For transfer of assets

Realisation A/c Dr.

To Assets (Individually) A/c

2. For transfer of liabilities

Liabilities (individually) Dr.

To Realisation A/c
3. For sale of assets
Bank A/c Dr.
To Realisation A/c
4. For an asset taken over by a partner
Partner’s Capital A/c Dr.
To Realisation A/c
5. For payment of liabilities
Realisation A/c Dr.
To Bank A/c
6. For a liability which a partner takes responsibility to discharge
Ralisation A/c Dr.
To Partner’s Capital A/c
 7. For settlement with the creditor through transfer of assets when a creditor accepts
an asset in full and final settlement of his account, journal entry needs to be recorded. But, if
the creditor accepts an asset only as part payment of his/her dues, the entry will be made for
cash payment only. For example, a creditor to whom Rs. 10,000 was due accepts office
equipment worth Rs. 8,000 and is paid Rs. 2,000 in cash, the following entry shall be made for
the payment of Rs. 2,000 only.
Realisation A/c Dr.
To Bank A/c
However, when a creditor accepts an asset whose value is more than the amount due
to him, he/she will pay cash to the firm for the difference for which the entry will be:
Bank A/c Dr.
To Realisation A/c
For payment of realisation expenses
(a) When some expenses are incurred and paid by the firm in the process of realisation
of assets and payment of liabilities:
Realisation A/c Dr.
To Bank A/c
b) When realisation expenses are paid by a partner on behalf of the firm:
Realisation A/c Dr.

To Partner’s Capital A/c

(c) When a partner has agreed to undertake the dissolution work for an agreed
remuneration bear the realisation expenses:

(i) if payment of realisation expenses is made by the firm

Partner’s Capital A/c Dr.

To Bank A/c

(ii) if the partner himself pays the realisation expenses, no entry is required

(iii) For agreed remuneration to such partner

Realisation A/c Dr.

To Partner’s Capital A/c

9. For realisation of any unrecorded assets including goodwill, if any

Bank A/c Dr.

To Realisation A/c

[Link] settlement of any unrecorded liability

Realisation A/c Dr.

To Bank A/c
 [Link] transfer of profit and loss on realisation

(a) In case of profit on realisation

Realisation A/c Dr.

To Partners’ Capital A/c (individually) A/c

(b) In case of loss on realisation

Partners’ Capital A/c (individually) Dr.

To Realisation A/c

[Link] transfer of accumulated profits in the form of reserve fund or general reserve:
Reserve Fund/General Reserve A/c Dr.

To Partners’ Capital A/c (individually)

[Link] transfer of fictitious assets, if any, to partners’ capital accounts in their profit
sharing ratio:

Partners’ Capital A/c (individually) Dr.

To Fictitious Asset A/c

[Link] payment of loans due to partners (Parter’s loan will be paid first then payment
to partners will be done.)

Partner’s Loan A/c Dr.

To Bank A/c

[Link] settlement of partners’ accounts If the partner’s capital account shows a debit
balance, he brings in the necessary cash for which the entry will be:

Bank A/c Dr.

To Partner’s Capital A/c

The balance is paid to partners whose capital accounts show a credit balance and the
following entry is recorded.

Partners’ Capitals A/cs (individually) Dr.

To Bank A/c

It may be noted that the aggregate amount finally payable to the partners must equal
to the amount available in bank and cash accounts. Thus, all accounts of a firm are closed in case
of dissolution.
 Very important note

Note: (i) If the realized value of tangible assets is not

given it should be considered as realized at book value itself.
(ii) If the realized value of intangible assets is not given it should be considered
as nil (zero value).
(ii) In case, the realization expenses are borne by a partner, clear indication
should be given regarding the payment thereo

QUESTIONS FOR SOLVING

1. Ramesh and Umesh were partners in a firm sharing profits in the ratio of their
capitals. On 31st March, 2013, their Balance Sheet was as follows:

Amount Amount
Liabilities Assets
(₹) (₹)
Creditors 1,70,000 Bank 1,10,000
Workmen Compensation
2,10,000 Debtors 2,40,000
Reserve
General Reserve 2,00,000 Stock 1,30,000
Ramesh's Current Account 80,000 Furniture 2,00,000
Capital A/cs: Machinery 9,30,000
Umesh's Current
Ramesh 7,00,000 50,000
Account
Umesh 3,00,000 10,00,000

16,60,000 16,60,000

On the above date the firm was dissolved.

(a) Ramesh took over 50% of stock at ₹ 10,000 less than book value. The
remaining stock was sold at a loss of ₹ 15,000. Debtors were realised at a
discount of 5%.
(b) Furniture was taken over by Umesh for ₹ 50,000 and machinery was sold
for ₹ 4,50,[Link]
 (c) Creditors were paid in full.
(d) There was an unrecorded bill for repairs for ₹ 1,60,000 which was settled at ₹
1,40,000. Prepare Realisation Account.
Account and Capital Accounts of Partners.
Realisation Account
Dr. Cr.
Particulars ` Particulars `
Sundry Assets- Creditors 1,70,000
Debtor 2,40,000 Ramesh’s Current A/c (Stock) 55,000
Stock 1,30,000 Cash A/c (Assets Realised)
Furniture 2,00,000 Stock 50,000
Machinery 9,30,000 15,00,000 Machinery 4,50,000
Debtor 2,28,000 7,28,000
Umesh’s Current A/c
To Cash A/c (Liabilities) (Furniture) 50,000
Creditors 1,70,000
Outstanding Bill 1,40,000 3,10,000 Realisation Loss
Ramesh’s Current
A/c 5,64,900
Umesh’s Current
A/c 2,42,100 8,07,000
18,10,000 18,10,000

2. Balance Sheet of a firm as at 31st March, 2019, when it was decided to

dissolve the same, was:

Amount Amount
Liabilities Assets
(₹) (₹)
Sundry Creditors 14,000 Cash at Bank 640
General Reserve 500 Stock 4,740
Capital A/cs: Debtors 5,540
X 4,000 Machinery 10,580
Y 3,000 7,000

21,500 21,500

₹19,500 were realised from all assets except Cash at Bank. The cost of winding
up came to ₹ 440. X and Y shared profits in the ratio of 2 : 1 respectively.
Prepare Realisation
Ashish and Kanav were partners ina firm sharing profits and losses in the ratio of 3:[Link] 31st
March, 2018 their Balance Sheet was as follows:

BALANCE SHEET OF ASHISH AND KANAV as at 315t March, 2018

Liabilities ` Assets `
Trade Creditors 42,000 Bank 35,000
Employees' Provident Fund 10,000 Stock 24,000
Mrs. Ashish's Loan 9,000 Debtors 19,000
Kanav's Loan 35,000 Furniture 40,000
Workmen's Compensation Fund 20,000 Plant 2,10,000
Investment Fluctuation Reserve 4,000 Investments 32,000
Capitals:
Ashish: 1,20,000
Kanav: 80,000 2,00,000 Profit and Loss A/c 10,000
3,70,000 3,70,000
On the above date they decided to dissolve the firm.
(a) Ashish agreed to take over furniture at 38,000 and pay off Mrs. Ashishis loan.
(b) Debtors realised 18,500 and plant realised 10% more.
(c) Kanav took over 40% of the stock at 20% less than the book value. Remaining stock was sold
ata gain of 10%.
(d) Trade creditors took over investments in full settlement.
(e) Kanav agreed to take over the responsibility of completing dissolution at an agreed
remuneration of 12,000 and to bear realisation expenses. Actual expenses of realisation
amounted to 8,000.
Prepare Realisation Account. (CBSE 2019)
Answer:

Realisation a/c
Dr. Cr.
Particulars ` Particulars `
To Stock 24,000 By Creditors 42,000
To Debtors 19,000 By employees provident fund 60,000
To Furnisture 40,000 By Mrs. Ashish’s loan 9,000
To Plant 2,10,000 By Investment fluctuation reserve 4,000
To Investiment 32,000 By Ashish’s capital a/c
To Ashish’s capital a/c 9,000 (Furniture taken) 38,000
Mrs. Ashish loan taken By Kanav’s capital a/c
To Kanav’s capital a/c 12,000 Stock(24,000×40%×80%) 7,680
Ageed to bear realization By Bank a/c (Assets realised)
expenses Debtors = 18,500
To Bank a/c 60,000 Plant = 2,31,000
EPF paid Stock = 15,840
To Captial – profit transferred (24,000×24%×110%) 2,65,340
to;
Ashish 20,020×3/5=12,012
Kanav 20,020×2/5=8,008 20,020
 (In the ratio 3:2)
4,26,020 4,26,020

P, Q and R were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2.
They agreed to dissolve their partnership firm on 31st March, 2019. P was deputed to
realise the assets and pay the liabilities. He was paid ₹ 1,000 as commission for his
services. The financial position of the firm was:

Balance Sheet as at 31st March, 2019

Amoun Amoun
Liabilities t Assets t
(₹) (₹)
Creditors 10,000 Stock 5,500
Bills Payable 3,700 Investments 15,000
Investments Fluctuation
4,500 Debtors 7,100
Reserve
Less: Provision for Doubtful
Capital A/cs: 450 6,650
Debtors
P 37,550 Cash 5,600
Q 15,000 52,550 R's Capital A/c 8,000
Plant and Machinery 30,000

70,750 70,750

P took over Investments for ₹ 12,500. Stock and Debtors realised ₹ 11,500.
Plant and Machinery were sold to Q for ₹ 22,500 for cash. Unrecorded assets
realised ₹ 1,500. Realisation expenses paid amounted to ₹ 900.
Prepare necessary Ledger Accounts to close the books of the firm.
ANSWER:
Realisation Account
Dr. Cr.
Amount Amount
Particulars Particulars
(₹) (₹)
Plant and Machinery 30,000 Creditors 10,000
Stock 5,500 Bills Payable 3,700
Investments 15,000 Investments Fluctuation Reserve 4,500
Debtors 7,100 Provision for Doubtful Debts 450
Cash A/c: P’s Capital A/c (Investments) 12,500
Creditors 10,000 Cash A/c:
 Bills Payable 3,700 Stock and Debtors 11,500
Expenses 900 14,600 Plant and Machinery 22,500
P’s Capital A/c 1,000 Unrecorded Assets 1,500 35,500
Loss transferred to:
P’s Capital A/c 3,275
Q’s Capital A/c 1,965
R’s Capital A/c 1,310 6,550
73,200 73,200

Partners’ Capital Accounts

Dr. Cr.
Particulars P Q R Particulars P Q R
Balance b/d – – 8,000 Balance b/d 37,550 15,000 –
Realisation Realisation
3,275 1,965 1,310 1,000 – –
(Loss) A/c
Realisation
A/c 12,500
(Investments)
Cash A/c 22,775 13,035 – Cash A/c – – 9,310
38,500 15,000 9,310 38,550 15,000 9,310

Cash Account
Dr. Cr.
Amount Amount
Particulars Particulars
(₹) (₹)
Balance b/d 5,600 Realisation A/c 14,600
Realisation A/c 35,500 P’s Capital A/c 22,775
R’s Capital A/c 9,310 Q’s Capital A/c 13,035

50,410 50,410

A and B are partners in a firm sharing profits and losses in the ratio of 3 : 2. On 31st
March, 2019, their Balance Sheet was as follows:

BALANCE SHEET as at 31st March, 2019

Amount Amount
Liabilities Assets
(₹) (₹)
Creditors 38,000 Cash at Bank 11,500
Mrs. A's Loan 10,000 Stock 6,000
B's Loan 15,000 Debtors 19,000
Reserve 5,000 Furniture 4,000
A's 10,000 Plant 28,000
Capital
B's 8,000 18,000 Investments 10,000
Capital
Profit and LossA/C 7,500

86,000 86,000

The firm was dissolved on 31st March, 2019 and both the partners agreed to
the following:
(a) A took Investments at an agreed value of ₹ 8,000. He also agreed to settle
Mrs. A's Loan.
(b) Other assets realised as: Stock − ₹ 5,000; Debtors − ₹ 18,500; Furniture
− ₹ 4,500; Plant − ₹ 25,000.
(c) Expenses of realisation came to ₹ 1,600.
(d) Creditors agreed to accept ₹ 37,000 in full settlement of their claims.
Prepare Realisation Account, Partners' Capital Accounts and Bank Account.
ANSWER:
Realisation Account
Dr. Cr.
Amount Amount
Particulars Particulars
(₹) (₹)
Stock 6,000 Creditors 38,000
Debtors 19,000 Mrs. A’s Loan 10,000
Furniture 4,000
Plant 28,000 A’s Capital A/c (Investments) 8,000
Investments 10,000 Bank A/c:
A’s Capital A/c (Mrs. A’s loan) 10,000 Stock 5,000
Bank A/c : Debtors 18,500
Expenses 1,600 Furniture 4,500
Creditors 37,000 38,600 Plant 25,000 53,000
Loss transferred to:
 A’s Capital A/c 3,960
B’s Capital A/c 2,640 6,600
1,15,600 1,15,600

Partners’ Capital Accounts

Dr. Cr.
Particulars A B Particulars A B
Realisation (loss) 3,960 2,640 Balance b/d 10,000 8,000
Realisation A/c 8,000 – Reserve A/c 3,000 2,000
Profit and Loss A/c 4,500 3,000 Realisation A/c 10,000 –
Bank A/c 6,540 4,360
23,000 10,000 23,000 10,000

B’s Loan Account

Dr. Cr.
Amount Amount
Particulars Particulars
(₹) (₹)
Balance b/d 15,000
Bank A/c 15,000
15,000 15,000

Bank Account
Dr. Cr.
Amount Amount
Particulars Particulars
(₹) (₹)
Balance b/d 11,500 Realisation A/c 38,600
Realisation A/c 53,000 A’s Capital A/c 6,540
B’s Capital A/c 4,360
B’s Loan A/c 15,000
64,500 64,500

Achal and Vichal were partners in a firm sharing profits in the ratio of 3 : 5. On
31st March, 2019, their Balance Sheet was as follows:

Liabilities Amount Assets Amount

 (₹) (₹)
Capital A/cs: Land and Building 4,00,000
Achal 3,00,000 Machinery 3,00,000
Vichal 5,00,000 8,00,000 Debtors 2,22,000
Creditors 1,79,000 Cash at Bank 78,000
Employees' Provident
21,000
Fund
10,00,000 10,00,000

The firm was dissolved on 1st April, 2019 and the Assets and Liabilities were
settled as follows:
(a) Land and Building realised ₹ 4,30,000.
(b) Debtors realised ₹ 2,25,000 (with interest) and ₹ 1,000 were recovered for
Bad Debts written off last year.
(c) There was an Unrecorded Investment which was sold for ₹ 25,000.
(d) Vichal took over Machinery at ₹ 2,80,000 for cash.
(e) 50% of the Creditors were paid ₹ 4,000 less in full settlement and the
remaining Creditors were paid full amount.
Pass necessary Journal entries for dissolution

3. A and B are partners in a firm sharing profits and losses in the ratio of 3 : 2. On
31st March, 2019, their Balance Sheet was as follows:

BALANCE SHEET as at 31st March, 2019

Amount Amount
Liabilities Assets
(₹) (₹)
Creditors 38,000 Cash at Bank 11,500
Mrs. A's Loan 10,000 Stock 6,000
B's Loan 15,000 Debtors 19,000
Reserve 5,000 Furniture 4,000
A's 10,000 Plant 28,000
Capital
B's 8,000 18,000 Investments 10,000
Capital
Profit and LossA/C 7,500

86,000 86,000
 The firm was dissolved on 31st March, 2019 and both the partners agreed to the
following:
(a) A took Investments at an agreed value of ₹ 8,000. He also agreed to settle
Mrs. A's Loan.
(b) Other assets realised as: Stock − ₹ 5,000; Debtors − ₹ 18,500; Furniture − ₹
4,500; Plant − ₹ 25,000.
(c) Expenses of realisation came to ₹ 1,600.
(d) Creditors agreed to accept ₹ 37,000 in full settlement of their claims.
Prepare Realisation Account, Partners' Capital Accounts and Bank Account.

4. Pradeep and Rajesh were partners in a firm sharing profits and losses in the ratio
of 3 : 2. They decided to dissolve their partnership firm on 31st March, 2018.
Pradeep was deputed to realise the assets and to pay off the liabilities. He was
paid ₹ 1,000 as commission for his services. The financial position of the firm on
31st March, 2018 was as follows:

BALANCE SHEET as at 31st March, 2018

Amount Amount
Liabilities Assets
(₹) (₹)
Creditors 80,000 Building 1,20,000
Mrs. Pradeep's Loan 40,000 Investment 30,600
Rajesh's Loan 24,000 Debtors 34,000
Investment Fluctuation Fund 8,000 Less: Provision for 4,000 30,000
Doubtful Debts
Capital A/cs: Bills Receivable 37,400
Pradeep 42,00 Bank 6,000
0
Rajesh 42,00 84,000 Profit and Loss A/c 8,000
0
Goodwill 4,000
2,36,000 2,36,000

Following terms and conditions were agreed upon:

(a) Pradeep agreed to pay off his wife's loan.
(b) Half of the debtors realised ₹ 12,000 and remaining debtors were used to pay
off 25% of the creditors.
 (c) Investment sold to Rajesh for ₹ 27,000.
(d) Building realised ₹ 1,52,000.
(e) Remaining creditors were to be paid after two months, they were paid
immediately at 10% p.a. discount.
(f) Bill receivables were settled at a loss of ₹ 1,400.
(g) Realisation expenses amounted to ₹ 2,500.
Prepare Realisation Account.

5. Pass Journal entries for the following at the time of dissolution of a firm:
(a) Sale of Assets − ₹ 50,000.
(b) Payment of Liabilities − ₹ 10,000.
(c) A commission of 5% allowed to Mr. X, a partner, on sale of assets.
(d) Realisation expenses amounted to ₹ 15,000. The firm had agreed with Amrit,
a partner, to reimburse him up to ₹ 10,000.
(e) Z, an old customer, whose account for ₹ 6,000 was written off as bad in the
previous year, paid 60% of the amount written off.
(f) Investment (Book Value ₹ 10,000) realised at 150%.
6. Pass Journal entries for the following transactions at the time of
dissolution of the firm:
(a) Loan of ₹ 10,000 advanced by a partner to the firm was refunded.
(b) X, a partner, takes over an unrecorded asset (Typewriter) at ₹ 300.
(c) Undistributed balance (Debit) of Profit and Loss Account ₹ 30,000. The firm
has three partners X,Y and Z.
(d) Assets of the firm realised ₹ 1,25,000.
(e) Y who undertakes to carry out the dissolution proceedings is paid ₹ 2,000 for
the same.
(f) Creditors are paid ₹ 28,000 in full settlement of their account of ₹ 30,000.
7. Pass necessary Journal entries for the following transactions on the
dissolution of the firm P and Q after the various assets (other than cash)
and outside liabilities have been transferred to Realisation Account:
(a) Bank Loan ₹ 12,000 was paid.
(b) Stock worth ₹ 16,000 was taken over by partner Q.
(c) Partner P paid a creditor ₹ 4,000.
 (d) An asset not appearing in the books of accounts realised ₹ 1,200.
(e) Expenses of realisation ₹ 2,000 were paid by partner Q.
(f) Profit on realisation ₹ 36,000 was distributed between P and Q in 5 : 4 ratio
8. Balance Sheet of P, Q and R as at 31st March, 2019, who were sharing profits in
the ratio of 5 : 3 : 1, was:

Amount Amount
Liabilities Assets
(₹) (₹)
Bills Payable 40,000 Cash at Bank 40,000
Loan from Bank 30,000 Stock 19,000
General Reserve 9,000 Sundry Debtors 42,000
Capital A/cs: Less: Provision for 2,000 40,000
Doubtful Debts
P 44,000
Q 36,000 Building 40,000
R 20,000 1,00,000 Plant and Machinery 40,000

1,79,000 1,79,000

The partners dissolved the business. Assets realised − Stock ₹ 23,400; Debtors 50%;
Fixed Assets 10% less than their book value. Bills Payable were settled for ₹ 32,000.
There was an Outstanding Bill of Electricity ₹ 800 which was paid off. Realisation
expenses ₹ 1,250 were also paid.
Prepare Realisation Account, Partner's Capital Accounts and Bank Account.