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03 Dissolution of a Partnership Firm

Multiple Choice Questions

1. (c) Surplus of partners’ private property over private debts is applied for the payment of firm’s debts.
2. (a) Outside liabilities should be paid before the payment of loan by partners. Here, Mrs. Rana is not a partner
in the firm.
3. (d) Loan by Ankush A/c Dr 50,000
To Ankush’s Capital A/c 40,000
To Bank A/c 10,000
4. (a) This condition satisfy in the case of liabilities but not in the case of assets.
5. (a) Debit in realisation account signifies loss.
Short Answer (SA) Type Questions
1. JOURNAL
Date Particulars LF Amt (Dr) Amt (Cr)
(i) Bank A/c ( 60, 000 ´ 90%) Dr 54,000
To Realisation A/c 54,000
(Being amount recovered from debtors)
(ii) Bank A/c ( 3, 00, 000 - 6, 000) Dr 2,94,000
To Realisation A/c 2,94,000
(Being amount realised from building)
(iii) Anita’s Capital A/c Dr 15,000
Ravi’s Capital A/c Dr 10,000
To Realisation A/c 25,000
(Being shares transferred to partners capital account)

2. JOURNAL
Date Particulars LF Amt (Dr) Amt (Cr)
(i) Realisation A/c Dr 33,000
To Aashi’s Capital A/c 33,000
(Being the realisation expenses of ` 15,000 paid by Aashi and
remuneration of ` 18,000 also credited to her account)
(ii) Realisation A/c Dr 4,000
To Bank A/c 4,000
(Being the contingent liability paid-off)
(iii) Avni’s Capital A/c Dr 9,000
Avantika’s Capital A/c Dr 9,000
Aashi’s Capital A/c Dr 9,000
To Profit and Loss A/c 27,000
(Being the transfer of debit balance of profit and loss account to
partners’capital accounts)
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3. JOURNAL
Date Particulars LF Amt (Dr) Amt (Cr)
(i) Anju’s Capital A/c Dr 58,600
To Realisation A/c 58,600
(Being some debtors taken over by Anju)
Cash/Bank A/c [(62,100 – 60,000) ´ 50/100] Dr 1,050
To Realisation A/c 1,050
(Being the remaining debtors sold to a debt collecting agency)
(ii) Manju’s Capital A/c Dr 36,000
To Realisation A/c 36,000
æ 100 ö
(Being sundry assets of value ` 40, 000 ç 36, 000 ´ ÷ taken over
è 90 ø
by Manju at ` 36,000)

Sanju’s Capital A/c [(58,500 - 40, 000) ´ 80/100] Dr 14,800

To Realisation A/c 14,800
(Being the remaining sundry assets taken over by Sanju)
(iii) Realisation A/c Dr 6,900
To Sanju’s Capital A/c (5,750 + 1,150) 6,900
(Being Mrs Sanju’s loan paid by Sanju)

4. JOURNAL
Date Particulars LF Amt (Dr) Amt (Cr)
(i) Ravi’s Capital A/c (WN1) Dr 19,200
To Realisation A/c 19,200
(Being 40% stock took over by Ravi)
(ii) No entry
(iii) Cash A/c (WN2) Dr 22,500
To Realisation A/c 22,500
(Being remaining stock sold for cash)
(iv) Realisation A/c Dr 45,000
To Bank A/c 45,000
(Being creditors paid in cash)

Working Notes
40
1. 40% Stock taken over by Ravi at 20% discount = 60, 000 ´ = ` 24, 000
100
æ 20 ö
Amount of Stock taken over = 24, 000 - ç 24, 000 ´ ÷ = 24, 000 - 4, 800 = ` 19, 200
è 100 ø
2. Remaining Stock Sold in Cash at 25% Profit = 60, 000 - 24, 000 - 18, 000 = ` 18, 000
æ 25 ö
Amount of Stock Sold = 18, 000 + ç 18, 000 ´ ÷ = 18, 000 + 4,500 = ` 22,500
è 100 ø
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5. JOURNAL
Date Particulars LF Amt (Dr) Amt (Cr)
(i) Bank A/c Dr 88,000
To Realisation A/c 88,000
(Being bad debts earlier written-off, now recovered)
(ii) Realisation A/c Dr 50,000
To Bank A/c (1,21,000 - 71,000) 50,000
(Being payment made to creditors)
(iii) Raja’s Loan A/c Dr 18,000
To Bank A/c 17,000
To Realisation A/c (Balance) 1,000
(Being Raja’s loan settled)
(iv) Simar’s Capital A/c Dr 52,000
Bank A/c Dr 12,000
To Realisation A/c 64,000
(Being investments taken over by Simar and remaining sold)

Long Answer (LA) Type Questions

1. Dr Realisation Account Cr
Particulars Amt (`) Particulars Amt (`)
To Sundry Assets A/c By Provision for Doubtful Debts A/c 1,000
Machinery 10,000 By Sundry Creditors A/c 15,000
Stock 21,000 By Sheela’s Loan A/c 13,000
Debtors 20,000 By Repairs and Renewals Reserve A/c 1,200
Prepaid Insurance 400 By Cash A/c (Assets sold)
Investments 3,000 54,400 Machinery 8,000
To Mala’s Capital A/c (Sheela’s loan) 13,000 Stock 14,000
To Cash A/c (Creditors paid) 15,000 Debtors 16,000 38,000
To Cash A/c (Dishonoured bill paid) 5,000 By Mala’s Capital A/c (Investments) 2,000
To Cash A/c (Expenses) 800 By Loss Transferred to
Mala’s Capital A/c 9,000
Neela’s Capital A/c 6,000
Kala’s Capital A/c 3,000 18,000
88,200 88,200

Dr Partners’ Capital Account Cr

Particulars Mala (`) Neela (`) Kala (`) Particulars Mala (`) Neela (`) Kala (`)
To Realisation A/c 2,000 — — By Balance b/d 10,000 15,000 2,000
(Investments) By Realisation A/c 13,000 — —
To Realisation A/c (Loss) 9,000 6,000 3,000 (Sheela’s loan)
To Cash A/c 12,000 9,000 — By Cash A/c — — 1,000
23,000 15,000 3,000 23,000 15,000 3,000
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Dr Cash Account Cr
Particulars Amt (`) Particulars Amt (`)
To Balance b/d 2,800 By Realisation A/c (Creditors paid) 15,000
To Realisation A/c (Sale of assets) 38,000 By Dishonoured Bill A/c 5,000
To Kala’s Capital A/c 1,000 By Expenses Paid A/c 800
By Mala’s Capital A/c 12,000
By Neela’s Capital A/c 9,000
41,800 41,800

2. Dr Realisation Account Cr
Particulars Amt (`) Particulars Amt (`)
To Sundry Assets A/c (WN 2) 2,36,000 By Creditors 40,000
To Cash A/c (Creditors) 40,000 By Cash A/c (Assets realised) 2,00,000
To Cash A/c (Expenses) 6,000 By Loss Transferred to
Rashi’s Capital A/c 25,200
Nashi’s Capital A/c 16,800 42,000
2,82,000 2,82,000

Dr Partners’ Capital Account Cr

Particulars Rashi (`) Nashi (`) Particulars Rashi (`) Nashi (`)
To Realisation A/c (Loss) 25,200 16,800 By Balance b/d (WN 1) 1,24,000 72,000
To Cash A/c (Final payment) 98,800 55,200
1,24,000 72,000 1,24,000 72,000

Dr Cash Account Cr
Particulars Amt (`) Particulars Amt (`)
To Realisation A/c (Assets realised) 2,00,000 By Realisation A/c (Creditors) 40,000
By Realisation A/c (Expenses) 6,000
By Rashi’s Capital A/c (Final payment) 98,800
By Nashi’s Capital A/c (Final payment) 55,200
2,00,000 2,00,000

Working Notes
1. In this question, balance sheet of the firm as on the date of dissolution is not given, therefore, it is necessary to
prepare the balance sheet as at that date. For that, we have to prepare partners’ capital accounts for the years
ended 31st March, 2017 and 2018 to arrive at the balance of partners’ capitals as on 31st March, 2018.
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Dr Partners’ Capital Account Cr

Date Particulars Rashi (`) Nashi (`) Date Particulars Rashi (`) Nashi (`)
2017 2016
Mar 31 To Cash A/c 16,000 16,000 Apr 1 By Cash A/c 1,20,000 80,000
Mar 31 To Balance c/d 1,64,000 1,04,000 2017
Mar By Profit and Loss A/c 60,000 40,000
31
1,80,000 1,20,000 1,80,000 1,20,000
2018 2017
Mar 31 To Cash A/c 16,000 16,000 Apr 1 By Balance b/d 1,64,000 1,04,000
Mar 31 To Profit and Loss A/c 24,000 16,000
Mar 31 To Balance c/d 1,24,000 72,000
1,64,000 1,04,000 1,64,000 1,04,000

2. In this question, the book value of sundry assets at the date of dissolution is not given. Therefore, it is necessary
to prepare the balance sheet as at that date.
Memorandum Balance Sheet
as at 31st March, 2018
Liabilities Amt (`) Assets Amt (`)
Rashi’s Capital (WN 1) 1,24,000 Sundry Assets (Balancing figure) 2,36,000
Nashi’s Capital (WN 1) 72,000
Creditors 40,000
2,36,000 2,36,000