DISSOLUTION OF PARTNERSHIP

Introduction:
As per Indian Partnership Act, 1932: “Dissolution of firm means termination of partnership among all the
partners of the firm”. When a firm is dissolved, all business activities of the firm comes to an end. All the
assets of the firm are disposed off and all outsiders’ liabilities,
partners’ loan and partners capitals are paid. A firm may be
dissolved with the consent of all the partners or in accordance
with a contract between the partners.
Students must understand that there is difference between
dissolution of partnership and dissolution of firm.

Dissolution of Partnership: Dissolution of Partnership refers

to termination of old partnership agreement (i.e., Partnership
Deed) and a reconstruction of the firm. It may take place on Change in profit sharing ratio among the existing
partner ; Admission of a partner and Retirement or Death of a partner. It may or may not result into closing
down of the business as the remaining partner may decide to carry on the business under a new agreement.

MODES OF DISSOLUTION OF A FIRM

The modes by which a firm may be dissolved are:
1. Mutual Agreement: when all the partners agree.

2. Compulsory Dissolution:
a) When all the partners or all the partners except one
become insolvent.
b) When business of the firm becomes unlawful.

3. By Notice: In case partnership is at Will, the firm may be dissolved by any partner giving notice in
writing to all the other partners of his intention to dissolve the firm.

4. On Happening of an Event:
a) On expiry of the term for which the firm was constituted.
b) On completion of the venture.
c) On death of a partner.
d) Adjudication of a partner as insolvent.

5. Dissolution by Court:
Court may pass order for the dissolution of the firm when:
a) A partner becomes a person of unsound mind;
b) A partner becomes permanently incapable of performing his duties as a partner;
c) A partner is found guilty of misconduct, which is likely to adversely affect the business of the
firm;
d) Partnership agreement is breached persistently by a partner or partners;
e) Court finds dissolution of the firm justified;
f) The business of the firm cannot be carried on except at a loss.
Difference Between Dissolution of The Partnership Firm And Dissolution of Partnership

Main Activities at the time of Dissolution

1. Settlement of Accounts [ Section 48 ]
In setting the accounts of a firm after dissolution, the following rules shall, subject to agreement by the
partners, be observed.
a) Losses, including deficiencies of capital, shall be paid first out of profits, next out of capital and, lastly, if
necessary, by the partners individually in the proportion in which they were entitled to share profits. [
Section 48 (a) ]
b) The assets of the firm, including any sums contributed by the partners to make up deficiencies of capital,
shall be applied in the following manner and order:-
i) In paying the debts of the firm to third parties.
ii) In paying to each partner rateably what is due to him from the firm for advances as distinguished from
capital:
iii) in paying to each partner rateably what is due to him on account of capital and.
iv) The residue, if any shall be divided among the partners in the proportions in which they were
entitled to share profits. [ Section 48 (b)]

2. Payment of Firm’s Debts and Private Debts [Section 49]

Where there are joint debts due from the firm, and also separate debts due from any partner, the property of
the firm shall be applied in the first instance in payment of the debts of the firm, and if there is any surplus,
the separate property of any partner shall be applied first in the payment of his separate debts and the surplus
( if any) in the payment of the debts of the firm.

Distinction Between Firms Debts and Private Debts

Accounting Treatment at the time of Dissolution of firm
At the time of Dissolution of a firm, all the assets of the firm are sold or Realized, and all liabilities are
paid off. In such a case Realization account is prepared to realize the assets and to pay off the liabilities,
balance if any, is treated as profit/loss and distributed to the partners. Students must remember that Partners
capital accounts are closed and cash/Bank account is prepared. Following accounts are prepared at the time of
Dissolution of firm :

Preparation of Realisation Account

Realisation Account is a nominal account. The main purpose of this account is to calculate the
profit or loss after realising the assets and paying off the liabilities. Transfer All the assets (except Cash/Bank
and fictitious assets) on the debit side of Realisation account from the balance sheet and show the realized
value on the credit side of realization account. Transfer all the outside liabilities and specific reserves on the
credit side of realization account and pay them on the debit side of realization account. Do not transfer capitals
of the partners and accumulated reserve and profit etc.

---------------

LIST OF JOURNAL ENTRIES DURING DISSOLUTION:

1. For transfer of Asset Accounts Realisation A/c -Dr.

To Various Assets A/c
2. For transfer of outside liabilities Sundry Creditors A/c Dr
Liabilities and Specific Reserves: Bank Loan A/c, Dr.
Specific Reserves A/C Dr
To Realisation A/c
3. For Realisation/ sale of Assets {whether Cash / Bank A/c …Dr.
Recorded or Unrecorded): To Realisation A/c
(with realized amount)
4. An asset is taken over by a partner. Partner’s Capital A/c ..Dr
{whether Recorded or Unrecorded): To Realisation A/c
(With agreed price)

5. An asset is given to creditor payment of

his dues. NO Entry is passed.
{whether Recorded or Unrecorded):
6. For Settlement of Liabilities (whether Realisation A/c …. Dr.
Recorded or Unrecorded): To Cash/Bank A/c

7. If a partner agrees to settle a liability. Realisation A/c …Dr.

To Partner’s Capital A/c

8. Transfer of Realisation profits Realisation A/c .Dr.

To Partner Capital A/cs
[In old profit-sharing ratio

9. Transfer of Realisation Losses Partners Capital A/c Dr.

To Realisation A/c
[In old profit-sharing ratio)

10. Transfer of Reserves Profit and Loss A/c (Cr. Balance) ……..DR
(General Reserve, Profit and loss cr. Bal , General Reserve A/c ……DR
Revenue reserve etc.) TO Partners Capital A/c
(old PS Ratio )

11. Transfer Accumulated losses, deferred Partners’ Capital A/c ….. Dr

revenue (e.g., Advertisement Suspense To profit and Loss A/c (Dr. Balance)
A/c), etc., To Deferred Revenue Expenditure A/c
(eg., Advertisement Suspense A/c)
(old PS Ratio )

12. Transfer of Debit balance in a Current Partner’s Capital ..Dr.

A/c of a partner. To Partner’s Current A/c

13. Transfer of credit balance in a Current Partners Current A/c …….dr.

Account of a partner. To Concerned Partner’s Capital A/c

14. Repayment of Loan by Partner to the Firm Loan by Partner A/c ………….Dr.
at lesser value in full settlement To Bank/Cash A/c
To Realisation A/c (Asset/bal)

15. Loan by Firm to Partner Partner’s Capital A/c ………..Dr.

To Loan to Partner A/c

16. For final Settlement with Partners: For Deficiency in Capital:

Bank/Cash A/c ……………Dr.
To partner’s Capital A/c
Payment is made to Partners
Partner’s Capital A/c ……..Dr.
To Bank/Cash A/c
Partners Capital Account
Students must remember that partner’s capital accounts not only show the capital balance but current account
balance in capital accounts at the time of dissolution. All Reserve and profit etc. should be recorded in the
partner’s capital account. Profit/loss calculated in realization account will be transferred to the partner’s capital
account. If any asset is taken over by the partner, it will take place on the debit side of partner’s capital
accounts. If any liability is taken over by the partner, it will be shown on the credit side of partner’s capital
accounts.

Preparation of Bank A/c :

Students must remember that we do not prepare Balance sheet at the time of dissolution of firm , instead of
preparing Balance Sheet , we prepare Cash/Bank Account. All cash realized are shown on the debit side of
cash/Bank account and all cash payments are shown on the credit side of Cash/Bank A/c.

REGARDING REALISATION EXPENSES:

Realisation Expenses or Dissolution expenses are incurred in dissolving the firm by selling the assets and
paying the liabilities. Expenses may be paid remuneration (salary) to a partner to carry out dissolution.
These the expenses for dissolution, of the firm are debited to Realisation Account. Realisation Expense
may either be paid or may be credited to the Concerned Partner’s Capital Account.

JOURNAL ENTRIES ON PAYMENT OF REALISATION EXPENSES

Mode of Payment Entry Accounting Entry

1. When realization expenses are borne and Realisation A/c …Dr.

also paid by the firm. To Cash/Bank A/c

2. When realization expenses were to be Realisation A/c ….Dr

borne the firm but are paid by a partner. TO Concerned Partner’s Capital A/c

3. Realization expenses are borne and paid No Entry

the same partner,

4. When any of the partners agrees to carry Realisation A/c ….Dr.

out dissolution for an agreed remuneration To Concerned Partner’s Capital A/c
(salary), including realization expenses

5. When realization expenses are borne by a Concerned Partner’s Capital A/c ..Dr. To
partner and paid by the firm. Cash/Bank A/c
 6. For Realisation Expenses borne by the Realisation A/c DR.
firm but partly paid by the firm and To Cash/Bank A/c
balance by the partner. To Concerned Partner’s Capital A/c

Sr. MULTIPLE CHOICE QUESTIONS

no
1. On dissolution of a firm, out of the proceeds received from the sale of assets .................will be
paid first
(A) Partner's Capital (B) Partner's Loan to Firm
(C) Partner's additional capital (D) Outside Creditors

2. Court can make an order to dissolve the firm when:

(A) Some partner has become fully mad (B) Partnership deed is fully followed
(C) Continued future profits are expected (D) Firm is running legal business

3. On taking responsibility of payment of a liability of Rs.30,000 by a partner, the account Credited

will be:
(A) Realisation Account (B) Cash Account
(C) Capital Account of the Partner (D) Liability Account

4. There was an Unrecorded asset of Rs.3,000 which was taken over by a partner by at Rs.2,500.
Partner's Capital Account will be debited by………………..
(A) Rs.2,000 (B) Rs.2,500
(C) Rs.500 (D) Rs.3,500

5. If total assets are Rs.2,00,000; outside liabilities are Rs.40,000; amount realised on sale of assets is
Rs.1,75,000 and realisation expenses are Rs.2,000, the profit or loss on realisation will be:
(A) Profit Rs.12,000 (B) Loss Rs.68,000
(C) Loss Rs.27,000 (D) Loss Rs.25,000

6. In the Balance Sheet Total Debtors appear at Rs.50,000 and Provision for Doubtful Debts appear
at Rs.1,500. How much amount will be realised from Debtors, if bad debts amount to Rs.10,000
and remaining debtors are realised at a discount of 5%.
(A) Rs.38,000 (B) Rs.36,500
(C) Rs.36,575 (D) Rs.39,500

7. P, a partner, is to bear all expenses of realisation for which he is to be paid Rs.3,000. P had to pay
realisation expenses of Rs.3,500. How much amount will be debited to Realisation Account?

(A) Rs.500 (B) Rs.3,500 (C) Rs. 4,500 (D) Rs.3,000

8. Investments valued Rs. 5,00,000 were not shown in the books. One of the creditors took over these
investments in full satisfaction of his debt of Rs. 5,20,000. How much amount will be deducted
from creditors?
(A) Rs. 20,000 (B) Rs. 5,20,000
(C) Rs. 4,20,000 (D) Rs. 5,00,000

9. On dissolution of a firm, a partner took-over the investments of Rs. 15,000 at Rs. 20,000. By how
much amount the Realisation Account will be credited?
(A) Rs. 24,000 (B) Rs. 20,000
(C) Nil (D) Rs. 15,000
10. If creditors are Rs. 25,000, capital is Rs. 1,50,000 and cash balance is Rs. 40,000, what will be the
amount of sundry assets(excluding cash) ?
(A) Rs. 1,75,000 (B) Rs. 1,65,000
(C) Rs. 1,35,000 (D) Rs. 1,40,000

11. In case of dissolution A one of the partner was paid only RS.5000 for his loan to the firm which
amounted to Rs.5500. Rs 500 will be recorded in which account and on which side:

(A) Realisation account credit side correct (B) Realisation account debit side
(C) loan account debit side (D) All the above

12. Settlement of accounts in case of dissolution of partnership is dealt with which section of
partnership act 1932?
(A) Section 45 (B) section 46
(C) section 47 (D) section 48

13. New ratio is not to be calculated on:

(A) Admission of a partner ( B) retirement of a partner
(C) death of a partner (D) dissolution of a partnership

14. At the time of dissolution of partnership an unrecorded asset taken by X a partner is debited to:
A. X capital account B. realisation account
C. cash account D. none of the above

15. When realisation expenses are to be borne by a partner, actual realisation expense is credited to:
A. Partners capital a/c B. Cash a/c
C. Realisation a/c D. None of the above

16 Partners are liable to settle the account of accounts payable even from their sources, if they are
solvent.
A. Personal B. Capital only
C. Bank loan D. None of the above

17. On firm’s dissolution, which one of the following account should be prepared at the last?
(A) Realisation Account (B) Partner’s Capital Accounts
(C) Cash/Bank Account (D) Partner’s Loan Account

18. At the time of dissolution total assets are worth Rs.3,00,000 and external liabilities are worth
Rs.1,20,000. If assets realised 120% and realisation expenses paid were Rs.4,000, then profit/loss
on realisation will be:

A. Profit Rs.60,000 B. Loss Rs.60,000

C. Loss Rs.56,000 D. Profit Rs.56,000

19. On dissolution of a firm, a partner’s capital account has a credit balance of ₹42,000. His share of
profit in realisation account is ?9,000. He has paid firm’s realisation expenses ₹3,000. He will
finally get a payment of:
(A) ₹39,000 (B) ₹42,000 (C) ₹54,000 (D) ₹48,000:

20. On dissolution, goodwill account is transferred to :

(A) In the Capital Accounts of Partners (B) On the credit of Cash Account
(C) On the Debit of Realisation Account (D) On the Credit of Realisation Account

21
 Assertion (A): Dissolution of a partnership firm automatically leads to dissolution of partnership
agreement.
Reason (R): Internal liabilities are paid first on dissolution of partnership firm.
Read the assertion and reasons given above and choose the answer from the given alternatives:
(A) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
(B) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation of
Assertion (A).
( C) Assertion (A) is true but Reason (R) is false.
(D) Assertion (A) is false but Reason (R) is true.

22. Assertion (A) : Building is an intangible asset it is shown as realized at book value, if its realized
value is not given.
Reason (R) : Patent is an intangible asset and if its realized value is not given, it is realized at book
value.
In the context of above two statements, which of the following option is correct?
(a) Assertion (A) and Reason (R) are correct but the reason (R) is not the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are correct and Reason (R) are correct and Reason (R) are
correct and Reason (R) is the correct explanation of Assertion (A).
(c) Assertion (A) is not correct but the Reason (R) is correct.
(d) Only Assertion (A) is correct.

23. Read the following statements carefully and choose the correct alternative:
Statement I: Revaluation A/c is prepared at the time of Reconstitution of a partnership firm
(e.g on admission or retirement etc) to revalue assets and liabilities.
Statement II: Realisation A/c is prepared on dissolution of a partnership firm to close the assets
and liabilities.
(a) Both the statements are true.
(b) Both the Statements are false.
(c) Statement -I is true, Statement -II is false.
(d) Statement -II is true, Statement-I is false.

ANSWERS
1. (D) Outside Creditors
2. (A) Some partner has become fully mad
3. (C) Capital Account of the Partner
4. (B) Rs.2,500
5. (C) Loss Rs.27,000
6. (A) Rs.38,000
7. (D) Rs.3,000
8. (B) Rs. 5,20,000
9. (B) Rs. 20,000
10. (C) Rs. 1,35,000
11. (A) Realisation A/c Credit Side.
12. (D) Section 48
13. (D) Dissolution
14. (A) x’s Capital A/c
15. (D) None of the above
16. (A) Personal a/c
17. (C) Cash/Bank Account
18. (D) Profit Rs.56,000
19. (C) Rs. 54,000
20. (C) On the Debit of Realisation Account
21. C) Assertion (A) is true but Reason (R) is false.
22. (d) Only Assertion (A) is correct.
23. (a) Both the statements are true.

THREE/FOUR / SIX MARK QUESTIONS

Sr. JOURNAL ENTRIES AND PREPARATION OF REALISATION A/C, PARTNERS’

no CAPITAL A/C AND CASH A/C
1. What journal entries would be passed for discharge of following unrecorded liabilities on the
dissolution of a firm of partners A and B:
a. There was a contingent liability in respect of bills discounted but not matured of ₹ 18,500.
An

acceptor of one bill of ₹ 2,500 became insolvent and fifty paise in a rupee was recovered.
The
liability of the firm on account of this bill discounted and dishonoured has not so far
been recorded.

b. There was a contingent liability in respect of a claim fro damages for ₹ 75,000, such
liability was settled for ₹ 50,000 and paid by the partner A.

c. Firm will have to pay ₹ 10,000 as compensation to an injured employee, which was a
contingent liability not accepted by the firm.

d. ₹ 5,000 for damages claimed by a customer has been disputed by the firm. It was settled at
70% by a compromise between the customer and the firm.

SOLUTION:

2. X, Y and Z are partners in a firm sharing profits in the ratio of 3 : 2 : 1 respectively. The firm was
dissolved on 1st March, 2013. After transferring assets (other than cash) and third party liabilities
to the Realisation Account' you are provided with the following information:
a. There was a balance of ₹ 18,000 in the firm's Profit and Loss Account.
 b. There was an unrecorded bike of ₹ 50,000 which was taken over by X.
c. Creditors of ₹ 5,000 were paid ₹ 4,000 in full settlement of accounts.
Pass necessary journal entries for the above at the time of dissolution of firm.

SOLUTION:
DATE PARTICULARS LF DEBIT CREDIT
A Profit and Loss A/C Dr 18,000
To X’s Capital A/C 9,000
To Y’s Capital A/C 6,000
To Z’s Capital A/C 3,000
( Balance in P&L A/C divided among
Partners in the ratio of 3:2:1)
B X’s Capital A/C Dr 5,000
To Realisation A/C 5,000
( An unrecorded asset taken over by x )
C Realization A/C Dr 4,000
To Bank A/C 4,000
(Creditors were paid ₹ 4,000 in full
settlement of their claim of ₹ 5,000 )
3.
Pass necessary journal entries on the dissolution of a partnership firm in the following cases:
i. Dissolution expenses were ₹800.
ii. Dissolution expenses ₹800 were paid by Prabhu, a partner.
iii. Geeta, a partner was appointed to look after the dissolution work, for which she was
allowed a remuneration of Rs. 10,000. Geeta agreed to bear the dissolution expenses.
Actual dissolution expenses Rs. 9,500 were paid by Geeta.

SOLUTION:
DATE PARTICULARS LF DEBIT CREDIT
I Realisation A/c Dr. 800
To Bank A/c 800
(Being dissolution expenses paid)
Ii Realisation A/c Dr. 800
To Prabhu’s Capital A/c 800
(Dissolution expenses ₹800 were paid by
Prabhu, a partner)
Iii Realisation A/c Dr 10,000
To Geeta’s Capital A/c 10,000
(Being Geeta was allowed a remuneration
)

4. Pass Journal Entries for the following transactions on dissolution of a firm of Partner’s A and B.

i. Z an old customer whose account for ₹10,000 was written off as bad debt in the previous
year, paid 70% of the amount.
ii. A agreed to takeover firm’s (Name) goodwill (not recorded in the books of a firm) at
₹50,000.
iii. There was an old computer which had been written off from the books. It was estimated to
realise ₹5,000. It is taken by B a partner at the estimated price less 30%.

SOLUTION:
DATE PARTICULARS LF DEBIT CREDIT
 I Bank A/c Dr 7,000
To Realisation A/c 7,000
(Being bad debt recovered)
Ii A’s Capital A/c Dr 50,000
To Realisation A/c 50,000
(Being goodwill taken over by A)
Iii B’s Capital A/c Dr 3,500
To Realisation A/c 3,500
(Being typewriter taken over by B)

5. Archana, Vandana and Arti were partners in a firm sharing profits and losses in the ratio of 5: 3:
2. Their Balance Sheet on 31st March, 2023 was as follows:
Balance Sheet of Archana, Vandana and Arti as at 31st March, 2023

LIABILITIES AMOUNT ASSETS AMOUNT

Capitals: Investment 80,000
Archana 80,000 Plant 1,00,000
Vandana 70,000 2,10,000 Stock 40,000
Arti 60,000 30,000 Debtors 50,000
General reserve 60,000 Cash at bank 30,000
Creditors 3,00,000 3,00,000

The firm was dissolved on the above date.

(a) Assets were realized as follows:
Debtors 40,000
Stock 50,000
Plant 60,000
(b) Expenses of realization 20,000 were paid by Arti.
(c) 25% of the Investments were taken over by Vandana at ₹ 18,000. Remaining Investments were taken
over by Archana at 10% less than its book value. Prepare Realization Account.

SOLUTION:
Dr. REALIZATION ACCOUNT Cr.
PARTICUARS AMOUNT PARTICULARS AMOUNT
To investment 80,000 By creditors 60,000
To plant 1,00,000 By bank
To stock 40,000 Debtors 40,000
To debtors 50,000 Stock 50,000
To bank (creditors) 60,000 Plant 60,000
To Arti’s capital a/c(exp) 20,000 Investment (remaining inv) 54,000
By Vandana’s capital a/c(25% inv) 18,000
By loss transferred to
Archana 34000
Bandna 20400
Aarti 13600 68,000
3,50,000 3,50,000

6. Aadish and Shreyansh were partners in a firm sharing profits and losses in the ratio of 3 : 2. On 31st March,
2022 their Balance Sheet was as follows:
Balance Sheet of Aadish and Shreyansh as at 31st March, 2022
LIABILITIES AMOUNT ASSETS AMOUNT
Creditors 90,000 Cash at bank 20,000
Mrs Aadish’s loan 30,000 Stock 24,000
 Shreyansh’s loan 30,000 Investment 30,000
General reserve 45,000 Debtors 20,000
Capitals: 1,97,000 Less: provision for doubtful
Aadish 1,00,000 debt 2,000 18,000
Shreyansh 97,000 Plant 1,00,000
Advertisement suspense a/c 2,00,000
3,92,000 3,92,000
The firm was dissolved on 31st March, 2022 on the following terms:
(i) Debtors realised at Rs. 17,000 and plant realised 10% more than the book value
(ii) Aadish promised to pay Mrs. Aadish's loan and took away stock at ₹20,000.
(iii)Shreyansh took away half of the investments at a discount of 10%.
Remaining investments realised ₹ 4,500.
(iv) Creditors were paid off at a discount of 10%.
(v)Expenses of realisation amounted to ₹ 7,000.
Prepare Realisation Account

SOLUTION:
Dr. REALIZATION ACCOUNT Cr.
PARTICUARS AMOUNT PARTICULARS AMOUNT
To Stock 24,000 By Provision for doubtful debt 2,000
To Investment 30,000 By Creditors 90,000
To Debtors 20,000 By Mrs Aadish’s loan 30,000
To Plant 1,00,000 By Bank A/c (Debtors) 17,000
To Aadish Capital A/c ( wife loan) 30,000 By Bank A/c (Plant) 1,10,000
To Bank A/c (Creditors) 81,000 By Aadish Capital A/c (Stock) 20,000
To Bank A/c ( realization expense) 7,000 By Shreyansh Capital A/c 13,500
(Investment)
By Bank a/c (investment) 4,500
By loss on realization 5,000
Aadish Cap A/c – 3,000
Shreyansh Cap A/c - 2,000

2,92,000 2,92,000

7. Arnab, Ragini and Dhrupad are partners sharing profits in the ratio of 3:1: 1. Last year, conflicts arose due
to certain issues of disagreements and on 31st March, 2023, they decided to dissolve the firm. On that date
their Balance Sheet was as under:
BALANCE SHEET OF ARNAB, RAGINI AND DHRUPAD as at 31st March, 2023
LIABILITIES AMOUNT ASSETS AMOUNT
Creditors 60,000 Bank 50,000
Arnab’s brother’s loan 95,000 Debtors 1,70,000
Dhrupad’s loan 1,00,000 Less: provision for
Investment fluctuation reserve 50,000 doubtful debts 20,000 1,50,000
Capital a/cs Stock 1,50,000
Arnav 2,75,000 Investment 2,50,000
Ragini 2,00,000 Building 3,00,000
Dhrupad 1,70,000 6,45,000 Profit & loss 50,000
9,50,000 9,50,000

The assets were realized and the liabilities were paid as under:
A. Arnab agreed to pay his brother's loan.
B. Investments realized 20% less.
C. Creditors were paid at 10% less.
D. Building was auctioned for ₹3,55,000. Commission on auction was ₹ 5,000.
E. 50% of the stock was taken over by Ragini at market price which was 20% less than the
book value and the remaining was sold at market price.
 F. Dissolution expenses were 8,000.₹3,000 were to be borne by the firm and the balance by
Dhrupad. The expenses were paid by him.
Prepare Realization Account and Partners' Capital Accounts

SOLUTION:
Dr. REALIZATION ACCOUNT Cr.
PARTICUARS AMOUNT PARTICULARS AMOUNT
To debtors 1,70,000 By provision for doubtful debt 20,000
To stock 1,50,000 By investment fluctuation reserve 50,000
To investment 2,50,000 By creditors 60,000
To building 3,00,000 By Arnav’s brother’s loan 95,000
To Arnav’s capital a/c 95,000 By Bank A/c
(brother’s loan) Investment 2,00,000
To bank (creditors) 54,000 Building 3,50,000
To Drupad’s capital a/c 3,000 Stock 60,000
(realization exp) Debtors 1,70,000
To Profit transferred to By Ragini’s capital a/c 60,000
Arnav’s capital a/c 25,800
Ragini’s capital a/c 8,600
Drupad’s capital a/c 8,600
10,65,000 10,65,000

Dr. Partners Capital A/c Cr.

Particulars Arnav Ragini Drupad Particulars Arnav Ragini Drupad

To P&L a/c 30,000 10,000 10,000 By Balance b/d 2,75,000 2,00,000 ,70,000
To realization - 60,000 - By realization 95,000 - -
a/c a/c
To bank 3,65,800 1,38,600 1,71,600 By realization - - 3,000
(final a/c (exp)
payment) By realization 25,800 8,600 8,600
a/c (profit)
3,95,800 2,08,600 1,81,600 3,95,800 2,08,600 1,81,600

Dr Dhrupad’s Loan A/c CR

PARTICULARS AMOUNT PARTICULARS AMOUNT
To bank a/c 1,00,000 By Balance b/d 1,00,000
1,00,000 1,00,000

Dr BANK A/C CR
PARTICULARS AMOUNT PARTICULARS AMOUNT
To Balance b/d 50,000 By Dhrupad loan A/c 1,00,000
To Realization A/c 7,80,000 By Realization A/c 54,000
By Arnav Capital a/c 3,65,800
By Ragini Capital A/c 1,38,600
By Drupad Capital A/c 1,71,600

8,30,000 8,30,000

8. Micheal, Jackson and John were partners in a firm sharing profits in the ratio of 3:1:1. On 31st March, 2017,
they decided to dissolve their firm. On that date their Balance Sheet was as follows:
BALANCE SHEET OF MICHAEL, JACKSON AND JOHN as at 31st March, 2017
LIABILITIES AMOUNT ASSETS AMOUNT
 Creditors 11,500 Bank 6,000
Loan 3,500 Debtors 48,400
Capitals: Less: Prov for D/D 2,400 46,000
Michael 50,000 Stock-in-Trade 16,000
Jackson 25,000 Furniture 2,000
John 14,000 89,000 Sundry Assets 34,000
1,04,000 1,04,000

It was agreed that:

a. Michael was to take over Furniture at ₹ 2,600 and Debtors amounting to ₹ 40,000 at Rs.
34,400 and the Creditors of 10,000 were to be paid by him at this figure.
b. Jackson was to take over all the stock in trade at 14,000 and some of the other Sundry
Assets at 28,800 (being 10% less than book value).
c. John was to take over the remaining Sundry Assets at 90% of the book value and assumed
responsibility for the discharge of the loan.
d. The remaining debtors were sold to a debt collecting agency for 50% of the book value.
Expenses of dissolution 600 were paid by John.
Prepare Realisation Account, Bank Account and Partners’ Capital Accounts. (CBSE 2019)

SOLUTION:
Dr. REALIZATION ACCOUNT Cr.
PARTICUARS AMOUNT PARTICULARS AMOUNT
To Debtors 48,400 By Provision for Doubtful Debts 2,400
To Stock-in-Trade 16,000 By Creditors 11,500
TO Furniture 2,000 By Loan 3,500
To Sundry Assets 34,000 By Michael’s Capital A/C:
To Michael’s Capital A/c 10,000 Furniture 2,600
(Creditors) Debtors 34,400 37,000
To John’s Capital A/c: By Jackson’s Capital A/c:
Loan 3,500 Stock-in-Trade 14,000
Dissolution Expenses 600 4,100 Sundry Assets 28,800 42,800
To Bank A/c (Creditors) 1,500 By John’s Capital A/c:
Remaining Sundry Assets (WN) 1,800
By Bank A/c (Debtors) 4,200
By Loss transferred to Partners’
Capital A/cs:
Michael 7,680
Jackson 2,560
John 2,560 12,800
1,16,000 1,16,000

Dr. Partners Capital A/c Cr.

Particulars Micheal Jackson Jhon Particulars Micheal Jackson John

To Realisation 37,000 42,800 1,800 By Balance b/d 50,000 25,000 14,000

A/c By Realisation 10,000 10,000 4,100
To Realisation 7,680 2,560 2,560 A/c
A/c (Loss) By Bank A/c --- 20,360 …
To Bank A/C 15,320 … 13,740 (Amount
(Final brought)
Payment)
60,000 45,360 18,100 60,000 45,360 18,100

Dr BANK A/C CR
PARTICULARS AMOUNT (₹) PARTICULARS AMOUNT (₹)
To Balance b/d 6,000 By Realisation A/c 1,500
To Realisation A/c 4,200 15,320
 To Jackson’s Capital A/c 20,360 By Michael’s Capital A/c (Final
(Amount brought ) Payment) 13740
By John’s Capital A/c (Final
Payment)

30560 30,560

Working Note:
Book Value of Sundry Assets taken by Jackson – ₹ 28,800 × 100/90 = ₹ 32,000
Book Value of Remaining Sundry Assets = ₹ 34,000 (Total) – ₹ 32,000 (Taken by Jackson) = ₹ 2,000
Value of Remaining Sundry Assets at which taken by John = ₹ 2,000 × 90/100 = ₹ 1,800.