NCERT Solutions for Class 12 Accountancy Chapter 5 Dissolution of Partnership Firm

Detailed, Step-by-Step NCERT Solutions for 12 Accountancy Chapter 5 Dissolution of Partnership Firm Questions and Answers were solved by Expert Teachers as per NCERT (CBSE) Book guidelines covering each topic in chapter to ensure complete preparation.

Dissolution of Partnership Firm NCERT Solutions for Class 12 Accountancy Chapter 5

Dissolution of Partnership Firm Questions and Answers Class 12 Accountancy Chapter 5

Test Your Understanding-I
[Page No. 228]

State giving reasons, which of the following statements are true or false:

1. Dissolution of a partnership is different from dissolution of a firm.
2. A partnership is dissolved when there is a death of a partner.
3. A firm is dissolved when all partners give consent to it.
4. A firm is compulsorily dissolved when a partner decide to retire.
5. Dissolution of a firm necessarily involves dissolution of partnership.
6. A firm is compulsorily dissolved when all partners or when all except one partner become involvent.
7. Court can order a firm to be dissolved when a partner becomes insane.
8. Dissolution of partnership cannot take place without intervention of the court.
Answer:
1. True
Dissolution of partnership is merely the reconstitution of partnership. In such a case existing partnership is dissolved but the firm may continue under the same name. Whereas in dissolution of firm, business of the firm terminated and the affairs of firm are to be wound up.

2. True
In case of death of a partner, the firm requires reconstitution of the partnership, hence partnership is dissolved.

3. True
This is called dissolution by agreement, when all the partners give consent to it.

4. False
A partnership is compulsorily dissolved when a partner decide to retire, not the hrm;

5. True
When the dissolution of firm takes place the business of the firm comes to an end therefore there is no partnership remains.

6. True
According to Section 39 of Indian Partnership Act, 1932 it is the case of compulsory dissolution.

7. True
According to Section 39 of Partnership Act, a firm can be dissolved by the order of court, when a partner becomes insane.

8. False
Dissolution of partnership can take place with the constent of partners not by the intervention of the court.

Test Your Understanding-II [Page No. 235]
Tick (✓) the Correct Answer:

Question 1.
On dissolution of a firm, bank overdraft is transferred to :
(A) Cash Account
(B) Bank Account
(C) Realisation Account
(D) Partner’s capital Account
Answer :
(C) Realisation Account

Question 2.
On dissolution of a firm, partner’s loan account is transferred to:
(A) Realisation Account .
(B) Partner’s Capital Account
(C) Partner’s Current Account
(D) None of the above
Answer :
(D) None of the above

Question 3.
After transferring liabilities like creditors and bills payables in the Realisation Account, in the absence of any information regarding then payment, such liabilities are treated as :
(A) Never paid
(B) Fully paid
(C) Partly paid
(D) None of the above
Answer :
(B) Fully paid

Question 4.
When realisation expenses are paid by the firm on behalf of a partner, such expenses are debited to :
(A) Realisation Account
(B) Partner’s Capital Account
(C) Partner’s Loan Account
(D) None of the above
Answer :
(B) Partner’s Capital Account

Question 5.
Unrecorded assets when taken over by a partner are shown in:
(A) Debit of Realisation Account
(B) Debit of Bank Account
(C) Credit of Realisation Account
(D) Credit of Bank Account
Answer :
(C) Credit of Realisation Account

Question 6.
Unrecorded liabilities when paid are shown in :
(A) Debit of Realisation Account
(B) Debit of Bank Account
(C) Credit of Realisation Account
(D) Credit of Bank Account
Answer :
(A) Debit of Realisation Account

Question 7.
The accumulated profits and reserves are transferred to :
(A) Realisation Account
(B) Partner’s Capital Accounts
(C) Bank Account
(D) None of the above
Answer :
(B) Partner’s Capital Account

Question 8.
On dissolution of the firm, partner’s capital accounts are closed through:
(A) Realisation Account
(B) Drawings Account
(C) Bank Account
(D) Loan Account
Answer :
(C) Bank Account

Test Your Understanding-Ill
[Page No. 240]

Fill in the Correct Word(s):

1. All assets (except cash/bank and fictitious assets) are transferred to the …………… (Debit/Credit) side of Account ………….. (Realisation/ Capital).
Answer:
Debit, Realisation

2. All ……….. (internal/external) liabilities are transferred to the …………… (Debit/Credit) side of Account ……….. (Bank/ Realisation).
Answer:
external, Credit, Realisation

3. Accumulated losses are transferred to …….. (Current/ Capital Accounts) in ……………. (equal ratio/profit sharing ratio).
Answer:
Capital Accounts, profit sharing ratio

4. If liability is assumed by a partner, such Partner’s Capital Account is ……….. (debited/credited).
Answer:
credited

5. If a partner takes over an asset, such (Partner’s Capital Account) is ………….. (debited/credited).
Answer:
debited

6. No entry is required when a ………. (partner/creditor) accepts a fixed asset in payment of his dues.
Answer:
creditor

7. When creditor accepts an asset whose value is more than the amount due to him, he will ……….. (pay/not pay) the excess amount which will be credited Account.
Answer:
pay, Realisation

8. When the firm has agreed to pay the partner a fixed amount for realisation work irrespective of the actual amount spent, such fixed amount is debited to …………. (Realisation/Capital) . Account and credited to ………. (Capital/Bank) Account.
Answer:
Realisation, Capital

9. Partner’s loan is ……….. (recorded/not recorded) in the ……. (Realisation Account).
Answer:
not recorded

10. Partner’s Current Accounts .are transferred to respective ……………. Partner’s (Loan/Capital) Accounts.
Answer:
Capital

Do it Yourself [Page No. 242]

Give the journal entry(ies) to be recorded for the following, in case of the dissolution of a partnership firm.

1. For closure of assets accounts.
2. For closure of liabilities accounts.
3. For sale of assets.
4. For settlement of a creditor by transfer of fixed assets to him.
5 For expenses of realisation when actual expenses are paid by the partner on behalf of the firm.
6. When a partner discharges the liability of the firm.
7. For payment of partner’s loan.
8. For settlement of capital accounts.
Answer:
1. For closure of assets accounts

All assets transferred to realisation account at their book value and its corresponding provisions or reserve appearing on the balance sheet is also transferred to credit side of realisation account. Balance of cash account, bank account and fictitious assets are not transferred to realisation account.

Short Answer Type Questions

Question 1.
State the difference between dissolution of partnership and dissolution of partnership firm.
Answer:
Difference between dissolution of partnership and dissolution of partnership firm.

Question 2.
State the accounting treatment for:
1. Unrecorded assets
2. Unrecorded liabilities.
Answer:
Unrecorded Assets
Sometimes at the time of dissolution of the firm there are some assets in the business, which do not appear in the books. These may have been written off completely in the past but physically they still exist. These assets are known as unrecorded assets. On dissolution these assets might be either sold or taken over by any partner or a creditor at agreed prices. The following accounting treatment is given to the unrecorded assets :

Important:
It must be kept in mind that unrecorded assets would never be transferred to Realisation Account because the amount realised from its sale is in the nature of a gain and the Realisation Account is only credited accordingly.
For example, at time of dissolution, firm had a Motor Car which was not shown in the books. Journal entries in following cases are given below :
(a) It is sold for Rs. 35,000.
(b) It is taken over by the partner at an agreed price of Rs. 32,300.
(c) It is taken over by creditors in full settlement of his claim.

Unrecorded Liabilities
It may sometimes happen at the time of dissolution of firm that there are certain liabilities which do not appear in the books. These liabilities are called unrecorded liabilities. The accouting treatment of unrecorded liability is :

Important:
It must be kept in mind that the unrecorded liability is never transferred to Realisation Account. Because its payment is in the nature of loss and Realisation Account is only debited with the actual payment. And, they do not have account in the books also.
For example, at the time of dissolution of firm, compensation paid to employees by the firm amounted to Rs. 5,000. This liability was not provided in the books. Journal entries in following cases are given below :
(a) If cash payment is made for unrecorded liability,
(b) If unrecorded liability taken over by a partners.

Question 3.
On dissolution, how will you deal with partner’s loan if it appears on the
(a) assets side of the balance sheet
(b) liabilities side of the balance sheet.
Answer:
(a) Partner’s loan appearing on the assets sideline balance sheet: If partner’s loan appears on the assets side of the balance sheet at the time of dissolution, it shows that partner has been taken loan from the firm and he has not paid back yet.

Accounting Treatment: The loan amount should transfer to his capital account. Following entry will required :
Partner’s Capital A/c – Dr.
To Partner’s Loan A/c

(b) Partner’s loan appearing on the liabilities side of the balance sheet: If a partner has given any loan to the firm, his loan will be paid off after all the outside liabilities are paid in full. Therefore, partner’s loan account is not transferred to the realisation account and his loan account is prepared separately and paid off by passing the following entry :

For payment of Partner’s loan :
Partner’s loan A/c – Dr.
To Cash/ Bank A/c (For the partner’s loan paid-off)

Question 4.
Distinguish between firm’s debts and partner’s private debts.
Answer:
Where both the debts of the firm and private debts of a partner co-exists, the following rules, as stated is section 49 of the Indian Partnership) Act, 1932, shall apply.

(a) The property of the firm shall be applied first in the payment of debts of the firm and then the surplus, if any shall be divided among the partners as per their claims, which can be utilised for payment of their private liabilities.

(b) The private property of any partner shall be applied first in payment of his private debts and the surplus, if any may be utilised for payment of the firm’s debts, in case the firm’s liabilities exceeds the firm’s assets.
In nutshell, private property shall be first used to settle private debts and business property shall be first used to settle business debts and the surplus if any can be transferred.

Question 5.
State the order of settlement of accounts on dissolution.
Answer:
In case of dissolution of a firm, the firm ceases to conduct business and has to settle its accounts. For this purpose, it disposes of all its assets for satisfying all the claims against it. Section 48 of the Indian Partnership Act, 1932, provides the following rules for the settlement of accounts between the partners :

(a) Treatment of Losses: Losses, including deficiencies of capital, shall be paid :

First out of profits,
Next out of capital of partners, and
Lastly, if necessary, by the partners individually in their profit sharing ratio.

(b) Application of Assets : The assets of the firm, including any sum contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order

In paying the debts of the firm to the third parties;
In paying each partner proportionately what is due to him/ her from the firm for advances as distinguished from capital (i.e. partner’s loan);
In paying to each partner proportionately what is due to him on account of capital; and

(iv) The residue, if any, shall be divided among the partners in their profit sharing ratio. Thus, assets realised along with contribution from partners if required, are applied as follows :

To pay outside liabilities. Debts with fixed charges are paid first, followed by debts with floating charge and then unsecured debts. Such as creditors, loan, bank overdraft, bills payable etc.
To pay loans and advances made by the partners to the firm (in case the balance amount is not adequate enough to pay off such loans and advances, they are to be paid proportionately).
To settle capital accounts of the partners.

Question 6.
On what account Realisation Account differes from Revaluation Account?
Answer:
Distinction between Realisation Account and Revaluation Account:

Long Answer Type Questions

Question 1.
What is meant by Dissolution of Partnership firm?
Answer:
The word Dissolution implies “the undoing or breaking of a bond tie.” In other words, dissolution implies that the existing state of arrangement is done away with. In terms of partnership, dissolution means discontinuance of relationship amongst the partners.

Dissolution of a Partnership—If dissolution involves only the reconstitution of firm and the business in partnership is continued in the same name after the dissolution of the partnership agreement, it is known as the ‘Dissolution of the partnership’. It involves change in relation between partner, without affecting the continuity of business. Here, the firm is reconstituted without dissolution of the firm. A partnership is dissolved by change of mutual contract in the following cases—Change in profit sharing ratio, admission, retirement, death etc.

Dissolution of a Partnership Firm—According to Section 39 of the Indian Partnership Act, 1932, dissolution of partnership between all the partners of a firm is called the ‘dissolution of the firm.’

It refers to the winding up of the business in partnership. It involves complete break-down of relation among all the partners and is dissolution of partnership between all the partners of a firm. Here, in this situation, business is to be discontinued, it requires realisation of assets and settlement of liabilities.

Dissolution of a firm takes place in the following cases:
Dissolution by Agreement—

All the partners give consent to it, or
As per the terms of partnerships agreement.

Compulsory Dissolution—

Where all the partners or all except one partner, become insolvent or insane, rendering them incompetent to sign a contract, or
When the business of the firm becomes illegal, or
When some event has taken place which makes it unlawful the partner to carry on the business of the firm in partnership.

On the Happening of Certain Contingencies—Subject to contract between the partners, a firm is dissolved :

If constituted for a fixed term, by the expiry of that term; or
If constituted to carry out one or more ventures, by the completion thereof; or
where all the patners except one decide to retire from the firm; or
where all the partners or all except one partner dies; or
by the adjudication of a partner as an insolvent.

Dissolution by Notice—In case of partnership at will, the firm may be dissolved if any of the partners give a notice in writing to the other partners signifying his intention of seeking dissolution of the firm.

Dissolution by Court (Under Section 44)—At the suit of a partner, the court may order for dissolution of partnership firm on any of the following grounds :

If a partner becomes insane; or
When a partner becomes permanently incapable of performing his duties as a partner; or ‘
When a partner is guilty of misconduct which is likely to adversely affect the business of the firm; or
When a partner deliberately and consisterttly commits breach of agreements relating to the management of the firm; or
When the partner transfer whole of his interest in the firm to the third party; or
When the business of the firm cannot be carried on, except at a loss; or
When the court, on any ground, regards dissolution to be just and equitable.

Question 2.
What is a Realisation Account?
Answer:
Realisation Account means an account which is prepared to record the realisation of assets and payment of liabilities. It is opened on the dissolution of a firm. It is a nominal account. It shows the net result of realisation of assets and settlement of liabilitiec.

For this purpose, the balances of assets and liabilities appearing in the ledger books are transferred to realisation account. It also records realised value of recorded as well as unrecorded assets. Similarly, payment for liabilities and unrecorded liabilities are also recorded in the realisation account. It also records the realisation expenses.

The balance in this account is termed as profit or loss on realisation which is transferred to partner’s capital accounts in their profit sharing ratio. As dissolution of firm involves winding up of partnership business and requires final closure of books of accounts, following entries are passed through realisation account for the dissolution of the partnership firm .

All assets transferred to realisation account at their book value and its corresponding provisions or reserves appearing on the balance sheet is also transferred to credit side of realisation account. Balance of cash account, bank account and fictitious assets are not transferred to realisation account.

2. For Transfer of Liabilities—Book value of all outside liabilities recorded in the books are transferred to realisation account alongwith provisions against various assets.

Note : Partner’s capital account, accumulated profits, general reserves, reserve fund, partner’s loan are not transferred to realisation account.

7. For Transfer of Assets to settle Liabilities—If assets are transferred to settle the liability account (full and final settlement), then no separate journal entry is passed to record settlement of liability by transfer of assets. But if there is difference, then we should pass entry for the difference amount only.

8. For the Payment of Realisation Expenses—

(a) Expenses paid by the firm :
Realisation A/c – Dr.
To Bank/Cash A/c

(b) Expenses paid by a partner on behalf of the firm:
Realisation A/c – Dr.
To Partner’s Capital A/c

(c) For agreed remuneration or commission to partner, who agreed to undertake the dissolution work and bear the realisation expenses:
Realisation A/c – Dr.
To Partner’s Capital A/c

9. For Realisation of any Unrecorded Assets including Goodwill
Bank/Cash A/c – Dr.
To Realisation A/c

10. For settlement of any Unrecorded Liability
Realisation A/c – Dr.
To Bank/Cash A/c

11. For transfer of Profit and Loss on Realisation :
(a) In case of profit
Realisation A/c – Dr.
To Partner’s Capital A/c (Individually)

(b) In case of loss
Partner’s Capital A/c (Individually)
To Realisation A/c

Objective of Preparing Realistion Account—Following are the objectives of preparing realisation account:

To close down the accounts of assets and liabilities.
To realise assets and to pay off liabilities.
To ascertain the profit or loss on the lealisation of assets and liabilities.

Question 3.
Reproduce the format of Realisation Account.
Answer:
Format of Realisation Account
Realisation Account

Question 4.
Hen deficiency of creditors is paid off?
Answer:
When the creditors of the firm cannot be paid in full out of firm’s own a sets as well as the personal assets of the partners, all the partners are .aid to be insolvent and the deficiency of creditors remains unpaid to some exte nt hen the following procedure should be adopted.

(a) A separate a count is prepared for creditors and other outside liabilities.

(b) A cash account is prepared to find out the cash availability with the firm from the amount of assets realised and amount from the private assets of the partners so that the payment has to be made to creditors and outside liabilities.

(c) After making the partial payment to the creditors and other liabilities, the deficiency in such account is transferred to the newly opened deficiency account.

Alternatively, when liabilities of the firm cannot be paid in full out of firm’s assets as well as personal assets of the partners, then it is the case of insolvency of all partners. In this case it is better not to transfer the amount of creditors to realisation account.

Creditor may be paid the amount available including the amount contributed by the partners. The unpaid portion of creditors account is closed by transferring it to capital accounts of the partners in the profit sharing ratio. Then capital accounts are closed by transferring the deficiency to other partners in accordance with the rule in Garner Vs. Murray. For this purpose the capital account having the worst position is taken first. The last Capital Account gets automatically closed.

Numerical Questions

Question 1.
Journalise the following transactions regarding realisation expenses:
(a) Realisation expenses amounted to Rs. 2,500.
(b) Realisation expenses amounting to Rs. 3,000 were paid by Ashok, one of the partners.
(c) Realisation expenses Rs. 2,300 borne by Tarun, personally.
(d) Amit, a partner was appointed to realise the assets, at a cost of Rs. 4,000. The actual amount of realisation amounted to Rs. 3,000.
Answer:

Question 2.
Record necessary journal entries in the following cases :
(a) Creditors worth Rs. 85,000 accepted Rs. 40,000 as cash and Investment worth Rs. 43,000, in full settlement of their claim.
(b) Creditors were Rs. 16,000. They accepted Machinery valued at Rs. 18,000 in settlement of their claim.
(c) Creditors were Rs. 90,000. They accepted Buildings valued Rs. 1,20,000 and paid cash to the firm Rs. 30,000.
Answer:

Question 3.
There was an old computer which was written-off in the books of accounts in the previous year. The same has been taken over by a partner Nitin for Rs. 3,000. Journalise the transaction, supposing that the firm has been dissolved.
Answer:

Question 4.
What journal entries will be recorded for the following transactions on the dissolution of a firm :
(a) Payment of unrecorded liabilities of Rs. 3,200.
(b) Stock worth Rs. 7,500 is taken by a partner Rohit.
(c) Profit on Realisation amounting to Rs. 18,000 is to be distributed between the partners Ashish and Tarun in the ratio of 5 : 7.
(d) An unrecorded asset realised Rs. 5,500.
Answer:

Question 5.
Give journal entries for the following transactions :
1. To record the realisation of various assets and liabilities.
2. A Firm has a Stock of Rs. 1,60,000. Aziz, a partner took over 50% of the Stock at a discount of 20%.
3. Remaining Stock was sold at a profit of 30% on cost.
4. Land and Building (book value Rs. 1,60,000) sold for Rs. 3,00,000 through a broker who charged 2% commission on the deal.
5. Plant and Machinery (book value Rs. 60,000) was handed over to a Creditor at an agreed valuation of 10% less than the book value.
6. Investment whose face value was Rs. 4,000 was realised at 50%.
Answer:

Question 6.
How will you deal with the realisation expenses of the firm of Rashim and Bindiya in the following cases :
1. Realisation expenses amounts to Rs. 1,00,000.
2. Realisation expenses amounting to Rs. 30,000 are paid by Rashim, a partner.
3. Realisation expenses are to be borne by Rashim for which
he will be paid Rs. 70,000 as remuneration for completing the dissolution process. The actual expenses incurred by Rashim were Rs. 1,20,000.
Answer:

Question 7.
The book value of assets (other than cash and bank) transferred to Realisation Account is Rs. 1,00,000. 50% of the assets are taken over by a partner Atul, at a discount of 20%; 40% of the remaining assets are sold at a profit of 30% on cost; 5% of the balance being obsolete, realised nothing and remaining assets are handed over to a Creditor, in full settlement of his claim. You are required to record the journal entries for realisation of assets.
Answer:

Note: No entry is required for transfer of assets to settle the claim (full and final) of creditors.

Question 8.
Record necessary journal entries to record the following unrecorded assets and liabilities in the books of Paras and Priya :
1. There was an old furniture in the firm which had been written-off completely in the books. This was sold for Rs. 3,000.
2. Ashish, an old customer whose account for Rs. 1,000 was written-off as bad in the previous year, paid 60%, of the x amount.
3. Paras agreed to take over the firm’s goodwill (not recorded in the books of the firm), at a valuation of Rs. 30,000.
4. There was an old typewriter which had been written-pff ‘ completely from the books. It was estimated to realize Rs. 400. It was taken away by Priya at an estimated price less 25%.
5. There were 100 share of Rs. 10 each in Star Limited acquired at a cost of Rs. 2,000 which had been written-off completely from the books. These shares are valued @ Rs. 6 each and divided among the partners in their profit sharing ratio.
Answer:

Question 9.
All partners wishes to dissolve the firm. Yastin, a partner wants that her loan of Rs. 2,00,000 must be paid off before the payment of capitals to the partners. But, Amart, another partner wants that , the capitals must be paid before the payment of Yastin’s loan. You 1 are required to settle the conflict giving reasons.
Answer:
Yastin, is correct, because according to Section 48 of the Indian Partnership Act, 1932, at the time of dissolution, partner’s loan is repaid before the payment of capitals to partners.

Question 10.
What journal entries would be recorded for the following transactions on the dissolution of a firm after various assets (other than cash) on the third party liabilities have been transferred to Realisation Account:
1. Arti took over the Stock worth Rs. 80,000 at Rs. 68,000.
2. There was unrecorded Bike of Rs. 40,000 which was taken over by Mr. Karim.
3. The firm paid Rs. 40,000 as compensation to employees.
4. Sundry creditors amounting to Rs. 36,000 were settled at a discount of 15%.
5. Loss on realisation Rs. 42,000 was to be distributed between Arti and Karim in the ratio of 3 : 4.
Answer:

Question 11.
Rose and Lily shared profits in the ratio of 2 : 3. Their Balance

Rose and Lily decided to dissolve the firm on the above date. Assets (except bills receivables) realised Rs. 4,84,000. Bills Receivable were taken over by Rose at Rs. 30,000. Creditors agreed to take Rs. 38,000. Cost of realisation was Rs. 2,400. There was a Motor Cycle in the firm which was bought out of the firm’s money, was not shown in the books of the firm. It was now sold for Rs. 10,000. There was a contingent liability in respect of outstanding electric bill of Rs. 5,000 Bill Receivable taken over by Rose at Rs. 33,000.
Show Realisation Account, Partners Capital Account, Loan Account and Cash Account.
Answer:

Question 12.
Shilpa, Meena and Nanda decided to dissolve their partnership on March 31,2006. Their profit sharing ratio was 3:2:1 and their Balance Sheet was as under :

The stock of value of Rs. 41,660 are taken overby Shilpa for Rs. 35,000 and she agreed to discharge bank loan. The remaining stock was sold at Rs. 14,000 and debtors amounting to Rs. 10,000 realised Rs. 8,000. Land is sold for Rs. 1,10,000. The remaining debtors realised 50% at their book value. Cost of realisation amounted to Rs. 1,200. There was a typewriter not recorded in the books worth Rs. 6,000 which were taken over by one of the Creditors at this value. Prepare Realisation Account.
Answer:

Question 13.
Surjit and Rahi were sharing profits (losses) in the ratio of 3 : 2, their Balance Sheet as on March 31, 2004 is as follows :

The firm was dissolved on March 31, 2006 on the following terms:
1. Surjit agreed to take the investments at Rs. 8,000 and to pay Mrs. Surjit’s loan.

2. Other assets were realised as follows :
Stock – Rs. 5,000
Debtors – Rs. 18,500
Furniture – Rs. 4,500
Plant – Rs. 25,000

3. Expenses on realisation amounted to Rs. 1,600.

4. Creditors agreed to accept Rs. 37,000 as a final settlement.
You are required to prepare Realisation Account, Partner’s Capital Account and Bank Account.
Answer:

Question 14.
Rita, Geeta and Ashish were partners in a firm sharing profits/losses in the ratio of 3 :2 :1. On March 31,2006 their balance sheet was as follows :

On the above-mentioned date the firm was dissolved :
1. Rita was appointed to realise the assets. Rita was to receive 5% commission on the rate of assets (except cash) and was to bear all expenses of realisation.

2. Assets were realised as follows :
Debtors – Rs. 30,000
Stock – Rs. 26,000
Plant – Rs. 42,750

3. Investments were realised at 85% of the book value.
4. Expenses of realisation amounted to Rs. 4,100.
5. Firm had to pay Rs. 7,200 for outstanding salary not provided for earlier.
6. Contingent liability in respect of bills discounted with the bank was also materialised and paid off Rs. 9,800.
Prepare Realisation Account, Capital Accounts of Partner’s and Cash Account.
Answer:

Question 15.
Anup and Sumit are equal partners in a firm. They decided to dissolve the partnership on December 31,2006. When the balance sheet is an under:

The Assets were realised as follows :

The Creditors were paid Rs. 25,500 in full settlement. Expenses of realisation amount to Rs. 2,500.
Prepare Realisation Account, Bank Account, Partners Capital Accounts to close the books of the firm.
Answer:

Question 16.
Ashu and Harish are partners sharing proflt and losses as 3 : 2. They decided to dissolve the firm on December 31, 2006. Their balance sheet on the above date was :

Ashu is to take over the building at Rs. 95,000 and Machinery and Furniture is take over by Harish at value of Rs. 80,000. Ashu agreed to pay Creditor and Harish agreed to meet Bank overdraft. Stock and Investment are taken by both partners in profit sharing ratio. Debtors realised for Rs. 46,000, expenses of realisation amounted to Rs. 3,000. Prepare necessary ledger account.
Answer:

Question 17.
Sanjay, Tarun and Vineet shared profit in the ratio of 3 : 2 :1. On December 31, 2006 their balance sheet was as follows :

On this date the firm was dissolved. Sanjay was appointed to realise the assets. Sanjay was to receive 6% commission on the sale of assets (except cash) and was to bear all expenses of realisation.

Sanjay realised the assets as follows : Plant Rs. 72,000; Debtors Rs. 54,000; Furniture Rs. 18,000; Stock 90% of the book value; Investments Rs. 76,000 and Bills receivable Rs. 31,000. Expenses of realisation amounted to Rs. 4,500. Prepare Realisation Account, Capital Accounts and Cash Account.
Answer:

Question 18.
The following is the Balance Sheet of Gupta and Sharma as on December 31, 2006 :

The firm was dissolved on December 31,2006 and asset realised and settlements of liabilities as follows :
(a) The realisation of the assets were as follows :

Sundry Debtors – 52,000
Stock – 42,000
Bills Receivable – 16,000
Machinery – 49,000

(b) Investment was taken over by Gupta at agreed value of Rs. 36,000 and agreed to pay of Mrs. Gupta’s loan.
(c) The Sundry Creditors were paid off less 3% discount.
(d) The realisation expenses incurred amounted to Rs. 1,200. Journalise the entiries to be made on the dissolution and prepare
Answer:

Question 19.
Ashok, Babu and Chetan are in partnership sharing profit in the proportion of 1/2, 1/3, 1/6 respectively. They dissolve the partnership of the December 31,2006, when the balance sheet of the firm as under:

The Machinery was taken over by Babu for Rs. 45,000, Ashok took over the Investment for Rs. 40,000 and Freehold property took over by Chetan at Rs. 55,000. The remaining Assets realised as follows: Sundry Debtors Rs. 56,500 and Stock Rs. 36,500. Sundry Creditors was settled at discount of 7%. A office computer, not shown in the books of accounts realised Rs. 9,000. Realisation expenses amounted to Rs. 3,000.

Prepare Realisation Account, Partners Capital Accounts, Bank Account.
Answer:

Question 20.
The following is the balance sheet of Tanu and Manu, who shares profit and losses in the ratio of 5 : 3, on December 31, 2006:

On the above date the firm is dissolved and the following agreement was made : Tanu agree to pay the bank loan and took away the sundry debtors. Sundry creditors accepts stock and paid Rs. 10,000 to the firm. Machinery is taken over by Manu for Rs. 40,000 and agreed to pay of bills payable at a discount of 5%. Motor car was taken over by Tanu for Rs. 60,000. Investment realised Rs. 76,000 and fixtures Rs. 4,000. The expenses of dissolution amounted to Rs. 2,200.

Prepare Realisation Account, Bank Account and Partners Capital Accounts.