 1 st April 2002 with capital of

Rs.1,00,000, Rs.80,000and Rs.60,000 respectively sharing profits and losses in the ratio of 4:3:3 for the
year ended 31st March 2003. The firm suffered a loss of Rs.50,000. Each of the partner with
draw Rs.10,000 during the year on 31st March 2003, the firm was dissolved. The creditors of the firm
stood at Rs.24,000 on that day and cash in hand was Rs.4,000. The assets realized Rs.3,00,000 and
creators were paid Rs.23,500 in full settlement of that claim. Prepare realization A/c and show working.
2. Give four difference between dissolution of partnership and dissolution of partnership firm.
3. Pass tournal entries for the following at the time of dissolution of a firm
1) Sale of Assets – Rs.50,000
2) Payment of Liability – Rs.10,000
3) Commission of 5% allowed to Mr. A partner on sale assets.

1) Unrecorded assets realized Rs.1,300

2) Bank loan Rs.12,000 is paid
3) Stock worth Rs.6,000 is taken by partner –B
4) Dissolution expenses amounted to Rs.700
5) The Balance sheet of P, Q & R as on 31st March 2003. Who are sharing profits in the ratio of
5:3:1 was as follows:
Liabilities Assets
B/P 40,000 Buildings
Loan from Bank 30,000 40,000
Reserve Fund 9,000 Plant and Machinery
Capital P – 44,000 40,000
Q – 36,000 Stock
R –20,000 1,00,000 19,000
Debtors 42,000
Provisions 2,000
40,000
Cash
40,000
1,79,000
1,79,000

The partners dissolved the firm, the assets realized stock – Rs.23,400, Debtors – 50% fixed assets –
10% has than their book value B/P were settled for Rs.32,000. There was our outstanding bill of Rs.800.
Which was paid off. Realisation expense Rs.1,250 were also paid. Prepare realization A/c, Bank A/c and
partners capital A/c.
6.P and Q were partners in a firm sharing profits and losses in the ratio of 3:2. They agreed to dissolve
their partnership firm on 31st March 2003. P was deputed to realize the assets and pay the liabilities.
He was paid Rs.1,000 as commission for his [Link] position of the firm was as follows:
Balance sheet as on 31st March 2003
Creditors 10,000 Land, Building
B/P 3,700 30,000
Investment Stock
Fund 4,500 5,500
Capital P 37,500 Investment
 R 15,000 15,000
Accounts receivable 7,100
Provision
450
Cash
12,650
70,700
70,700

P took over investment for Rs.12,500. Stock and Debtors were realized Rs.7,500. Land and
building were sold to [Link] Rs.22,500 for cash. Realisation expenses paid Rs.900. Prepare
Realisation A/c and partners capital A/c and Bank A/c.

7. Following is the balance sheet A, B and C sharing profits &Losses in the ratio of 3:2:1.
Liabilities Assets
Creditors 1,70,000 Bank
B/P 1,20,000 35,000
A/S Loan 53,000 Stock
General Reserve 60,000 1,98,000
Capital A 2,50,000 Debtors 1,50,000
B 1,10,000 Provision 10,000
C 80,000 1,40,000
Joint Life Policy
40,000
Furniture
1,00,000
Machinery
3,30,000
8,43,000
8,43,000

They decided to dissolve the firm on 31.12.1996

1) Joint life policy is taken over by A at Rs.5,000
2) Assets realized as follows : Stock – 1,75,000 Debtors – Rs.1,45,000, furniture – 68,000, machinery
– 3,03,000.
3) Expenses on realization amounted to Rs.20,000 prepare necessary A/cs.
8. A,B and C are partners sharing profits in the ratio of 3:2:1. The Balance sheet of the firm on
st
31 December 200 was as follows:
Liabilities Assets
Creditors 65,000 Cash
B/P 20,000 22,500
Provident fund 12,000 Debtors
Investment fund 6,000 52,300
Commission received Stock
Is advance 8,000 36,000
 Capital A 80,000 Investment
B 50,000 15,000
C 30,000 Plant
91,200
Profit & Loss A/c
54,000
2,71,000
2,71,000

On this date the firm was dissolved Mr. A was appointed to realize the assets Mr. A was to receive 5%
commission on sale of assets. (except cash) and was to bear all expenses of realization. A realized the
assets as follows.
Debtors – Rs.30,000, stock – Rs.26,000, Investment – 75% of the book value, plant –Rs.42,750. Expenses
of – Rs.4,[Link] received in advance was returned to customers after deducting Rs.3,000. The
firm had to pay Rs.7,100 for outstanding salary not employees amounted to Rs.9,800. This liability was
not provided for in the above balance sheet. Rs.25,000 had to be paid for provident fund.
9. Distinguish between dissolution of partnership and dissolution of partnership firm on the basis of
continuation of business.
10 Why is Realisation Account prepared on dissolution of partnership firm?
Ans. 2 Realisation account is prepared to ascertain profit or loss on sale of assets and payment of liabilities.
11 State any one point of difference between Realisation Account and Revaluation Account.
Ans. 3 Realisation Account is prepared on dissolution of partnership firm and Revaluation account is
prepared on reconstitution of partnership firm.
12 All partners wish to dissolve the firm. Yastin, a partner wants that her loan of Rs. 2,00000 must be paid off
before the payment of capitals to the partners. But, Amart, another partner wants that the capital must be
paid before the payment of Yastin’s loan. You are required to settle the conflict giving reasons.
Ans. 4 Yustin’s claim is valid as according to section 48 (b) of partnership Act, partners loan are to be paid
before any amount is paid to partners on account of their capitals.

13 On a firms dissolution debtors as shown in the Balance sheet were Rs. 17000 out of these Rs. 2000 became
bad. One debtor of Rs. 6000 became insolvent and 40% could be recovered from him. Full recovery was
made from the balance debtors. Calculate the amount received from debtors and pass necessary journal
entry.
Ans. 5 Cash A/C Dr. 11400
To Realisation A/C 11400
(For debtors realized on dissolution of firm)

14 On dissolution of a firm, Kamal’s capital account shows a debit balance of Rs. 16000. His share of profit on
realization is Rs. 11000. He has taken over firms creditors at Rs. 9000. Calculate the final payment due
to /from him and pass journal entry.
Ans. 6 Kamal’s capital A/C Dr. 4000
To cash A/C 4000
(for final payment to Kamal)

15 A and B were partners in a firm sharing profits and losses equally. Their firm was dissolved on 15 th March,
 2004, which resulted in a loss of Rs. 30,000. On that date the capital A/C of A showed a credit balance
of Rs. 20,000 and that of B a credit balance of Rs. 30000. The cash account has a balance of Rs. 20000.
You are required to pass the necessary journal entries for the (i) Transfer of loss to the capital accounts
and (ii) making final payment to the partners.
Ans. 7 (i) A’s capital A/C Dr. 15000
B’s capital A/C Dr. 15000
To realization A/C 30000
(For transfer of loss on dissolution)
(ii) A’s capital A/C Dr. 5000
B’s capital A/C Dr. 15000
To cash A/C 20000
(For final payment to partners)

16 What journal entries would be passed in the books of A and B who are partners in a firm, sharing profits in
the ratio of 5:2, for the following transactions on the dissolution of the firm after various assets (other
than cash) and third party liabilities have been transferred to Realisation Account?

(a) Bank loan Rs. 12,000 is paid.

(b) Stock worth Rs. 6000 is taken over by B.
(c) Loss on Realisation Rs. 14,000.
(d) Realisation expenses amounted to Rs. 2,000, B has to bear these expenses.
(e) Deferred Revenue Advertising Expenditure appeared at Rs. 28,000.
(f) A typewriter completely written off in the books of the firm was sold for Rs. 200.

Ans. 8

JOURNAL
Dr. (Rs) Cr. (Rs.)
(a) Realisation A/C Dr. 12000
To Bank A/C 12000
(b) B’s capital A/C Dr. 6,000
To realisation A/C 6,000
(c) A’s capital A/C Dr. 10,000
B’s capital A/C Dr. 4,000
To Realisation A/C 14000
(d) B’s capital A/C Dr. 2,000
To bank A/C 2,000
(e) A’s capital A/C Dr. 20,000
B’s capital A/C Dr. 8,000
To deferred revenue advertising expenditure A/C 28,000
(f) Bank A/C Dr. 200
To realisation A/C 200