CHAPTER 5

DISSOLUTION OF A PARTNERSHIP FIRM

Q 1. Lavanya and Priya were partners sharing profits in the ratio of 2 : 1. Pass journal entries for the following transactions at the
time of dissolution of firm :
(i) Workmen Compensation Reserve stood at Rs. 1,50,000 in the Balance Sheet and there was no liability towards Workmen
Compensation.
(ii) Workmen Compensation Reserve stood at Rs. 1,50,000 in the Balance Sheet and liability in respect of it was ascertained at
Rs.90,000.
(iii) Workmen Compensation Reserve stood at Rs. 1,50,000 in the Balance Sheet and liability in respect of it was ascertained at
Rs. 1,50,000.
(iv) Workmen Compensation Reserve stood at Rs. 1,50,000 in the Balance Sheet and liability in respect of it was ascertained at
Rs.2,00,000.
(v) There was no Workmen Compensation Reserve in the Balance Sheet and firm had to pay Rs.40,000 as compensation to the
workers.
SOLUTION:
JOURNAL
Date Particulars L.F. Dr. (Rs.) Cr.(Rs.)
(i) Workmen Compensation Reserve A/c Dr. 1,50,000
To Lavanya’s Capital A/c 1,00,000
To Priya’s Capital A/c 50,000
(Workmen Compensation Reserve transferred to Partners’ Capital
Accounts in their profit-sharing ratio)
(ii) (a) Workmen Compensation Reserve A/c Dr. 90,000
To Realisation A/c 90,000
(Workmen Compensation Reserve to the extent of liability
transferred to Realisation Account)
(b) Workmen Compensation Reserve A/c Dr. 60,000 .
To Lavanya’s Capital A/c 40,000
To Priya’s Capita! A/c 20,000
(Surplus of Workmen Compensation Reserve
transferred to Partners’ Capital Account in their profit- sharing ratio)
(c) Realisation A/c Dr. 90,000
To Bank A/c 90,000
(Payment of liability on account of Workmen Compensation)
(iii) (a) Workmen Compensation Reserve A/c Dr. 1,50,000
To Realisation A/c 1,50,000
(Workmen Compensation Reserve transferred to Realisation
Account)
(b) Realisation A/c Dr. 1,50,000
To Bank A/c 1,50,000
(Payment of liability on account of Workmen Compensation)
(iv) (a) Workmen Compensation Reserve A/c Dr. 1,50,000
To Realisation A/c 1,50,000
(Workmen Compensation Reserve transferred to Realisation
Account)

(b) Realisation A/c Dr. 2,00,000

To Bank A/c 2,00,000
(Payment of liability on account of Workmen Compensation)
(v) Realisation A/c Dr. 40,000
To Bank A/c 40,000
(Payment of liability on account of Workmen Compensation) -

Q 2. Pass journal entries for the following transactions :

(i) Realisation expenses amounted to Rs.5,000.
(ii) Realisation expenses amounted to Rs.8,000 were paid by partner X
(iii) Realisation expenses amounted to Rs. 10,000 were paid by the firm on behalf of a partner.
(iv) Realisation expenses amounted to Rs. 15,000 were paid by the firm. Mr. X, one of the partners, has to bear these expenses.
(v) Realisation expenses amounted to Rs.20,000 were paid by the firm. Rs.8,000 were to be borne by the firm and the balance by
Maruti, a partner.
(vi) Dissolution expenses amounted to Rs.20,000. Rs.8,000 were to be borne by the firm and the balance by Maruti, a partner. The
expenses were paid by Maruti.
(vii) Sudhir, a partner, was allowed a remuneration of Rs. 10,000 to carry out dissolution of the firm. He was to bear all expenses
of realisation which amounted to Rs. 16,000 were paid by the firm.
(viii) Ravi, a partner, is allowed a remuneration of Rs. 15,000 for dissolution work and is to bear all expenses of realisation which
amounted to Rs.5,000 were paid by the firm.
(ix) Anil, a partner, is paid remuneration of Rs.20,000 for dissolution work. Realisation expenses amounted to Rs.7,500 were paid
by the firm.
(x) Sunil, a partner, is paid remuneration of Rs.25,000 for dissolution work. Realisation expenses amounted to Rs.9,000 were paid
by him.
(xi) Vijay, a partner, paid realisation expenses of Rs. 10,000 and these were to be borne by him.
SOLUTION:
JOURNAL ENTRIES
Date Particulars L.F. Dr.(Rs.) Cr.(Rs.)
(i) Realisation A/c Dr. 5,000
To Bank A/c 5,000
(Payment of realisation expenses)
(ii) Realisation A/c Dr. 8,000
To A’s Capital A/c 8,000
(Realisation expenses paid by X on behalf of the firm)
(iii) Partner’s Capital A/c Dr. 10,000
To Bank A/c 10,000
(Realisation expenses paid by the firm on behalf of the partner)
(iv) J’s Capital A/c Dr. 15,000
To Bank A/c 15,000
(Realisation expenses paid by the firm on behalf of the partner)

(v) Realisation A/c Dr, 8,000

Maruti’s Capital A/c Dr. 12,000
To Bank A/c 20,000
(Realisation expenses paid by the firm. Firm’s share of expenses debited to
Realisation Account and balance to Partner’s Capital Account)
(vi) Realisation A/c Dr. 8,000
To Maruti’s Capital A/c 8,000
(Realisation expenses paid by the partner on bahelf of the firm)
(vii) Realisation A/c Dr. 10,000
Sudhir’s Capital A/c Dr. 6,000
To Bank A/c 16,000
(Remuneration allowed to the partner and excess expenses charged from him) >
(viii) Realisation A/c Dr. 15,000
To Ravi’s Capital A/c 10,000
To Bank A/c 5,000
(Remuneration allowed to Ravi and expenses paid by the firm on his behalf)
(ix) Realisation A/c* Dr. 27,500
To Anil’s Capital A/c 20,000
To Bank A/c 7,500
(Remuneration allowed and expenses paid)
(x) Realisation A/c* Dr. 34,000
To Sunil’s Capital A/c 34,000
(Remuneration allowed and expenses paid by him)
(xi) No Entry
*In Case (ix) and (x) partner is not liable to bear the expenses of realisation.
Q 3. Diya and Riya were partners sharing profits and losses equally. On 31st March, 2016, the Balance Sheet of the firm was as
follows :
BALANCE SHEET as at 31st March, 2016
Liabilities Rs. Assets Rs.
Sundry Creditors 60,000 Cash 25,000
Riya’s Loan 15,000 Debtors 42,000
General Reserve 15,000 Less: Provision for
Investment Fluctuation Fund 2,000 Doubtful Debts 6,000 36,000
Riya’s Capital 30,000 Stock 12,000
Diya’s Capital 10,000 Investments 18,000
Plant and Machinery 39,000
Diya’s Loan 2,000
1,32,000 1,32,000
Their firm was dissolved on above date and the assets and liabilities were settled as follows:
(i) The creditors were paid off by giving them the plant and machinery at a discount of 10% and the balance in cash.
(ii) Riya’s loan was paid with interest of Rs.500.
(iii) Debtors realised 10% less of the amount due from them.
(iv) Stock was taken over by Riya at Rs.7,000.
(v)Investments realised 80% of their book value.
(vi)Realisation expenses Rs.600 were paid by Diya.
You are required to prepare :
(a)Realisation Account.
SOLUTION:
Dr. REALISATION ACCOUNT Cr.

Particulars Rs. Particulars Rs.

To Debtors A/c 42,000 By Provisions for Doubtful
To Stock A/c 12,000 Debts A/c 6,000
To Investments A/c 18,000 By Sundry Creditors A/c 60,000
To Plant and Machinery A/c 39,000 By Investment Fluctuation
To Cash A/c (Creditors) Fund A/c(1) 2,000
(Rs.60,000- Rs.35,100) 24,900 By Cash A/c (Assets Realised)
To Interest on Riya’s Loan A/c 500 Debtors 37,800
To Diya’s Capital A/c (Expenses) 600 Investments 14,400 52,200
By Riya’s Capital A/c
(Stock taken) 7,000
By Loss on Realisation
transferred to :
Diya’s Capital A/c 4,900
Riya’s Capital A/c 4,900 9,800
1,37,000 1,37,000

Q 4. A, B and C are partners sharing profits and losses in the ratio of 2 : 2 : 1. They agreed to dissolve the firm. The Balance Sheet
of the firm as at that date was as follows:
Liabilities Rs. Assets Rs.
Bank Overdraft 4,000 Debtors 40,000
Creditors 30,000 Stock 50,000
B/P 6,000 Furniture 2,000
B's Wife Loan 10,000 Computer 8,000
Capitals: A 70,000 Fixed Assets 41,000
B 70,000 Prepaid Expenses 1,000
Profit & Loss A/c 40,000
C's Capital 8,000
1,90,000 1,90,000
1. Assets realised as follows : Stock Rs.32,000; Fixed Assets Rs.45,000 and full amount was received from Debtors.
2. A agreed to take over furniture at Rs. 1,600 and also agrees to make the payment of B/P.
3. B agreed to discharge his wife’s loan.
4. There was an unrecorded asset of Rs. 10,000, which was taken over by C at Rs.7,000.
5. A B/R for Rs.5,000 was received from a customer Mohan and the bill was discounted from the bank. Mohan became insolvent
and 60 paise per rupee has been received from his estate.
6. Creditors were paid at a discount of Rs. 1,500.
Prepare Realisation Account.
SOLUTION:

Dr. REALISATION ACCOUNT Cr.

Particulars Rs. Particulars Rs.
To Debtors 40,000 By Bank Overdraft* 4,000
To Stock 50,000 By Creditors 30,000
To Furniture 2,000 By B/P 6,000
To Computer 8,000 By B's Wife Loan 10,000
To Fixed Assets 41,000 By Bank A/c (Sale of assets) 1,17,000
To Prepaid Expenses 1,000 By Bank A/c (Recovery from
To A’s Capital (B/P) 6,000 Bill dishonoured) 3,000
To B’s Capital (Wife Loan) 10,000 By A’s Capital (Furniture) 1,600
To Bank (payment for By C’s Capital 7,000
bill discounted) 5,000 (Unrecorded asset)
By Bank A/c (Sale of Computer) 8,000
To Bank (Bank Overdraft paid) 4,000 By Loss transferred to :
To Bank (Creditors paid) 28,500 A’s Capital A/c 3,560
B’s Capital A/c 3,560
C’s Capital A/c 1,780 8,900
1,95,500 1,95,500

Q 5. Following is the Balance Sheet of X and Y, who share profits and losses in the ratio of 4 : 1, as at 31st March, 2013 :
Liabilities Rs. Assets Rs.
Sundry Creditors 8,000 Bank 20,000
Bank Overdraft 6,000 Debtors 17,000
A’s Brother’s Loan 8,000 Less: Provision 2,000 15,000
Ts Loan 3,000 Stock 15,000
Investment Fluctuation Fund 5,000 Investments 25,000
Capital: Furniture 6,000
X 50,000 Buildings 19,000
Y 40,000 Goodwill 10,000
Profit and Loss A/c 10,000
1,20,000 1,20,000
The firm was dissolved on the above date and the following arrangements were decided upon :
(i) X agreed to pay off his brother’s Loan.
(ii) Debtors of Rs. 5,000 proved bad.
(iii) Other assets realised — Investments 20% less; and Goodwill at 60%.
(iv) One of the creditors of Rs.5,000 was paid only Rs.3,000.
(v) Buildings were auctioned for Rs.30,000 and the auctioneer’s commission amounted to Rs. 1,000.
(vi) Y took over part of stock at Rs.4,000 (being 20% less than the book value). Balance stock realised 50%.
(vii) Realisation expenses amounted to Rs.2,000.
Prepare :
(i) Realisation Acount
SOLUTION:
Dr. REALISATION ACCOUNT Cr.
Particulars Rs. Particulars Rs.
To Debtors 17,000 By Provision for doubtful debts 2,000
To Stock 15,000 By Sundry Creditors 8,000
To Investments 25,000 By Bank Overdraft^- 6,000
To Furniture 6,000 By Xs Brother’s Loan 8,000
To Buildings 19,000 By Investment Fluctuation Fund 5,000
To Goodwill 10,000 By Bank:
To yCs Capital A/c Debtors (Rs. 17,000
(X's Brother’s loan) 8,000 - Rs.5,000) 12,000
To Bank (Creditors paid) 6,000 Investments 20,000
To Bank (Bank Overdraft paid) 6,000 Goodwill 6,000
To Bank (Expenses) 2,000 Buildings 29,000
Stock (Note 1) 5,000 72,000
By Y’s Capital: (Stock) 4,000
By Bank (Furniture) 6,000
By Loss Transferred to :
Ts Capital A/c 2,400
Y’s Capital A/c 600 3,000
1,14,000 1,14,000

Q 6. A firm is dissolved and on that date loan of Rs. 5,00,000 by P a partner is outstanding. P accepted Rs, 4,50,000 in settlement
of his loan. Pass the Journal entries for the above.
Date Particulars L.F. Dr.(Rs.) Cr.(Rs.)
(i) P’s Loan A/c Dr. 5,00,000
To Bank A/c 4,50,000
To Realisation A/c 50,000
(P’s loan account settled for Rs. 4,50,000 balance transferred to
Realisation Account)

Q 7. A firm is dissolved and on that date loan by Mohan a partner of Rs. 4,00,000 is outstanding. Mohan accepted furniture
valued at Rs. 3,00,000 in settlement of his loan. Pass the journal entries.
Date Particulars L.F. Dr.(Rs.) Cr.(Rs.)
(i) Mohan’s Loan A/c Dr. 3,00,000
To Realisation A/c 3,00,000
(Mohan’s loan account settled for Rs. 3,00,000)
(ii) Mohan’s Loan A/c Dr. 1,00,000
To Realisation A/c 1,00,000
(Mohan’s loan account settled for Rs. 3,00,000 balance transferred
to Realisation account)

Q 8. A firm is dissolved and on that date loan by Raj a partner of Rs. 4,00,000 is outstanding. Raj accepted furniture valued at
Rs. 3,00,000 against his loan. Pass the journal entry.
Date Particulars L.F. Dr.(Rs.) Cr.(Rs.)
(i) Raj’s Loan A/c Dr. 4,00,000
To Realisation A/c 3,00,000
To Cash/Bank A/c 1,00,000
(Raj’s loan account settled partly by giving assets and partly by
payment of Rs. 1,00,000)
Q 9. A firm is dissolved and on that date loan by Hari a partner of Rs. 6,00,000 is outstanding. Hari accepted furniture and Car
valued at Rs. 7,00,000 against his loan. Balance was paid by him. Pass the journal entry.
Date Particulars L.F. Dr.(Rs.) Cr.(Rs.)
(i) Hari’s Loan A/c Dr. 6,00,000
Cash/Bank A/c Dr. 1,00,000
To Realisation A/c 7,00,000
(Hari’s loan account settled by giving assets)

Q 10. A firm is dissolved and on that date loan by Jay a partner of Rs. 6,00,000 is outstanding. Jay took furniture of value Rs.
7,00,000 against his loan. He is unable to pay the balance amount. Pass the journal entry.
Date Particulars L.F. Dr.(Rs.) Cr.(Rs.)
(i) Jay’s Loan A/c Dr. 6,00,000
Jay’s Capital A/c Dr. 1,00,000
To Realisation A/c 7,00,000
(Jay’s loan account settled by giving asset balance transferred to his
capital account)

Q 11. A firm is dissolved and on that date loan by Nihal a partner of Rs. 6,00,000 is outstanding. Nihal has Rs. 2,00,000 (Debit)
in his capital account. Pass the journal entry.
Date Particulars L.F. Dr.(Rs.) Cr.(Rs.)
(i) Nihal’s Loan A/c Dr. 6,00,000
To Nihal’s Capital A/c 2,00,000
To Cash/Bank A/c 4,00,000
(Nihal’s loan account transferred to his capital account and balance
paid)

Q 12. A firm is dissolved and on that date loan of Rs. 3,00,000 to Rishi, a partner is outstanding. Rishi has Rs. 4,00,000 in his
capital account. Pass the journal entry.
Date Particulars L.F. Dr.(Rs.) Cr.(Rs.)
(i) Rishi’s Capital A/c Dr. 3,00,000
To Loan to Rishi A/c 3,00,000
(Loan to Rishi account transferred to his capital account)

Q 13. A firm is dissolved and on that date loan of Rs. 2,00,000 to Kartik, a partner is outstanding. Kartik has Rs. 5,00,000 in his
capital account. He repaid the loan by cheque. Pass the journal entry.
Date Particulars L.F. Dr.(Rs.) Cr.(Rs.)
(i) Bank A/c Dr. 2,00,000
To Loan to Kartik A/c 2,00,000
(Cheque received from Kartik against his loan)

Q 14. A firm is dissolved and on that date loan of Rs. 4,00,000 to Rajat, a partner is outstanding. Rajat paid Rs. 3,00,000 against
his loan. Pass the journal entry.
Date Particulars L.F. Dr.(Rs.) Cr.(Rs.)
(i) Bank A/c Dr. 3,00,000
Rajat’s Capital A/c Dr. 1,00,000
To Loan to Rajat A/c 4,00,000
(Part of loan amount received from Rajat and balance transferred to
Capital Account)