Professional Documents
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Illustration 1 :
Capitals (as on the date of dissolution) :
P = Rs. 35,000 ; Q = Rs. 37,500 ; R = Rs. 31,500 ; Profit-Sharing Ratio = 5 : 3 : 2
Statement showing the Highest Relative Capital or Absolute Surplus :
P Q R
1. Actual Capital 55,000 37,000 31,500
2. Profit Sharing Ratio (PSR) 5 3 2
3. Actual Capital ÷ PSR 11,000 12,500 15,750
4. Consider the smallest of proportionate
capital as per (3) as base capital ×PSR 55,000 33,000 22,000
[i.e. 11,000 × PSR]
5. Surplus Capital [ (1) —(4)] — 4,500 9,500
6. PSR — 3 2
7. Surplus Capital (as per 5) ÷ PSR — 1,500 4,750
8. Consider the smallest of Proportionate — 4,500 3,000
capital as per (7)× PSR
9. Absolute Surplus [5-8] — — 6,500
This means that R will be paid Rs. 6,500 to clear off his Absolute Surplus Capital.
X Y Z
1. Actual Capital 15,000 18,000 9,000
2. PSR 2 2 1
3. Actual Capital ÷ PSR = Prop. Capital 7,500 9,000 9,000
4. Consider the smallest of Proportionate 15,000 15,000 7,500
Capital as Base × PSR [i.e. 7,500×PSR]
5. Surplus Capital [1—4] NIL 3,000 1,500
Since the Surplus Capitals for Y & Z are in their profit-sharing ratio, no further steps are required.
Illustration 3 : Partners M, N and P have called upon you to assist them in winding up the
affairs of their partnership on 30th June, 2008. Their Balance Sheet as on that date is given
below :
July :
Rs. 16,500 — collected from Debtors ; balance is irrecoverable.
Rs. 10,000 — received from sale of entire stock.
Rs. 1,000 — liquidation expenses paid.
Rs. 8,000 — cash retained in the busines at the end of the month.
August :
Rs. 1,500 — liquidation expenses paid ; as part of the payment of his capital, P accepted an
equipment for Rs. 10,000 (book value Rs. 4,000).
Rs. 2,500 — cash retained in the business at the end of the month.
September :
Rs. 75,000 — received on sale of remaining plant and equipment.
Rs. 1,000 — liquidation expenses paid. No cash is retained in the business.
Required : Prepare a Schedule of cash payments as on 30th September, showing how the
cash was distributed.
Solution :
Statement showing the Distribution of Cash
(According to Proportionate Capital Method)
Particulars M N P
A Balance of Capital Accounts 67,000 45,000 31,500
B Less : Loan 12,000 7,500 —
C Actual Capital (A - B) 55,000 37,500 31,500
D Profit sharing raito 5 3 2
E Actual Capital ÷ Profit sharing ratio 11,000 12,500 15,750
F Proportionate Capitals taking M’s Capital 55,000 33,000 22,000
as Base Capital
G Excess of Actual Capitals over Proportionate 4,500 9,500
Capitals (C - F)
H Profit Sharing Ratio — 3 2
I Surplus Capital ÷ Profit Sharing Ratio — 1,500 4,750
J Revised Proportionate Capital taking N’s
Capital as Base Capital — 4,500 3,000
K Excess of Surplus Capital over Revised — — 6,500
Proportionate Capitals (G - J)
Scheme of distribution of available cash : First instalment up to Rs. 6,500 will be paid to P. Next
instalment up to Rs. 7,500 will be distribution between N and P in the ratio of 3 : 2. Balance
realisation will be distributed among M, N and P in the ratio of 5 : 3 : 2.
(iii) Statement showing the Manner of Distribution of amount available in August and
September
Particulars M N P
Rs. Rs. Rs.
First Rs. 7,500 — 4,500 3,000
Balance Rs. 83,000 (Cash and Equipment) 41,500 24,900 16,600
41,500 29,400 19,600
Less : Actual Distribution in August — 4,000 10,000
Manner of Distribution in September 41,500 25,400 9,600
Illustration 4 : The firm of Blue Collars presented you with the following Balance Sheet drawn
as on 31st March 2008 :
Partners shared profits and losses in the ratio of 4 : 3 : 3. Due to difference among the partners,
it was decided to wind up the firm, realise the assets and distribute cash among the partners at
the end of each month.
The following realisations were made :.
(i) May Rs. 15,000 from debtors and Rs. 20,000 by sale of stock. Expenses on
realisation were Rs. 500.
(ii) June Balance of debtors realised Rs. 10,000. Balance of stock fetched Rs. 24,000.
(iii) August Part of machinery was sold for Rs. 18,000. Expenses incidental to sale
were Rs. 600.
(iv) September Part of machinery valued in the books at Rs. 5,000 was taken by B, in
part discharge at an agreed value of Rs. 10,000. Balance of machinery
was sold for Rs. 30,000 (net).
Partners decided to keep a minimum cash balance of Rs. 2,000 in the first 3 months and Rs.
1,000 thereafter.
Required : Show how the amounts due to partners will be settled.
Working Notes :
(i) Assumption : As the firm is dissolved due to difference among the partners, all partners
are presumed to be solvent and the problem has been worked out on the basis of the
highest relative capital.
Particulars L K J
Rs. Rs. Rs.
A Actual Capitals 40,000 26,000 24,000
B Profit sharing ratio 4 3 3
C Actual Capitals ÷ Profit ratio 10,000 8,667 8,000
D Proportionate Capitals taking J’s Capital 32,000 24,000 24,000
as Base Capital
E Suplus Capital of L and K (A - D) 8,000 2,000 —
F Revised Proportionate Capital of L and J 2,667 2,000 —
G Revised Surplus Capital of L (E - F) 5,333 — —
While distributing surplus among partners, 1st instalment up to Rs. 5,333 will be paid to L,
next instalment up to Rs. 4,667 will be distributed between L and K in the ratio of 4 : 3 and the
Balance among L, K and J in the ratio of 4 : 3 : 3.
(iii) Statement showing the Calculation of Cash available each month
Solution :
Statement Showing the Distribution of Cash
(According to Proportionate Capital Method)
Working Notes :
(i) Statement showing the Calculation of Highest Relative Capitals
Particulars Atrik Mohit Rupa
Rs. Rs. Rs.
A Actual Capitals 38,000 24,000 18,000
B Profit-sharing ratio 2 2 1
C Actual Capitals ÷ Profit Sharing Ratio 19,000 12,000 18,000
D Proportionate Capitals taking Shyam’s 24,000 24,000 12,000
E Surplus Capital [A-D] 14,000 Nil 6,000
F Surplus Capital ÷ Profit Sharing Ratio 7,000 — 6,000
G Proportionate capitals taking Mohan’s Capital 12,000 — 6,000
as the basis
H Revised Surplus Capital (E - G) 2,000 — —
Working Note :
Statement Showing the Calculation of Highest Relative Capitals
Particulars East South North
Rs. Rs. Rs.
A Actual Capitals 38,700 10,680 11,100
B Profit Sharing Ratio 3 2 1
C Actual Capital + Profit Sharing Ratio 12,900 5,340 11,100
D Proportionate capitals taking South’s
Capital as Base Capital 16,020 10,680 5,340
E Surplus capital (i.e. Excess of Actual Capitals 22,680 — 5,760
over proportionate capital) [A-D]
F Profit Sharing Ratio 3 1
G Surplus Capital + Profit Sharing Ratio 7,560 5,760
H Revised Proportionate Capitals taking 17,280 5,760
North’s Capital as Base Capital
I Revised Surplus Capital [E-H] 5,400 —
J Distribution Sequence
First Rs. 5,400 [To East]
Next Rs. 23,040 [To East & North in the ratio of 3 : 1]
Balance [To East, South & North in the ratio of 3 : 2 : 1]
Illustration 7 : The firm of M/s LMS was dissolved on 31.3.2008, at which date its Balance
Sheet stood as follows :
Liabilities Rs. Assets Rs.
Creditors 2,00,000 Fixed Assets 45,00,000
Bank Loan 5,,00,000 Cash and Bank 2,00,000
L’s Loan 10,00,000
Capitals :
L 15,00,000
M 10,00,000
S 5,00,000
47,00,000 47,00,000
Partners share profits equally. A firm of Chartered Accounts is retained to realise the assets
and distributed the cash after discharge of liabilities. Their fees which are to include all expenses
is fixed at Rs. 1,00,000. No loss is expected on realisation since fixed assets include valuable
land and building.
Particulars L M S
A Actual Capitals 15,00,000 10,00,000 5,00,000
B Profit Sharing Ratio 1 1 1
C Actual Capital + Profit Sharing Ratio 15,00,000 10,00,000 5,00,000
D Proportionate Capital taking S’s Capital
as Base Capital 5,00,000 5,00,000 5,00,000
E Surplus Capital (A - D) 10,00,000 5,00,000 —
F Profit Sharing Ratio 1 1 —
G Surplus Capital + Profit Sharing Ratio 10,00,000 5,00,000 —
H Revised Proportional Capital taking
M’s Capital as Basu Capital 5,00,000 5,00,000 —
I Revised Surplus Capital (E - G) 5,00,000 — —
(ii) Scheme of Distribution : First Rs. 5,00,000 will be paid to L, next Rs. 10,00,000 will be
distributed between L and M in their profit sharing (i.e. 1 : 1) and the balance will be
distributed among L, M and S in their profit sharing ratio (i.e. 1 : 1 : 1).
(iii) It has been assumed that the amounts of realisation given in the question pertain to
realisation of fixed assets.
(iv) Calculation of amount available for distribution at the time of first realisation of fixed asset
= Cash & Bank Balance + 1st Realisation – Liquidator’s remuneration
= Rs. 2,00,000 + Rs. 5,00,000 – Rs. 1,00,000 = Rs. 6,00,000.
Illustration 8 : The following is the Balance Sheet of X, Y and Z, who were sharing in the ratio
5 : 3 : 2, on 31st December, 2007 when they decided to dissolve the partnership.
Liabilities Rs. Assets Rs.
X’s Capital 55,000 Cash 20,000
Y’s Capital 37,500 Other assets 13,04,000
Z’s Capital 31,500
Y’s Loan 2,00,000
Creditors 10,00,000
13,24,000 13,24,000
Note : There was a bill for Rs. 4,000 due on 1.4.2008 under discount.
Other assets realised as under :
1st Jan. : Rs. 8,85,000, 1st Feb. : Rs. 3,00,000 ; 1st March : Rs. 8,000 ; 1st April : Rs. 5,000 ;
1st May : Rs. 10,000. The expenses of realisation were expected to be Rs. 5,000, but ultimately
amounted to Rs. 4,000 only and were paid on 1st May. The acceptor of the bill under discount
met the bill on the due date.
Required : Prepare a statement showing the monthly distribution of cash according to
Maximum Loss Method.
Solution :
Statement Showing the Distribution of Cash towards Firm’s Outside
Debts and Partner’s Loan
Particulars Creditors Y’s Loan
Rs. Rs.
A Amount Due 10,000 2,00,000
B Amount paid on 1st Jan. (Rs. 20,000 + Rs. 8,85,000 – Rs. 5,000) 9,00,000 —
C Balance Due (A - B) 1,00,000 2,00,000
D Amount paid on 1st February 1,00,000 2,00,000
E Balance Due (C - D) — —
Particulars Total P Q R
Rs. Rs. Rs. Rs.
(i) Distribution of Rs. 900
A Balance Due 42,000 15,000 18,000 9,000
B Less : Max. Possible loss, if the remaining
assets prove to be worthless
(Rs. 42,000 – Rs. 900) in the ratio (3 : 2 : 1) 41,100 16,440 16,440 8,220
Illustration 11 : E, F and G were partners in a firm, sharing profits and losses in the ratio of
3 : 2 : 1, respectively. Due to extreme competition, it was decided to dissolve the partnership on
31st December, 2007. The Balance Sheet on that date was as follows :
Illustration 12 : Ajay, Rama, Adesh and Sharad were partners in a firm. The capital of the firm
consisted of Rs. 40,000 contributed originally in the proportion of 4 : 3 : 2 : 1. The profits and
losses were shared in the same proportion. The firm was dissolved on 31st March, 2008. The
Balance Sheet as on that date was as under :
It was decided on 15th April that the net realisations should be distributed on the first of
each month in the appropriate order. The realisation and expenses at the end of each month
were as under :
Debtors Stock Expenses
Rs. Rs. Rs.
April 15,000 7,000 500
May 8,500 5,000 1,000
June 11,000 Nil 250
July 5,500 4,000 150
August 7,000 2,500 100
The Stock was completely disposd off. It was further agreed that Rama should take over the
remaining debts for Rs. 2,500.
Required : Show how the cash was distributed according to Maximum Loss Method.
llustration 13 : Given below is the Balance Sheet of Alpha, Beta and Cappa as on 31st March,
2008 on which date they dissolved their partnership. They shared profits and losses in the ratio
3 : 4 : 3. They decided to distribute amount as and when feasible and to appoint Cappa for the
purpose who was to get as his remuneration 1% of the value of the assets realised other than
cash at Bank and 10% of the amount distributed to the partners :
Liabilities Rs. Assets Rs.
Capitals : Cash at Bank 275
Alpha 7,500 Sundry assets 53,725
Beta 15,000
Cappa 15,000
Sundry Creditors 16,500
54,000 54,000
Assets realised as under :
First Instlment Rs. 16,250, Second Instalment Rs. 12,750, Third Instalment Rs. 10,000, Last
Instalment Rs. 7,500.
Required : Prepare a statement showing distribution of cash according to Maximum Loss
Method.
Solution :
Statement showing the Distribution of Cash
(According to Maximum Loss Method)
(i) Commission on the sale of assets @ 1% on 1st and 2nd instalments 290
1/11th of amount available for distribution to partners [1/11×Rs. 12,485] 1,135
Total 1,425
(ii) Commission on sale of assets 1% on Rs. 10,000 100
1/11 of amount available for distribution, [i.e., 1/11×Rs. 9,900] 900
Total 1,000
(iii) Commission on sale of assets 1% on Rs. 7,500 75
1/11 of amount available for distribution [i.e., 1/11 × Rs. 7,425] 675
750
Grand Total of Commission payable to Cappa Rs. 3,175
(iv) Commission is not paid Cappa during the first instalment du to insufficiency of cash.
Hence the small balance available is carried forward.
EXERCISE
Problem 1 : The firm of LMS was dissolved on 31.3.08 at which date its Balance Sheet was as
follows:
Liabilities Rs. Assets Rs.
Creditors 2,00,000 Fixed Assets 45,00,000
Bank Loan 5,00,000 Cash and Bank 2,00,000
L’s Loan 10,00,000
Capitals:
L 15,00,000
M 10,00,000
S 5,00,000 30,00,000
47,00,000 47,00,000
Partners share profits equally. A firm of Chartered Accountants is retained to realize the assets
and distribute the cash after the discharge of liabilities. Their fees which are to include all
expenses are fixed at Rs. 1,00,000. No loss is expected on realization since fixed assets include
valuable land and buildings.
Realization are S. No. 1 2 3 4 5
Amount in Rs. 5,00,000 15,00,000 15,00,000 30,00,000 30,00,000
The C. A. Firm decided to pay off the partners in ‘Higher Relative Capital Method’. You are
required to prepare a statement showing distribution of cash with necessary workings.
[Ans: 1st Realizaton ( 5,00,000 – 1,00,000 ) = Rs. 4,00,000 creditors and Bank Loan as 2 : 5]
Problem 2 :
Ayaram, Gayaram and Chhayaram were partners sharing profit s as 5 : 3 : 2. The firm was
dissolved on 30th June, ’08 when the position was as follows:
Capitals: Cash 250
Ayaram 20,000 Debtors 24,000
Gayaram Nil Stock 22,750
Ayaram – Loan 7,000 Chhyaram’s Capital 5,000
Mrs. Ayaram – Loan 8,000
Bank overdraft 2,000
Creditors for goods 15,000
52,000 52,000
[Ans : Chhyaram’s loss to be borne by Ayaram; Payments to Ayaram : 23.10.08 – Rs. 8,000;
20.11.08 – Rs. 3,000; 23.12.08 – Rs. 1,900 assuming Gayaram can bring in Rs. 900]
Problem 3 :
A, B and C sharing profits in the ratio 3 : 2 :1. dissolved their partnership on 31st December, 2007
when their Balance Sheet was as under :
Liabilities Rs. Assets Rs.
Capitals : Fixed Assets 60,000
A 4,950 Stock 15,000
B 26,850 Debtors 30,000
C 53,700 85,500
Bank Overdraft 15,000
Sundry Creditors 4,500
1,05,000 1,05,000
The assets were sold piecemeal and distribution was made immediately. The details of realiza-
tion are 15.2.08 – Rs. 21,750; 31.3.08 – Rs. 24,750; 30.6.08 – Rs. 40,500
A is insolvent is unable to contribute. Prepare a statement showing the distribution applying
the rule of Garner Vs. Murray.
[Ans : Final Payments Rs. 19,500 and Rs. 21,000]