CAINTER _FOR 46" SESSION REGULAR BATCHES BOOK NO. 37, ADVANCED ACCOUNTING _GR.2_4GE(PART3)_1 CHAPTER INDEK CH. NO. CHAPTER NAME PAGE.NO. 4, _ | BASIC UNDERSTANDING OF DISSOLUTION OF PARTNERSHIP FIRMS 44 -4.44 MASTER MINDS. COMMERCE INSTITUTE PVT. LTD. ‘GUNTUR | RAJAHMUNDRY | KURNOOL | VIZAG | NELLORE HYDERABAD | VUAVYAWADA | TIRUPATHI Cell: 98851 25025 / 26 Visit us @ www.mastermindsindia.com Mail: mastermindsinfo@ymail.com Facebook Page: MASTERMINDS For CA | Android App: Masterminds online classes You tube Channel: MASTERMINDS FOR CA&CMA ISSUE DATE: 05-10-2021 MRP: RS.300MASTER INDS COMMERCE INSTITUTE PUT. LTD. WWW.MASTERMINDSINDIA.COM | 98851 25025 / 26 4. BASIC UNDERSTANDING OF DISSOLUTION OF PARTNERSHIP FIRMS a 1) Go through the circumstances in which a partnership is dissolved. 2) Understand that on the dissolution of a partnership all assets are sold out and all liabilities are discharged. Learn the accounting technique relating to the disposal of assets and payment of liabilities, 3) Learn how to settle the partner's claims in case of surplus and how to raise money from partners in case of a deficit. 4) Deal with piecemeal distribution to partners of the amount realized from assets net of liabilities, MODEL WISE ANALYSIS OF PREVIOUS EXAMINATIONS OF CA INTER ee A | 1.__| DISSOLUTION OF PARTNERSHIP FIRMS 2__ [INSOLVENCY OF A PARTNER 15H 3.__ | INSOLVENCY OF ALL PARTNERS @ ‘4 [maximum Loss METHOD 20m fo =u 5.__ [HIGHER RELATIVE CAPITAL METHOD TD 15 NO. OF PROBLEMS IN THIS MATERIAL y CRD PROBLEMS - 7,ASSIGNMENT PROBLEMS (AP) -7 PROGLEN NG, NCATNATERIAL-] "RELEVANT PROBLEWIN MMT ronmepmewqus xan | RELEVANT PROBLEM MMH ILLUSTRATION 4 ‘ACSP 1 1M 18-MTP2-15M CRD 6 (20%) ILLUSTRATION 2 RD? N18-RTP. (CRO 6 (20%) ILLUSTRATION 3 RD 4 48-20 RDS ILLUSTRATION 4 ‘CSP. m19-RTP ACSP6 ILLUSTRATION 5: ASSG3 M19-NTPI 150 ASG 7 (90%) ILLUSTRATION 6 WILL BE COVERED IN ADVANCED M19.NTP2. 160 CRO 6 (20%) ILLUSTRATION 7 ASSG5: N19 RIP ‘ACSPT ILLUSTRATION 8 RDS N19 15 ‘ACSP2 ILLUSTRATION | SSCS N19. 5 CSP ILLUSTRATION 10 ‘ACSP 8 M20 -RTP RD PRACTICE QUESTION 1 ACEP 5 JULY 20-MTP- 15M ‘ASG (80%) PRACTICE QUESTION 2 SSG 2 N20-RTP. A886 1 PRACTICE QUESTION 3 ASSG 1 JAN 21-154 ASSGT PRACTICE QUESTION 4 ‘ACSP 4 M21-RTP CRD 6 (80%) PRACTICE QUESTION 5 (RD? M2t-MTP2: 12M ACEP 6 (95%) CH.4 | BASIC UNDERSTANDING OF DISSOLUTION OF PARTNERSHIP FIRMS| 46E 4a.PIONEER FOR MEC / CEC TO CA/ CMA FINAL fi, CALL CHAPTER OVERVIEW DIVISION TOPIC 1 ‘THEORY & PROBLEMS FOR CLASSROOM DISCUSSION (CRD) 2.__ | ASSIGNMENT PROBLEMS (AP) 3.___ | ADDITIONAL CONCEPTS FOR SELF-PRACTICE (ACSP) 4. 5. THEORY FOR SELF STUDY ‘SHORT ANSWER TYPE QUESTIONS (SELF STUDY) 6.___ | MULTIPLE CHOICE QUESTIONS (SELF STUDY) 7.___ | WORKBOOK SOLUTIONS : THEORY AND PROBLEMS FOR CLASSROOM DISCUSSION (CRD) INTRODUCTION; Apart from the readjustment of rights of partners in the share of profit by way of change in the profit- sharing ratio and admission of a new partner or for retirement/death of a partner, another important aspect of partnership accounts is how to close books of accounts in case of dissolution. In this Unit, we will discuss the circumstances leading to the dissolution of a partnership firm and accounting treatment necessary to close its books of accounts. Also, we will discuss the special problems relating to the insolvency of partners and the settlement of the partnership's liabilities. Meaning: Dissolution of a firm refers to the situation Wherein the partnership firm ceases to exist. In simple words, partnership frm comes to an end, ané-telationship between all the partners also comes to an end. A partnership is dissolved or comes to arehd.on: 1) On the expiry of the fixed term for which’ the\fifm was formed. 2) On the completion of the venture for which the firm was formed 3) On the death of a partner. 4) On insolvency of a partner. However, the partners or remaining partners may continue to do the business. In such a case there will be a new partnership but the firm will continue. When the business comes to an end then only it will be said that the firm has been dissolved A firm stands dissolved in the following cases: 41) The partners agree that the firm should be dissolved 2) On Insolvency of all the partners or all except one 3). The business becomes illegal or unlawful 4) Incase of partnership at will, a partner gives notice of dissolution 5) The court orders dissolution Distinction between Dissolution of Partnership and Dissolution of Partnership Firm: Dissolution of Partnership Dissolution of Partnership Firm Dissolution of a partnership refers to the Dissolution of the firm implies that the entire firm discontinuance of the relation between the ceases to exist, including the relation among all the partners of the firm. partners. CANTER | ADV ACCOUNTING | 46€ 42MASTER MINDS COMMERCE INSTITUTE PVT. LTD. WWW.MASTERMINDSINDIA.COM | 98851 25025 / 26 There can be change in profit sharing ratio or__| Dissolution of partnership firm ocours. admission/deathiretirement of a partner. In event of dissolution of the partnership, the In event of the dissolution of the firm, the business business continues as usual, but the partnership | ceases to end. is reconstituted There is no intervention by the court. Court has the inherent power to intervene. By its order, a firm can be dissolved. Economic relationships among partners may Economic relationship among partners comes to an remain same or change. end, ‘Assets and liabilities are revalued. New balance | Assets are sold and realized. Liabilities are paid off sheet is prepared. Revaluation account is prepared. Realization account is prepared. ‘Assets and liabilities are revalued after winding | Assets and liabilities are settled on winding up of a up of the existing partnership. firm. Books of accounts are not closed, Books of accounts are closed. DISSOLUTION BEFORE THE EXPIRY OF A FIXED TERM: A partner who, on admission, pays a premium to the other partners with a stipulation that the firm will not be dissolved before the expiry of a certain term, wil be entitled to a suitable refund of premium or of such part as may be reasonable, if the firm is dissolved before the term has expired. The amount to be repaid will be such as is reasonable having regard to the terms upon which the admission was made and to the length of the period agreed’upon and that already expired. Any amount that becomes due wil be bome by ther partners in theieGPO caring rato, No claim in this respect will arise if: 1) The firm is dissolved due to the death of a patiner: ° 2) The dissolution is mainly due to the partng?s (cfaiming refund) own misconduct, and 3) The dissolution is in pursuance of an @greement containing no provision for the return of the premium or any part of it CONCEPT QUESTION (nta-sm) ‘Amit paid Rs.50,000 as premium to other partners ofthe firm at the time of his admission to the firm, with a condition that it will not be dissolved before expiry of five years. The firm is dissolved after three years. Amit claims refund of premium. Explain 4) Whether he is entitled to get a refund of the premium? if yes, list the criteria for the calculation of the amount of the refund, 2) Also explain any two conditions when no claim in this respect wl arse, CONSEQUENCES OF DISSOLUTION: On the dissolution of a partnership, firstly, the assets of the firm, including goodwill, are realized. Then the amount realized, is applied first towards repayment of liabilities to outsiders and loans taken from partners; afterwards, the capital contributed by partners is repaid and, if there is still a surplus, itis distributed among the partners in their profit-sharing ratio. Conversely, after payment of liabilities of the firm and repayment of loans from partners, if the assets of the firm leftover are insufficient to repay in full the capital contributed by each partner, the deficiency is borne by the partners in their profit sharing ratio, MODEL 1: CLOSING. NERS! KS ON DISSOLUTION 1) ON TRANSFER OF ASSETS TO REALIZATION AIC: Realisation A/c is an account open to facilitate Tealisation of assets, settlement of outside liabilities and determine profitfioss on a whole due to closure of business. CH.4 | BASIC UNDERSTANDING OF DISSOLUTION OF PARTNERSHIP FIRMS| 46E 43PIONEER FOR MEC / CEC TO CA/ CMA FINAL fi, CALL Open a Realization Account and transfer all assets except cash in hand or at a bank at book values. Realization Account is debited and the various assets are credited and thus closed. It should be remembered that Sundry Debtors and Provisions for Bad Debts Accounts are two separate accounts and the gross amount of debtors should be transferred, ® | Realization A/c Dr. (With the total) To Sundry assets Alc (Individual book values) NOTES: a) All the recorded assets except cash in hand or at bank at book values (ie. including goodwill joint life policy but excluding fictitious assets, Current A/c and Capital A/c) debited to Realization Alc. 'b) In case of dissolution of a firm on A/c of ‘Sale of Business’, unless otherwise stated, Cash & Bank balances shall also be transferred to the Realization A/c. 2) ON TRANSFER OF OUTSIDERS’ LIABILITIES TO REALIZATION AJC: Transfer of liabilities to outsiders and provisions and reserves against assets (e.g., Provision for Doubtful Debts) to the credit side of Realization account. The accounts of the liabilities and provisions will be debited and thus closed. The entry should be at book figures. ‘Sundry Liabilities (Individually) Dr. (Individual book values) To Realization Alc (With the total) NOTES: é a) That portion of any provision/fund which represents.2 liability expected to arise in future, should also be transferred to Realization Alc. ¢ b) Loan from a relative of a partner is an external tabity whereas loan from any partner is not an external liability since its payment can be made only after the repayment of outsiders’ liabilities. No doubt, lean from partner is having pygity eGo repayment aver the repayment of any part of capital 3) ON REALIZATION OF ASSETS wine THER RECORDED OR UNRECORDED): @ [When the assets are sold for cash: ‘Cash (or) Bank Ale Dr. Sale value To Realization Alc ‘® |When the assets are taken away by any of the partners: ‘Concerned Partner's Capital A/c Or Agreed value To Realization Alc @ |When the assets are given away to any of the outside liabilities towards the full (or) partial payment: No journal entry may be passed NOTE: Firm's assets which are not appearing in its books are called firm's unrecorded assets. 4) ON DISCHARGE OF OUTSIDERS’ LIABILITIES (WHETHER RECORDED OR UNRECORDED): ®@ [When the li Realization A/c Dr ‘Amount paid To Cash (or) Bank A/c ‘@ [When any of the partners agree to discharge a liability: Realization A/c Dr Agreed value To Concemed Partner's Capital Alc NOT! irm's liabilities which are not appearing in its books are called firm's unrecorded liabilities. CANTER | ADV ACCOUNTING | 46€ 44MASTER 5) ON PAYMENT OF REALIZATION EXPENSES 1S COMMERCE INSTITUTE PUT. LTD, WWW. MASTERMINDSINDI OM | 98851 25025 / 26 an agreed remuneration: Realization A/c Dr To Concemed Partner's Capital Alc 4 |When such expenses are paid in cash: Realization A/c Dr Expenses paid To Cash (or) Bank Alc |When any of the partners agrees to do dissolution work for Agreed amount 6) ON TRANSFER OF THE BALANCE IN REALIZATION A/C: At this stagi 2, the Realization Account will show profit or loss. If the debit side is higher, there is a loss; if the credit side is higher, there is a profit. Profit or loss is transferred to the Capital Accounts of partners in the profit-sharing ratio. | In case of Profit on Realization: Realization A/c Dr XXX To All Partners’ Capital A/c’s XXX #® | In case of Loss on Realization: Alll Partners’ Capital A/c’s Or XXX To Realization Alc XXX 7) ON PAYMENT OF PARTNER'S LOAN/ADVANCES: Partney's loans if any, should now be paid. | Partner's Loan/Advance A/c OF XXX To Cash/Bank Alc SL XXX NOTE: Where a Partner's Capital A/c shows debit balance. His loan (to firm) A/c should be transferred to his Capital A/c to the extent of ‘debit-Balance and the balance, if any, in his Loan A/c (To firm) should be paid off. 8) ON TRANSFER OF THE scoumng So PROFITS & LOSSES: Any reserve of accumulated profit or loss lying in the books (as shown by,the Balance Sheet) should be Account in the profit-sharing ratio. transferred to the Capital #® |In case of accumulated profits & reserves (i.e. Credit Balance in P & L Alc, General Reserve): Profit & Loss A/c Dr XXX General Reserve Or XXX To Alll Partners’ Capital A/c's XXX # [In case of accumulated losses, (i.e. Debit balance in P & L Alc, Deferred Revenue Expenditure) All Partners’ Capital Alc’s Dr. XXX To Profit & Loss Alc XXX To Deferred Revenue Expenditure Alc XXX 9) ON TRANSFER OF THE BALANCE IN CURRENT A/C(S) (IF ANY): [In case of debit balance in a Current Alc of a partner: Concerned Partner's Capital A/c Dr. XXX To concerned Partner's Current Alc XXX [In case of credit balance in a Current Alc of a partner: Concerned Partner's Current Alc Dr. XXX To Concemed Partner's Capital A/c XXX CH.4 | BASIC UNDERSTANDING OF DISSOLUTION OF PARTNERSHIP FIRMS| 46E a5PIONEER FOR MEC / CEC TO CA/ CMA FINAL fi, CALL 10) ON MAKING PAYMENT TO/BY A PARTNER: '® |In case of payment by a partner having a debit balance in his Capital Alc: Cash (or) Bank A/c Dr. XXX To Concemed Partner's Capital Alc XXX [In case of payment to a partner having a credit balance in his Capital Alc: Concerned Partner's Capital A/c Dr. XXX To Cash (or) Bank Alc XXX Treatment of Goodwill: Particulars ‘If Goodwill is already If Goodwill is not appearing in appearing in the Books the Books ‘On Transfer to Realisation Alc | Realisation A/c Dr. |The question of transfer does not| To Goodwill A/c arise at all ‘On Sale for cash Cash (of) Bank A/c Dr. |Cash (or) Bank Alc Dr. To Realisation A/e To Realisation Alc ‘On being taken over by any of|Concemed Capital A/c Dr. [Concerned Capital A/c Dr. the partners To Realisation Alc To Realisation Alc CRD 1: Ram, Wazir and Adil give you the following Balance Sheet as on 31st March, 2019: Liabilities @ Assets ® Ram's Loan 15,000 | Plant and Machinery at cost 30,000 Capital Accounts: Fixtures and Fittings 2,000 Ram 30,000 ‘Stock 40,400 Wazir 10,000 Debtors ‘Adil 2,000| 42,000 | Less: Provision (400) | 18,000 Sundry Creditors 17,800 | Joint Life Policy 45,000 Loan on Hypothecation of Patents and Trademarks 10,000 Stock 6,200 Joint Life Policy Reserve 412,400 | Cash at Bank 8,000 93,400 93,400 The partners shared profits and losses in the ratio of Ram 4/9, Wazir 2/9 and Adil 1/3. Firm was dissolved on 31st March, 2019 and you are given the following information: a) Adil had taken a loan from insurers for ® §,000 on the security of Joint Life Policy. The policy was surrendered and Insurers paid a sum of 2 10,200 after deducting 2 5,000 for Adil's loan and % 300 as interest thereon. b) One of the creditors took some of the patents whose book value was % 6,000 at a valuation of & 4,500. The balance to that creditor was paid in cash. ) The firm had previously purchased some shares in a joint stock company and had written them off on finding them useless. The shares were now found to be worth % 3,000 and the loan creditor agreed to. accept the shares at this value. dq) The remaining assets realized the following amount @ Plant and Machinery 17,000 Fixtures and Fittings 4,000 CANTER | ADV ACCOUNTING | 46€ 4.6MASTER MINDS COMMERCE INSTITUTE PVT. LTD. OM | 98851 25025 / 26 Stock 9,000 Debtors 16,500 Patents ‘At 50% of their ook value €). The labilies were paid and a total discount of & 500 was allowed by the creditors f) The expenses of realization amounted to 2 2,300. You are required to prepare the Realization Account, Bank Account and Partners’ Capital Accounts in columnar form. Also provide necessary working notes in your answer. CONCEPT 'a) IF SHARES WERE SOLD IN THE MARKET FOR @.3,000 INSTEAD OF LOAN CREDITOR AGREED TO |QUESTIONS THE TAKE SHARES. b)_IF PLANT & MACHINERY IS TAKEN BY PARTNER WAZIR AT & 17,000, WHAT IS THE ENTRY. REFERENCES M20.R7P(1) eee) | FINAL ANSWER be AIC TOAL LOSS-RS.6,300, BANK AIC TOTAL- | ABC CATEGORISATION. c NOTES MODEL 2: DISSOLUTION DUE TO IRTNERS BY APPLICATION OF if partner having a debit balance in his Capital Accourt is unable to bring in the necessary cash to make up the deficiency, he is said to be an insolvent partner. THe Unrecovered debit balance is called the loss arising due to the insolvency of a partner. Now the question arises should this loss be regarded as an ordinary loss (which is shared by the partners in theif profit-sharing ratio) or an extra ordinary one? This issue was involved in the leading case of Gamer ys. Murray (1904). Decision made in Garner Vs. Murray case: The Chief Justice held that the loss afising de to the insolvency of a partner must be distinguished from an ordinary loss (including realisation loss). Unless otherwise agreed, the decision in Gamer vs. Murray requires that- a) The solvent partners should bring in cash equal to their respective shares of the loss on realisation; b) The solvent partners should bear the loss arising due to the insolvency of a partner in the ratio of their Last Agreed Capitals. The Last Agreed Capital should be interpreted as unde! /a) Incase of Fixed Capitals |Last Agreed Capital means the Fixed Capital (given in the Balance Sheet) without any adjustment b) In case of Fluctuating|Last Agreed Capital means the Capital after making adjustments for past Capitals accumulated reserves, profits or losses, drawings, interest on capitals, interest _on drawings, remuneration to a partner etc. to the date of dissolution but before making adjustment for profit or loss on realisation. NOTES: i) The provisions of the Indian Partnership Act are not contrary to Garner vs. Murray rule, However, if the Partnership deed provides for a specific method to be followed in case of insolvency of a partner, the provisions as per the deed should be applied. ii) If some partner is having a debit balance in his Capital Account and is not insolvent then he cannot be Called upon to bear the loss on account of the insolvency of other partner. CH.4 | BASIC UNDERSTANDING OF DISSOLUTION OF PARTNERSHIP FIRMS| 46E 47PIONEER FOR MEC / CEC TO CA/ CMA FINAL fi, CALL Limitation of Garner vs. Murray rule: As per this rule solvent partners will bear the loss of capital deficiency of Solvent partner in the ratio of their capitals. If incidentally, a solvent partner has a debit balance in his capital account, he will escape the liability to bear the loss. However, he has to bring the Realisation loss in case to prove his solvency. When ‘Garner vs. Murray’ rule is not applicable + Allpartners are solvent ‘+ Allpartners are insolvent ‘+ Allpartners except one are insolvent ‘+ When there are two partners, and if one partner is insolvent ‘+ When there is agreement to share insolvency loss in agreed ratio ‘+ Minor partner will not bear insolvency loss ‘+ When the solvent partner has a debit balance in the capital account then to that partner. CRD 2: P, Q and R were partners sharing profits and losses in the ratio of 3: 2: 1, no partnership salary or interest on capital being allowed. Their balance sheet on 30th June, 20X1 is as follows: Liabilities: Amount Assets Amount. Fixed Capital Fixed assets: P 20,000 Goodwill 40,000 Q 20,000 Freshold Property 8,000 R_ 10,000 50,000 | [BE SOLVED AS REWORK2 CASH BANK AIC TOTAL-59,600, REALISATION AIC LOSS- 2 CAT ESOT A 51,000, PARTNER'S AIC TOTAL :P-45,500, Q-42,000, R-10,900 PRINTED SOLUTION: Dr. Cash / Bank Account cr. Dr. count cr. Amount (Rs.)| CH.4 | BASIC UNDERSTANDING OF DISSOLUTION OF PARTNERSHIP FIRMS| 46E 4.9PIONEER FOR MEC / CEC TO CA/ CMA FINAL fi, CALL Dr. Partners’ Capital Accounts cr. Particulars Working Not oe Particulars L SQ RE Current Account Balance 500 (Cr) 9000 (Cr) 400 (Dr) Less: share of Profit & Loss A/c (debit balance) 6000 (Dr) 4000 (Dr) 2000 (Dr) Adjusted Current Account Balance 5500 (Dr) 5000 (Cr) 2400 (Dr) NOTE: G 4) P,Q, and R will bring cash to make good their share 51,600 387,000 3,87,000 The realization of assets is spread over the next few months as follows: February: Debtors Rs.51,900; March: Machinery Rs.1,39,500; April: Furniture: Rs.18,000; May: G agreed to take over investment at Rs.6,300; June: Stock: Rs.96,000. Dissolution expenses, originally provided, were Rs.13,500, but actually amounted to Rs.9,600 and were paid on 30th April. The partners decided that after creditors were settled for Rs.50,400. All cash received should be distributed at the end of each month in the most equitable manner. You are required to prepare a statement of actual cash distribution as received using “Maximum loss basis’ method NOTE: it is assumed that Partner G brought cash for taking over the investments in the month of May to the extent of Partners - E & F Share. a) IF ACTUAL EXPENSES AMOUNTED TO & 19,600 AND WERE PAID ON 30" APRIL. ‘Gursrons | ©) IF PARTNER-G AGREED TO TAKE OVER INVESTMENT AS PART REPAYMENT OF HIS DUES AGAINST CAPITAL. "ASSIGNMENT PROBLEM TO | rerenences Che) [Sonera a [FINAL ANSWER | BALANCEUNPAID E: 18,000 F:12,000 G: 6,000 [ase catecorisaion — | A | Notes CH.4 | BASIC UNDERSTANDING OF DISSOLUTION OF PARTNERSHIP FIRMS| 46E 4.15PIONEER FOR MEC / CEC TO CA/ CMA FINAL fi, CALL JODEL 5: HIGHER RELATIVE CAPITAL Mi The basic presumption of this method is that a partner who has contributed more than his proportionate share of capital should be paid first to the extent of his excess capital over and above the proportionate share of capital. The excess capital can be calculated by following the below steps: Step 1: _Ascertain partner who has least capital for his profit share vis-a-vis other partners. Step 2: _ Compute proportionate capitals of other partners on the basis of the partner's capital identified in Step 1 Step 3: Determine excess capital of other partners, Excess capital = Existing capital - Proportionate capital Step 4: Cash should be distributed in the following order a) First pay off excess capital b) Then cash available should be distributed among all partners in profit sharing ratio. Note: excess of ‘excess capital’ among these partners. The capital account balance after repayment of excess capitals would be in profit sharing ratio. In the event of two or more partners having excess capital and cash being insufficient to pay excess capital in the first instance, the steps 1 to 4 above should be repeated to ascertain the CRD 6: Ajay Enterprises, a Partnership firm in which ACB an@'C are three partners sharing profits and losses in the ratio of 4: 3:3. The balance sheet of the fi as on 31% December, 20X1 is as below. Liabilities Assets Rs. A's Capital Factory Building 24,160 B's Capital Plant & Machinery 16,275 C's Capital Debtors 5,400 B's Loan Stock 12,390 Sundry Creditors Cash at Bank 275. 58,500 than cash at Bank and 10% of the amount distributed to the partners. On balance sheet date all the three partners have decided to dissolve their partnership. Since the realization of assets was protracted, they decided to distribute amounts as and when feasible and for this, purpose they appoint C who was to get as his remunerations 1% of the value of the assets realized other Assets were realized piecemeal as under: Rs, First installment 18,650 ‘Second installment 17,320 Third installment 40,000 Last installment 7,000 Dissolution expenses were provided for estimated amount of 3,000 ‘The creditors were settled finally for 15,900 Prepare a statement showing distribution of cash amongst the partners by ‘Higher Relative Capital Method’ CONCEPT. “QUESTIONS. ULTIMATELY AMOUNTED TO 2,340 ONLY. b)_IF PARTNER-B IS A MINOR PARTNER. a) IF DISSOLUTION EXPENSES WERE PROVIDED FOR ESTIMATED AMOUNT OF % 3,000 BUT CANTER | ADV ACCOUNTING | 46€ 4.16MASTER MINDS COMMERCE INSTITUTE PVT. LTD. WWW.MASTERMINDSINDIA.COM | 98851 25025 / 26 ‘ASSIGNHENT PROBLEM TO Henan « BBE SOLVED AS REWORK 5 FINAL ANSWER | LOSS SUFFERED BY PARTNERS A: 4340, B:3,255,:3,255 | ABGGATEGORISATION | A NOTES CRD 7: The partners A, B, and C have called you to assist them in winding up the affairs of their partnership on 30" June, 20X1. Their Balance Sheet as on that date is given below: Liabilities Rs. Assets. Rs. Sundry Creditors 17,000 | Cash at Bank 6,000 Capital Accounts: Sundry Debtors 22,000 A 67,000 | Stock in trade. 14,000 B 45,000 | Plant and Equipment 99,000 c 31,500 | Loan-A 12,000 Loan-B 7,500 160,500 1,60,500 1) The partners share profit and losses in the ratio of §:3:2 2). Cash is distributed to the partners at the end of each mont 3) A summary of liquidation transactions are as follows. July 20X1 SLO a %16,500 collected from Debtors; balance isicotetabe %10,000 received from the sale of enti stock 21,000 ~ liquidation expenses paid. 2) < 8,000 cash retained in the business at the end of the month. ‘August 20X1 =A 21,500 — liquidation expenses paid. As part payment of his Capital, C accepted a piece of equipment for 210,000 (book value 2 4,000). 22,500 _ —cash retained in the business at the end of the month September 20X1 75,000 — received on sale of remaining plant and equipment. 21,000 —_— liquidation expenses paid. No cash retained in the business. Required: Prepare a schedule of cash payments as of September 30, showing how the cash was distributed under ‘Highest Relative Capital Method’ “CONCEPT 3) IN AUGUST 20X1, IF PIEGE OF EQUIPMENT TAKEN BY ‘C° AT AN AGREED VALUE OF & 3,000. ‘QUESTIONS __| b) IF BOOK VALUE OF EQUIPMENT TAKEN BY ‘C’ WAS AMOUNTED TO 8 15000. a ‘ASSIGNMENT PROBLEM TO | ae | © BE SOLVED AS REWORK a | 252g See | LOSS SUFFERED BY PARTNERS A: RS1D.50, 8800 | gee caTEGORIATION | a — CH.4 | BASIC UNDERSTANDING OF DISSOLUTION OF PARTNERSHIP FIRMS| 46E 4.17PIONEER FOR MEC / CEC TO CA/ CMA FINAL fi, CALL 2: ASSIGNMENT PROBLEMS CAP) ASSIGN 1: Amit, Sumit and Kumar are partners sharing profit and losses in the ratio 2:2:1. The partners decided to dissolve the partnership on 31st March, 20X1 when their Balance Sheet was as under: Liabilities Amount Assets: Amount Capital Accounts: Land & Building 41,35,000 Amit 55,200 | Plant & Machinery 45,000 Sumit 55,200 | Furniture 25,500 General Reserve 61,500 | Investments 15,000 Kumar's Loan Ale 15,000 | Book Debts 60,000 Loan from D 1,20,000 | Less: Prov. forbaddebts (6,000) 54,000 Trade Creditors 30,000 | Stock 36,000 Bills Payable 12,000 | Bank 13,500 Outstanding Salary 7,500 | Capital Withdrawn: Kumar 32.400 Total 3,56,400 | Total 3,56,400 The following information is given to you: i) Realization expenses amounted to 218,000 out of which 000 was borne by Amit. A creditor agreed to takeover furniture of book value 8123 1000 at 210,800. The rest of the creditors were paid off at a discount of 6.25%. SS ili) The other assets realized as follows: Sz aor Furniture : Remaining axen 6ve over by Kumar at 90% of book value Stock + Realized 120% of book value Book Debts = 212,000 of debts proved bad, remaining were fully realized Land & Building - —_—Reealized 21,65,000 Investments - Taken over by Amit at 15% discount iv) For half of his loan, D accepted Plant & Machinery and 27,500 cash. The remaining amount was paid at a discount of 10%. ¥) Bills payable were due on an average basis of one month after 31st March, 20X1, but they were paid immediately on 31st March @ 6% discount "per annum’. Prepare the Realization Account, Bank Account and Partners Capital Accounts in columnar form in the books of Partnership firm, ao @) IN THE ADDITIONAL INFORMATION IT IS GIVEN THAT THERE WAS A JOINT LIFE POLICY OF oe $20,000 (NOT MENTIONED IN THE BALANCE SHEET) AND THIS WAS SURRENDER FOR RS4.500 - WHAT IS THE ENTRY. "ASSIGNMENT PROBLEN TO | Renee © BE SOLVED AS REWORK : REALIZATION PROFIT OF AMIT: RS. 9264, SUMIT: RS. 9.264, KUMAR: RS. 4,632, BANK ACCOUNT TOTAL: RS. 262.318, FINALANSWER | paRTNERS CAPITAL ACCOUNTS TOTAL OF AMT: RS. | ABO CATEGORISATION c 82,064, SUMIT: RS, 89064, KUMAR: RS. 44,50 | NOTES CANTER | ADV ACCOUNTING | 46€ 4.18Cree ud ue WWW. MASTERMINDSINDI OM | 98851 25025 / 26 ASSIGN 2: Thin’, ‘Short’ and ‘Fat’ were in partnership sharing profits and losses in the ratio of 2:2:1. On 30th September, 20X1 their Balance Sheet was as follows: Liabilities Rs. Assets: Rs. Capital Accounts: Premises 50,000 Thin 80,000 Fixtures 1,25,000 Short 50,000 Plant 32,500 Fat 20,000 4,50,000 | Stock 43,200 Current Accounts: Debtors 54,780 Thin 29,700 Short 11,300 Fat (Dr.) 14.500) 26,500 ‘Sundry Creditors 84,650 Bank Overdraft 44,330 3,05,480, 3,05,480, ‘Thin’ decides to retire on 30" September, 20X1 and as ‘Fat’ appears to be short of private assets, ‘Short’ decides that he does not wish to take over Thin's share of partnership, so all three partners decide to dissolve the partnership with effect from 30th September, 20X1. It then transpires that ‘Fat’ has no private assets whatsoever. The premises are sold for Rs.60,000 and the plant for Rs.1,07,500. The fixtures realize Rs.20,000 and the stock is acquired by another firm at book value less 5%. Debtors realize Rs.45,900. Realization expenses amount to Rs.4,500. ¢ The bank overdraft is discharged and the creditors af@-also: pai in full You are required to write up the following ledger acgonis in the partnership books following the rules in Gamer vs. Murray: 1) Realization Account ; 2) Partners’ Current Accounts; 3) Partners’ Capital Accounts showing the closing of the firm's books. a) IF FAT'S PRIVATE ESTATE HAS A SURPLUS OF ® 308. ‘CONCEPT b) IN THE ADDITIONAL INFORMATION IT IS GIVEN THAT A BILL FOR RS.4,200 DUE FOR GST WAS ‘QUESTIONS: RECEIVED DURING THE COURSE OF REALIZATION AND THIS WAS ALSO PAID ~ WHAT IS THE ENTRY. ASSIGNMENT PROBLEM TO REFERENCES © BE SOLVED AS REWORK : LOSS ON REALISATION IS 35,540, TOTAL OF CURRENT AIC FINAL ANSWER | Thi 29700 SHORT 14216, PAT 21608, TOTAL OF CAPITAL | ARC CATEGORISATION | A AIC THIN 1,09,700 SHORT 64,216, FAT 21,608 ‘NOTES: ASSIGN 3: Mis X, Y and Z who were in partnership sharing profits and losses in the ratio of 2:2:1 respectively, had the following Balance Sheet as at December 31, 20X1 Liabilities Rs. Assets: Rs. Capital: X 29,200 | Fixed Assets 40,000 Y 10,800 | Stock 25,000 Zz 10,000 | Book Debts 25,000 CH.4 | BASIC UNDERSTANDING OF DISSOLUTION OF PARTNERSHIP FIRMS| 46E 4.19PIONEER FOR MEC / CEC TO CA/ CMA FINAL fi, CALL Z's Loan 5,000 | Less: Provision (5.000) 20,000 Loan from Mrs. X 10,000 | Cash’ 1,000 ‘Sundry Trade Creditors 25,000 | Advance to Y 4,000 90,000 90,000 The firm was dissolved on the date mentioned above due to continued losses. After drawing up the balance sheet given above, it was discovered that goods amounting to Rs. 4,000 have been purchased in November, 20X1 and had been received but the purchase was not recorded in books. Fixed assets realised Rs. 20,000; Stock Rs. 21,000 and Book Debt Rs. 20,500. Similarly, the creditors allowed a discount of 2% on the average. The expenses of realisation come to Rs. 1,080. X agreed to take over the loan of Mrs. X. Y is insolvent, and his estate is unable to contribute anything, Give accounts to close the books; work according to the decision in Garner vs. Murray. ‘CONCEPT ‘a) IF PURCHASE ADJUSTMENT IS NOT GIVEN, WHAT IS THE IMPACT ON DISTRIBUTION OF QUESTIONS DEFICIENCY TO OTHER PARTNERS? ‘REFERENCES © BE SOLVED AS REWORK — . ‘LOSS ON REALISATION A/C X - 9,600, ¥ - 9,600, Z - 4,800; FINAL ANSWER | TOTAL OF CREDITORS - 28,000; TOTAL OF CASH A/C 76,900; | ABC CATEGORISATION A TOTAL OF CAPITAL A/C'S X-- 47,200, Y- 13,600, Z- 14,000 NOTES ASSIGN oe Balance Sheet as at 31.10.13 Liabilities Rs. Assets Rs. Capitals: 5| Fixed Assets 4,00,000 P "i000 | Cash 10,000 Q 3,000 R 2,000 Bank Loan 60,000 Sundry Creditors 40,000 1,10,000 1,10,000 All the partners were declared insolvent. Profit sharing ratio 5:3:2 Assets realized Rs.60,000. Prepare necessary ledger accounts to close the books of the firm. Goecrions | @) F THERE WERE REALISATION EXPENSES OF & 5,000. REFERENCES ASSONMENT PROBLEM TO ENALANSWER | rora.‘or DEFIIENCY At-20,00, TOTAL OF GASH me: |ABCCATEGORISATON | 70,000 ‘NOTES CANTER | ADV ACCOUNTING | 46€ 4.20Cree ud ue WWW. MASTERMINDSINDI OM | 98851 25025 / 26 ASSIGN 5: The following is the Balance Sheet of A, 8, C on 31st December, 20X1 when they decided to dissolve the partnership: Liabilities Rs. Assets: Rs. Creditors 2,000 | Sundry Assets 48,500 A’s Loan 5,000 | Cash 500 Capital Accounts: A 15,000 B 18,000 c 9,000 49,000 49,000 The assets realized the following sums in installments: f 1,000 3,000 ut 3,900 Vv 6,000 Vv 20,100 (Including saving in expenses) 34,000 The expenses of realization were expected to be Rs. S00 but v ulfivfately amounted to Rs.400 only. ‘Show how at each stage the cash received should be disthibuted between partners. They share profits in the rato of 2:21. Folow Manum oes method fof piecemeal distribution a) THE EXPENSES OF REALGATIG WERE EXPECTED TO BE ® 500 BUT ULTIMATELY AMOUNTED CONCEPT TO ® 1,000. QUESTIONS: b) IF OUTSIDE LABILTiES ARE CREDITORS RS.500 AND BANK LOAN RS.1,500 INSTEAD OF CREDITORS RS.2000. "ASSIGNMENT PROBLEM TO ele ic BE SOLVED AS REWORK : FINAL ANSWER | LOSS SUFFERED BY PARTNERS A-6000,6-6,000, 3,000 |ABCCATEGORISATION | A NOTES ASSIGN 6: The firm of LMS was dissolved on 31.3.20X1, 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 Us Loan 10,00,000 Capital - 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 Accountants is retained to realize the assets and distribute the cash after discharge of liabilities. Their fees which include all expenses is fixed at Rs. 1,00,000. No loss is expected on realization since fixed assets include valuable land and building, CH.4 | BASIC UNDERSTANDING OF DISSOLUTION OF PARTNERSHIP FIRMS| 46E 4.21PIONEER FOR MEC / CEC TO CA/ CMA FINAL fii CAA Realizations are: S.No. Amount in Rs. 4) ,00,000 (including cash and bank) 2) 18,00,000 3) 15,00,000 4) '30,00,000 5) '30,00,000 The Chartered Accountant 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. ‘CONCEPT | a) IF THE REALISATION EXPENSES EXPECTED TO BE @ 1,00,000 BUT ULTIMATELY AMOUNTED QUESTIONS F1,60,000. ASSIGNMENT PROBLEM TO. Re eRENCES | i. ‘BE SOLVED AS REWORK : REALISATION PROFIT CREDITED TO PARTNERS L-15,66,667, FINAL ANSWER: | M-15,66,667, N-15,66.666. | ec caeconsaon A ASSIGN 7: Ananya Enterprises is a partnership firm is which A.B and C are three partners sharing profits and losses in the ratio of 5:3:2. The Balance Sheet of the fir/as on 31st October, 2019 is as below: Liabilities: £ Assets = Capital:

& Se “CONCEPT. 'b) IF SIDDHART IS NOT A MINORPARTNER, PROFIT & LOSS SHARING RATIO IS 2:2:1 AND THEY WANT TO FOLLOW MAXIMUM LOSS METHOD FOR PIECEMEAL DISTRIBUTION. eg — Sis BALANCE DUE _DAKSH-RS.19,050; SIDDHART -NIL .D, BD & SD are partners sharing profits and losses in the ratio of 5:3:2. There capitals were ACSP 9: Rs. 13,440. Rs.8,400, Rs.11,760 respectively. Liabilities and assets of the firm are as under: Trade creditors 2,800 Loan from partners 1,400 Assets of the firm : Patent 1,400 Furniture 2,800 Machinery 1.680 Stock 5,600 The assets realized in full in the order in which they are listed above. BD is insolvent. You are required to prepare a statement showing the distribution of cash as and when available, applying maximum possible loss procedure. CH.4 | BASIC UNDERSTANDING OF DISSOLUTION OF PARTNERSHIP FIRMS| 46E 4.25PIONEER FOR MEC / CEC TO CA/ CMA FINAL fi, CALL ‘CONCEPT. 4) IF THE FIRM HAD 2 OUTSIDE LIABILITIES CREDITORS RS.1,200 AND BANK LOAN OF RS.1,600 QUESTIONS: INSTEAD OF CREDITORS OF RS.2,800. REFER N19-5M(b) LOSS TO AD-RS.13,160, BD-RS.7,896, SD-RS.5,264 ABC CATEGORISATION DIVISION 4: THEORY FOR SELF STUD The court has the option to order dissolution of a firm in the following circumstances: 1) Where a partner has become of unsound mind 2) Where a partner suffers from permanent incapacity 3) Where a partner is guilty of misconduct of the business 4) Where a partner persistently disregards the partnership agreement 5) Where a partner transfers his interest or share to a third party 6) Where the business cannot be carried on except at a loss and 7) Where it appears to be just and equitable. G 5ccording to the provisions contained in section 48 of the Partnership Act, upon dissolution af the-Partnership, the mutual rights of the partners, Unless otherwise agreed upon, are setled inthe following manner: 41) Losses including deficiencies of capital are‘paic first out of profs, next out of capital, and, lastly, i necessary, by the partners individually inthe proportion in which they are entitled to share profits 2) The assets of the firm, including any’sunis‘tontributed by the partners to make up deficiencies of capital have to be applied in the following manner and order: ) In paying the debts of the firm to third parties; b) In paying to each partner rateably what is due to him from the firm in respect of advances as distinguished from capital; ©) In paying to each partner what is due to him on account of capital; and d) The residue, if any, to be divided among the partners in the proportion in which they are entitled to share profits. CONSEQUENCES OF INSOLVENCY OF A PARTNER: If the capital account of a partner is in debit, after his share of loss or profit has been adjusted therein, the firm will not have sufficient cash or assets to pay off the amounts due to the other partners, until the amount is repaid by the partner whose account is in debit. If however, the partner is insolvent, the amount will not be realized. In such a case, the deficiency may be borne by the solvent partners in their Profit-sharing ratio or according to the principle settled in the well-known case of Gamer vs. Murray. In the latter case, the deficiency would be borne by the solvent partners in proportion to their capitals and not in the proportion in which they share profits and losses If a partner goes insolvent then the following are the consequences: 1. The partner 2. The firm is dissolved | 3. The estate of the] 4. The firm cannot be adjudicated as insolvent | on the date of the order | insolvent partner is not | held liable for any acts ceases to be a partner | of adjudication unless | liable for any act of the | of the insolvent partner fon the date on which there is a contract to | firm after the date of the | after the date of the the order of adjudication the contrary. order of adjudication, | order of adjudication. is made. and CANTER | ADV ACCOUNTING | 46€ 4.26Cree ud ue WWW. MASTERMINDSINDI OM | 98851 25025 / 26 ‘Specimen of Realization Account Particulars: @ Particulars ® To Sundry Assets By Sundry Liabilities (Excluding Cash/Bank, Debit Balance of (Excluding Credit Balance of P&L Alc, P&L Alc, Partners’ Current, Capital, and Partners’ Current, Capital, and Loan Loan Alc's) Alc) To Bank/Cash (expenses for realization) By Provision on Assets To BankiCash A/c (Amount paid for By Bank/Cash Alc (Amount realized liabilities and unrecorded liabilities) from assets and unrecorded assets) To Partners’ Capital Alcs By Partners’ Capital Alcs (Expenses or Liabilities paid by partners) (Assets taken over by partners) To Partners’ Capital Alcs By Partners’ Capital Alcs (Profit on realization distributed among (Loss on realization distributed among partners in profit sharing ratio) partners in profit sharing ratio) XXX XXX DIVISION 5: SHORT ANSWER TYPE QU TIONS (SELF STUDY) 41) State the circumstances when Gamer V/S Murray rule not applicable. (€-TYK) 2) Waid a premium to other partners of the firm at the time; of his admission to the firm, with a condition that they will not be dissolved before the expiry of fg gears, The fm is dissolved after three years. W claims refund of premium, 1) Partnership could be dissolved because of a) Death of a partner. b) Insolvency of a partner. ©) Either (a) or (b). 2) On the dissolution of partnership, profit or loss on realization of assets and liabilities should be divided among partners a) In the ratio of their capitals. In the same ratio in which they share profits. ©) Equally 3) An unrecorded asset realized at the time of dissolution is credited to a) Realization account. b) Revaluation account. ©) Capital accounts, a) List the criteria for the calculation of the amount Of 5 refnd. b) Also list any two coneitions when no claim ip this Tespect will arise (€-TYK) (Similar N18-5M) 4) A liability taken over by a partner at the time of dissolution is credited to a) Profit and loss account. ) Partners’ capital accounts, ©) Realization account. 5) Realization account is a a) Nominal account, b) Real account. ©) Personal account, 6) Which of the following method/methods is adopted to ensure that distribution of cash among partners is in proportion to their interest in partnership? a) Maximum loss method b) Highest relative capital method. ©) Either (a) or (b). Copyrights Reserved To MASTER (MINDS COMMERCE INSTITUTE PVT.LTD. CH.4 | BASIC UNDERSTANDING OF DISSOLUTION OF PARTNERSHIP FIRMS| 46E 4.27PIONEER FOR MEC / CEC TO CA/ CMA FINAL UJ ba LAL | DIVISION 7: WORKBOOK SOLUTIONS PART 1: ANSWERS FOR CONCEPT QUESTIONS TO CRD PROBLEMS RDI a) Then sale value of 3,000 should be considered in Realization A/c and Bank A/c. The amount paid towards Loan would be 2 6,200. b) Then, the following entry should be recognized for realization of machinery. Wazir Capital Alc Dr. 17,000 To Realization A/c 17,000 a) Then the deficiency amount of & 600 of partner-R shall be distributed to P & Q in the ratio of 3:2. ie., & 360 to P & 2 240 to Q. b) Then the total deficiency will be @ 900 and it should be borne by remaining partners-P & Q in their fixed capital ratio, ie., 2 450 to each partner. ces a) Then the following entry should be recognized for dissolution expenses. Realization Alc Dr 7,800 Se To Q Capital Alc {Ta00. b) Then the following entry should be recognized for recovery of bad debts. Cash Ale 2,000 S - To Realization A/c cRD4 a) Then the following entry should be recognized. Cash Ale Dr 275 To Amal Capital A/c 275 Then amount paid to creditors will be 2 2,800 and Creditors A/c, Amal Capital A/c & Deficiency A/c's will be changed. The balance in Partners capital accounts transferred to Deficiency A/c will be: Amal — Rs.312, Bimal — Rs. 1,688, b) Then total cash balance will be sufficient to settle sundry creditors. Hence creditors A/c also should be transferred to Realization A/c. The deficiency in Bimal Capital A/c transferred to Amal Capital A/c and remaining cash balance of & 50 paid to Amal and no need to prepare Deficiency Alc. a) Then the available cash for distribution to partners (after providing the excess expenses) in the month of April would be & 11,900 (18,000-6,100). b) Then partner ~G will not bring any cash for taking over the investments in the month of May. CANTER | ADV ACCOUNTING | 46€ 4,28Cree ud ue WWW. MASTERMINDSINDI a) Then, the final amount available for distribution to partners in last installment would be & 6,900. OM | 98851 25025 / 26 ‘Amount of 4" & last instalment 7,000 Less: remuneration to C at 1% on assets realised (70) 6,930 ‘Add: savings in expenses (3,000-2,340) 660 7590 Less: remuneration to C at 10% of amount distributed to Partners (7,590x10/110) (690) 6,900 b) Then, B's capital is paid first because he will not share any loss on account of being minor partner. It means, as and when cash is available for payment towards partners’ capitals, first settle B's Capital of @ 7,500. After that, calculate the higher relative Capitals between remaining partners-A & C. Finally if there is any loss it should be shared by Partners ~ A & C only. But if there in any profi, it should be distributed to all partners — A, B & C. cRDT a) Then, Cash available for distribution in august 20X1 amounting to & 4,000 should be given to Partner — B. In September 20X1, out of cash available & 76,50Q;first € 500 {4,500-4,000} should be paid to partner-B, then automatically all partners capitals wilf-be in.profit sharing ratio. So, remaining cash balance of @ 76,000 should be distributed to all cet Si roft sharing ratio ») Itwi not impact the answer since agreed valu vaso vant but not the book value in that situation. PART 2- SOLUTIONS TO ASSIC GNMENT PROBLEMS (AP) Realization Account To Land and Building 1,35,000 | By Provision for bad debts 6,000 To Plant and Machinery 45,000 | By Loan from D 4,20,000 To Fumiture 25,500 | By Trade creditors 30,000 To Investments 15,000 | By Bills payable 12,000 To Book debts 60,000 | By Outstanding salary 7,500 To Stock 36,000 | By Kumar - Furniture taken over 12,150 To Bank (Realization expenses) 15,000 | By Bank A/c - To Amit Stock Realized 43,200 - Realization expenses 3,000 To Bank Alc- Land & Building _1,65,000 Bill payable 11,940 Debtors 48,000 2,56,200 D's Loan 61,500 | By Amit (Investment taken over) 12,750 Creditors 18,000 Salary 7,500 To Partners capital accounts Amit 9,264 Sumit 9,264 CH.4 | BASIC UNDERSTANDING OF DISSOLUTION OF PARTNERSHIP FIRMS| 46E 4,29PIONEER FOR MEC / CEC TO CA/ CMA FINAL fi, CALL Kumar 4,632 23,160 4,56,600 4,56,600 Bank Account To Balance b/d 13,500 | By Realization Alc 1,13,940 (payment of liabilities: 11,940 + 7,500 + 54,000 + 15,000 + 18,000 + 7,500) To Realization Alc (assets realized) | _2,56,200 | By Amit 79,314 To Kumar 12,618 | By Sumit 89,064 2,82,318 2,82,318 Partner’s Capital Accounts To Balance bid 32,400 | By Balance bid | 55,200] 55,200 To Realization Alc -| 12,750 By Kumar's Loan 15,000 Investments To Realization Alc - 12,150 | By General 24,600] 24,600] 12,300 Furniture Reserve To Bank Alc 79,314| 89,064 By Realization 3,000 Aic (expense) By Realization 9.264) 9,264) 4,632 Alc (profit) By Bank Alc 12,618 92,064] 89,064] 44,550 92,064] 89,064] 44,550 OY Ge Working Notes: T @ 4) Payment for Bills Payable 2) Bills Payable as per Balance Sheet 12,000 Less: Discount for early payment {12,000 x 6% x (1/12)} 60 ‘Amount Paid in Cash 11,940 Payment to D's Loan D's Loan as per Balance Sheet 120,000] 50% of Loan adjusted as below: Plant & Machinery accepted at Book Value (& 45,000) and & 7,500 in cash 7,500] Balance 50% of Loan adjusted as below: In case after allowing discount of 10% i.e., % 60,000 - % 6,000 = % 54,000 54,000) Payment to Trade Creditors Trade creditors as per balance sheet 30,000] Less: Furniture of Book value 2 12,000 accepted at value & 10,800 10,800 CANTER | ADV ACCOUNTING | 46€ 4.30MASTER MINDS COMMERCE INSTITUTE PVT. LTD. OM | 98851 25025 / 26 19,200| Less: Discount @ 6.25% 1,200| Amount paid in cash 18,000 4) Fumiture taken over by Kumar Furniture as per balance sheet 25,500] Less: Furniture of Book value 2 12,000 accepted by trade creditors 12,000 13,500 Less: 10% of Book value 1,350] Value of Furniture taken over by kumar 12,150 5) As Partner-Kumar having Debit balance in Capital A/c, Kumar's Loan transferred to Kumar Capital A/c. ANSWERS TO CONCEPT QUESTION: a) Then, the following entry should be recognized. Bank Alc Or. 4,500 To Realization Ale 4,500 ASSIGN Realization AGcount cr. Ls To Premises 50,000|.By Créditors To Fixtures 1,25,000| BY Bank A/c (Assets realized) To Plant 32500) Premises 60,000 To stock 43200| Plant 1,07,500 [To Debtors ~ GA, 780) Fixtures: 20,000 To Bank (Expenses) 4,500] Stock 41,040 [To Bank (Creditors) 84,650 Debtors 45,900 2,74,440 By Partners current accounts Thin 14,216 Short 14,216 Fat 7.108 35,540) 3,94,630 3,94,630 Dr. Partners’ Current Accounts. cr. Particulars _Thin_| Short | Fat Particulars L _| Short | Fat_ [To Balance bid 14,500) By balance b/d 29,700| 11,300] To Realization A/c 14,216] 14,216] 7,108] By Concerned 2,916) 21,608) (loss) partner Capital A/c (Transfer) To. Concerned 15,484 partner Capital A/c (Transfer) 29,700| 14,216] 21,608 29,700! 14,216] 21,608 CH.4 | BASIC UNDERSTANDING OF DISSOLUTION OF PARTNERSHIP FIRMS| 46E 4.31PIONEER FOR MEC / CEC TO CA/ CMA FINAL fi, CALL Dr. Partners’ Capital Accounts cr. ___Particulars | Thin | Short | Fat_ Particulars | Thin | Short | To Concerned 2,916) 21,608 | By balance bid 80,000} 50,000} 20,000 partner Current Alc To Fat Capital 90] 618 By Concemed| 15,484] Partner Current A/c [To Bank 1,08,710) 60,682, By Bank 14,216] 14,216] By Thin Capital 990 By Short Capital 618 1,09,700) 64,216) 21,608 1,09,700| 64,216] 21,608. Working Notes: i) Dr. Bank Account cr. Particulars Rs. Particulars _ Rs. To Realisation A/c (Sale of 2,74,440| By Balance b/d 44,330 assets) To Thin capital 14,216 | By Realisation A/c(Expenses ) 4,500) To Short capital 14,216] By Realisation A/c (Creditors) 84,650 By Thin capital 1,08,710) a Sing antal 60,682 3,02,873 3,02,872 Fat's deficiency has been by borne Thin & ry fe ratio of their fixed capitals ie., 8:5 following the rule in Gamer vs. Murray. Thin = 1608x8/13 = 990.(7 Short = 1608x513 =618 © ANSWERS TO CONCEPT QUESTION: 4) Then deficiency in Fat’s capital Alc would be ® 1300. It should be distributed to Thin & Shor in fied capital rato. So, the deficiency transferred to Thin - 800 & Short - ® 500. 'b) Then it should be treated like an unrecorded liability and the following entry should be recognised. Realization Alc Dr. 4,200 To Bank Alc 4200 ASSIGN. Dr. Realization Alc cr. fou Particulars | Amount (Rs.)| Amount (Rs.) To Fixed Assets Ac 40,000 | By Provision for Bad debts A/c 5,000) To Stock Ale 25,000 | By Creditors (25,000 + 4,000) 29,000| [To Debtors Alc 25,000 | By Mrs. X Loan A/c 10,000| To Cash Alc (expenses) 1,080|By Cash Alc: Fixed Assets 20,000 Stock 21,000 Debtors 20,500 61,500 To Cash Alc (Creditors) 28,420 | By Partner's capital A/c (2:2:1) [To X Capital Alc (Mrs. X Loan) 10,000] _X- 9,600 CANTER | ADV ACCOUNTING | 46€ 4.32a ua WWW.MASTERMINDSINDIA.COM | 98851 25025 / 26 Y- 9,600 Z- 4,800 24,000 4,29,500| 1,29,500 Dr. Z's Loan Alc cr. Particulars ‘Amount (Rs) Particulars ‘Amount (Rs.) [To Cash Alc 5,000| By Balance b/d 5,000 5,000) 5,000 Dr. Cash Alc cr. Particulars Amount (Rs.) Particulars. Amount (Rs.) [To Balance bid 1,000| By Realization A/c (Creditors) 28,420 [To Realization A/c - Assets realized 61,500] By Realization A/c (expenses) 4,080] By Z's loan Alc 5,000 To X's Cap Alc 9,600| By X's Cap Alc 34,300 To Z's Cap Alc* 4,800 | By Z's Cap Ae 8,100 76,900 76,900 *X and Z bring these amounts to make good their share of loss on realization. In actual practice they will not be bringing any cash, only a notional entry will be made. Dr. Partner's Capital Ale cr. Particulars XiRs) | ViRs) | Z(Rs) | Particulars | X(Rs) [YiRs) |Z (Rs) To Creditors A/c 1,600) 1,600 800)By Balance b/d 29,200/ 10,800| 10,000 To Balance cid 27,600| 9,200| 9200), 57 29,200| 40,800] 40,000)” 29,200| 10,800] 10,000) To Advance =| 4,000) <<” =| By Balance bid 27,600| 9,200] 9,200 [To Realization A/c (loss)| 9,600] 9,600, \>4,800|By Realization Ale 10,000 | | SG (Mrs. X Loan) To Y's cap 3,300) -| 1,400] By Cash (Real. Loss) | 9,600. -|_4,800) By X's Capital Alc =| 3,300 7 To Cash Alc (bal. fig) | 34.300 -[ 8,100] By Z’s Capital A/c =| 1,100 7 47,200) 13,600| 14,000 47,200| 13,600) 14,000) NOTE: Y's deficiency comes to Rs.4,400 (difference in the two sides of his Capital Account); this has been debited to X and Z in the ratio of 27,600 : 9,200 ie., capital standing up just before dissolution but after correction of error committed while drawing up the accounts for 20X1 ANSWERS TO CONCEPT QUESTION ) Then, the deficiency of insolvent partner ~Y shall be distributed to remaining partners - X & Zin their Capitals ratio Le, 292:100. ASSIGN 4: Dr. Realization Alc cr. Particulars: Amount (Rs.) Particulars Amount (Rs.) To Fixed Assets Alc 1,00,000| By Cash A/c 60,000 By Partners Capitals Alc P= 20,000 ‘Q= 12,000 CH.4 | BASIC UNDERSTANDING OF DISSOLUTION OF PARTNERSHIP FIRMS| 46E 4.33PIONEER FOR MEC /CECTO CA/ CMA FINAL BULA AML R-_ 8,000 40,000) 1 00,000) 1,00,000 Dr. _ Particulars _ To Cash Alc To Deficiency Alc Dr. To Cash Alc To Deficiency Alc Dr. articulars To Balance bid To Realisation Alc Dr. _ Particulars To Partners Capital A/c's li yS? By Bank Loan 18,000 P 15,000) By Creditors 42,000 Q 9,000 R 6,000 30,000 30,000 30,000 Dr. Partner's Capital A/c Cr. Particulars | P(Rs.) | Q(Rs.) | R(Rs.) | Particular Q (Rs) | RiRs) [To Realisation Aic__| 20,000] 12,000 _8,000/ By Balance bid 5,000| 3,000] 2,000) By Deficiency A/c 15,000} 9,000 6,000) 20,000| 12,000] 8,000 20,000/ 12,000] 8,000 WORKING NOTE: Distribution of Available Cash Based On the Outstanding Balance Ratio ‘Cash = 70,000 Bank Loan Creditors 60,000 40,000 (702 xo (rom. »t5) Cash = 42,000 Cash = 28,000 CA INTER | ADV ACCOUNTING | 46E 4.34MASTER ANSWERS TO CONCEPT QUESTION: a) Then the av 1S COMMERCE INSTITUTE PUT. LTD, given towards bank loan & € 26,000 will be given towards sundry creditors. ASSIGN. OM | 98851 25025 / 26 ble cash for distribution towards bank loan & sundry creditors would be ® 65,000. So, ® 39,000 will be Statement showing Realization and Distribution of Cash Payments. Balance cash Amount due -[__ 2,000 Opening cash 500) |Add: Assets realized in | installment 1,000 Less: Amount set aside for expenses (600) 1,000) Less: Amount paid towards Creditors | (4.900)| (1,000) Balance due -[ 1,000 [Assets realized in Il installment 3,000 - Less: Amount paid towards Creditors | _(1,000)| _(1,000) Balance Cash 2,000 Fi Less: Amount paid towards A’s Loan | (2,000) (2,000) Balance due = 3,000) [Assets realized in Ill installment TD Less: Amount paid towards A’s Loan (3,000) Less: Amount paid towards Partners (600)| (300) capitals Balance due 15,000] 17,400] 8,700) Assets realized in IV installment 7 - -| Less: Amount paid towards Partners|’>” (6,000) (960)] (3,360)| (1,680) capitals Balance due : 14,040} 14,040| 7,020, [Assets realized in V_ installment] 20,100 (Including savings in expenses) Less: Amount paid towards Partners! (20,100) (8,040)| (8,040) | (4,020) capitals Loss 6,000) 6,000} 3,000 To ascertain the amount distributable out of each installment realized among the partners, the following table will be constructed: Statement of Distribution on Capital Account 1) Calculation to determine the mode of distribution of Rs. 900 oan fn oe Balance 42,000| 15,000] 18,000] 9,000 Less: Possible loss, should remaining assets prove to be] (41,100)|(16,440)| (16,440) (8,220) worthless (42000-900) 900] - 1,440] + 1,560| +780 Deficiency of A’s capital written off against those of B and C in 1,440] (960) (480) the ratio of their capital, 18,000 : 9,000 (Gamer vs. Murray) Manner in which the first Rs. 900 should be distributed goo] = +600] +300) CH.4 | BASIC UNDERSTANDING OF DISSOLUTION OF PARTNERSHIP FIRMS| 46E 4.35PIONEER FOR MEC / CEC TO CA/ CMA FINAL fi, CALL 2) Distribution of Rs. 6,000: Balance after making payment of amount shown in step (1) | 41,100] 15,000] 17,400] 8,700] Less: Possible Loss assuming remaining asset to be| (35,100)|(14,040)|(14,040)|(7,020) valueless (41100-6000) Balance available and to be distributed 6,000] 960] 3,360] 7,680) 3) Distribution of Rs. 20,100: Balance after making payment of amount shown in step (2) | 35,100] 14,040] 14,040] 7,020] Less: Possible loss, assuming remaining assets to be| (15,000)| (6,000)| (6,000)] (3,000) valueless (35100-20100) Manner of distribution of Rs. 20,100 20,100 8,040 8,040] 4,020 Summary: Balance 42,000} 15,000| 18,000! 9,000} Total amounts paid 27,000} 9,000] 12,000] 6,000] Loss 16,000] 6,000 6,000] 3,000 ANSWERS TO CONCEPT QUESTION: a) Then the available cash in 5* installment for distribution to partners is & 19,500. Distribution of cash to partners - A, B & will be & 7,800, & 7,800 & & 3,900 respectively in 5% installment. 2 'b) Then, in instaliment net cash available Rs.1,000 should be distributed to Creditors & Bank Loan in thei Liabilities Ratio (Rs.250 towards Creditors and Rs.750 towards Bank-Loan)(n il installment, frst Rs.1,000 should be paid to creditors & Bank Loan in her Liabilities Ratio Le 1:3 (Rs.250 wards Creltors and Rs.750 towards Bank Loan) ASSIGN 6: In the Books of M/s LMS Statement 6f Pieéémeal Distribution (Under Higher Relative Capital method) AY ‘Amount Bank | Capital Ale s Available Laan |e en L ™ 3 Balance due - 2,00,000| §,00,000| 10,00,000| _15,00,000| 10,00,000| _5,00,000] 1% Installment (including 5,00,000 /cash and bank balances) Less: Liquidators (1,00,000) Expenses and fee Particulars Creditors 4,00,000 Less: Payment] (4,00,000)| (1,14,286)| (2,85,714) : z 5 : to Creditors and repayment fof Bank Loan in the ratio of 2:5 Balance Due -| 85,714] _2,14,286] 10,00,000| _15,00,000| 10,00,000| _5,00,000] 2" Installment | 15,00,000 Less: Payment] (3,00,000)| (85,714)| (2,14,286) : ; a : to Creditors and repayment lof bank loan in full settlement CANTER | ADV ACCOUNTING | 46€ 4.36MASTER 1S COMMERCE INSTITUTE PUT. LTD, WWW. MASTERMINDSINDI OM | 98851 25025 / 26 Balance Due 12,00,000 Nil Ni l| 10,00,000) 15,00,000| 10,00,000 5,00,000) Less: Repayment of Us Loan (10,00,000) (10,00,000) Balance Due 2,00,000 15,00,000| 10,00,000 5,00,000) Less: Payment to MeL towards relative higher capital WN. 4) (2,00,000) (2,00,000) Balance Due Nil 13,00,000| 10,00,000 5,00,000) 3 Installment 15,00,000 Less: Payment to. Mr. L towards higher] relative capital (WN. 2) Balance Due (3,00,000) 12,00,000 (3,00,000) 10,00,000| 10,00,000 5,00,000 Less: Payment to Mr. L & Mr. M towards lexcess capital (WN. 182) (10,00,000) (5,00,000) (6,00,000) Balance Due 2,00,000 5,00,000 5,00,000 5,00,000) Less: Payment to all the partners equally (2,00,000) (66,667) (66,667) (66,668) Balance due Nil 4,33,333| 4,33,333 4,33,334 4" instalment 30,00,000 Less: Payment! to all the partners equally (30,00,000) (10,00,000) (10,00,000) (10,00,000) Realization profit credited to Partners 5,66,667 5,66,667 5,66,666 5 Installment 30,00,000 '30,00,000 Less: payment to all partners equally (30,00,000) 40,00,000 10,00,000 10,00,000) Realization profit credited to partners. 15,66,667 15,66,667 15,66,666 CH.4 | BASIC UNDERSTANDING OF DISSOLUTION OF PARTNERSHIP FIRMS| 46E 4.37PIONEER FOR MEC / CEC TO CA/ CMA FINAL fi, CALL Working Notes: 1) Statement showing calculation of higher relative capitals Capital Alc s Particulars i 7 A Balance (i) 18,00,000 10,00,000| _5,00,000 Profit sharing ratio (i) 1 1 1 (Capital per profit sharing ratio 15,00,000 10,00,000| _5,00,000 Ceptals of all partners by taking S capital as 5,00,000| 5,00,000} — 5,00,000 ase Excess Capital (iv) = (i) (ii) 10,00,000 5,00,000 Profit-Sharing Ratio 1 1 Excess capital per profit sharing ratio 10,00,000) 5,00,000 Capitals of L & M by taking M's Excess Capital 5,00,000| 5,00,000 as base (Vv) Higher Relative Excess (iv) -(v) 5,00,000| : ‘Scheme of payment of surplus amount of 22,00,000 out of second Installment: So, Mr. L should get 25,00,000 first which will bring down Kis capital account balance from 215,00,000 to 210,00,000. Accordingly, surplus amounting to 22 100,000 will be paid to Mr. L towards higher relative capital & ‘Scheme of payment of €15,00,000 realized in. 44 initment: > Payment of 23,00,000 will be made to wre ig dizcharge higher relative capital. This makes the higher capital of both Mr. L and Mr. M.2800,000 as compared to capital of Mr. S. > Payment of 85,00,000 each of Mr'& IGM to discharge the higher capital > Balance 2,00,000 equally to LM rang | i.e., % 66,667, 266,667 and 266,666 respectively. ANSWERS TO CONCEPT QUESTION: ‘5% installment for distribution to partners would be © 29,40,000 (30,00,000-60,000). So, distribution of cash to each partner is & 9,80,000 {29,40,000/3} in 5 installment. ASSIGN 7: Statement showing distribution of cash articulars. @ : Be) Balance Due after loan 11,00,000] 70,00,000] 45,00,000| —_30,00,000 Nov. 2019) ‘Opening cash 7,00,000 ‘Add: Collected from debtors 3,00,000 Add: Sale of Furniture 11,00,000 fation expenses (2,00,000) losing balance (6,00,000) 13,00,000 Less: Amount paid to creditors | (11,00,000) | (11,00,000) Balance cash 2,00,000 - Less: Amount paid towards B &| —(2,00,000) 1,20,000 80,000 c CANTER | ADV ACCOUNTING | 46€ 4.38MASTER MINDS COMMERCE INSTITUTE PVT. LTD. OM | 98851 25025 / 26 Balance due = 43,80,000| _29,20,000 Dec. 2019 ‘Opening balance 6,00,000 : Liquidation expenses (2,20,000) losing balance (2,00,000) Available for distribution 1,80,000 Cash paid to B and Machinery —| — 1,80,000] —9,00,000 given to C Balance due 70,00,000| 42,00,000| _ 20,20,000 vJan.2020 Opening balance 2,00,000 ‘Add: Sale of Plant & Machinery | 28,00,000 ‘Add: Sale of stock 9,00,000 Less: Liquidation expenses (1,50,000) Add: Sale of Land & Buildings | —63,00,000 ‘Amount available to partners | 1,00,50,000 Less: First, ®31,20,000 is paid| (31,20,000) (19,50,000) | (11,70,000) toA and B in the ratio of 5:3 Balance due 69,30,000 0,50,000| 30,30,000] 20,20,000 Less: Balance cash distributed to Partners A, B & C in profit| (69,30,000) (34,65,000)| (20,79,000)| (13,86,000) sharing ratio Total loss 15,85,000| 9,51,000| _6,34,000 Working note: a? Calculation of Highest Relative Capital Basis a) Scheme of payment for November:\” _ Particulars A® Be ce Balance of Capital Accounts 95,00,000 75,00,000| _30,00,000 Less: Loans (25,00,000)| _(80,00,000) = 70,00,000 45,00,000| __30,00,000 Profit-sharing ratio 5 3 2 Capital Profit sharing ratio 14,00,000 15,00,000| _16,00,000 Capital in profit sharing ratio, taking A's capital as base 70,00,000 42,00,000| __28,00,000 Excess of C’s Capital and B's Capital (A-B) 3,00,000 2,00,000 Profit-sharing ratio 3 2 It means realization up to ® 5,00,000 is distributed among B and C in the ratio of 3:2. So excess amount of & 2,00,000 after paying creditors is distributed among B and C in the ratio of 3:2 ie.® 1,20,000 and 80,000 respectively. b) Scheme of payment for December: In the month of December C has received machinery amounting % 9,00,000 against his excess capital of % 1,20,000 (2,00,000 - 80,000). Excess capital of B is %3,00,000 out of which @1,20,000 already paid to him, so balance & 1,80,000 available in the month of December will be paid to B. CH.4 | BASIC UNDERSTANDING OF DISSOLUTION OF PARTNERSHIP FIRMS| 46E 4.39PIONEER FOR MEC / CEC TO CA/ CMA FINAL fi, CALL c) Scheme of payment for January: Particulars A B c @) &) @) Balance of Capital Accounts at the end of| 70,00,000| 42,00,000| —20,20,000 December Profit-sharing ratio 5 3 2 Capital Profit sharing ratio 14,00,000 | 14,00,000| _10,10,000 Capital in profit sharing ratio, taking C’s capital as | 50,50,000 —30,30,000] ——20,20,000 base Excess Capital 19,50,000 | _11,70,000 Since € 19,50,000 and 11,70,000 is already in the ratio of 5:3, so amount realized up to & 31,20,000 is distributed among A and B in the ratio of 5:3. After that any amount realized is distributed among all the three partners in the ratio of 5:3:2. ANSWERS TO CONCEPT QUESTION: a) Then, the available cash in january-2020 for distribution towards partners will be & 1,00,20,000. Total cash paid to partners ~A,B, &C in January ~ 2020 will be & 54,00,000, & 32,40,000 & & 13,80,000 respectively. 1T 3— ANSWERS TO CATEGORY 4 TYPE QUESTIONS Realization Account’ Particulars @ Particulars @ To Building 1,90,000| By Trade oreditors 80,000] To Stock 1,30,000| By Bills 6ayable 30,000) To Investment 50,000|By Cash To Debtors 70,000]. Building 2,09,000 To Cash-creditors paid (W.N.1) 63;650|* Stock 1,20,000 To Cash-expenses 8,000| _ Investments (W.N.2) 40,000 soo) es payable (30,000- 29,500 Debtors (W.N. 3) 56,700} 4,25,700) To Partners’ Capital A/cs By R - (Receipt from Debtors 7,000 unrecorded) P 4,183 By R - Receipt from Investments 11,000 unrecorded Q 4,183 R 2,789 s 1,395, 12,550 5,53,700 5,53,700 Cash Account Particulars oe Particulars To Balance bid 30,000 | By Realization-creditors paid 63,650 |To Realization — assets realized By Realization-bills payable 29,500) Building 2,09,000 By Realization-expenses 8,000) Stock 4,20,000 By Capital accounts: Investments. 40,000 P 1,51,132) CANTER | ADV ACCOUNTING | 46€ 4.40MASTER MINDS COMMERCE INSTITUTE PVT. LTD. WWW.MASTERMINDSINDIA.COM | 98851 25025 / 26 Debtors 56,700 425,700[__Q 1,51,132) To R's capital Ale 7,000; S$ 59,286 4,62,700 4,62,700| Partners’ Capital Accounts Particulars PB a R [S| Particulars | a RS [To Balance bid 40,000 By Balance b/d | 1,50,000| 1,50,000 =| 60,000 To Realization Alc 7,000 By General 13,333] 13,333] 6,880| 4.445 = Debtors reserve misappropriation [To Realization Ac 11,000 By Realization | 4183) 4,183 2,789| 1,305] -Investment Profit misappropriation ToR'scapital Alc | 16,84[ 16,984 6,554 |By Cash Alc 7,000) (WN. 4) To Cash Ale 1.51,182| 161,132 59,286 | By P's capital 76,384) Ale By Q's capital 16.384 Alc By S's capital 6.554 Alc 1,67,516| 1,67,516 | 68,000] 65,840 Z 1,67,516| 1,67,516| $8,000] 65,840) Working Notes: a) Amount paid to creditors in cash § @ Book value CS 80,000 Less: Creditors taking over investment 2 (43,000) Pr 67,000 Less: Discount @ 5% (3,350) 63,650 b) Amount received from sale of investments @ Book value 50,000 Less: Misappropriated by R (8,000) 42,000 Less: Taken over by a creditor (9,000) 33,000 [Add: Profit on sale of investments 7,000 Cash received from sale of remaining investment 40,000 ¢) Amount received from debtors @) Book value 70,000 Less: Unrecorded receipt (7,000) 63,000 Less: Discount @ 10% (6.300) 56,700) CH.4 | BASIC UNDERSTANDING OF DISSOLUTION OF PARTNERSHIP FIRMS| 46E 4.41PIONEER FOR MEC / CEC TO CA/ CMA FINAL fi, CALL d) Deficiency of R @ Balance of Capital as on 31% March 2019 40,000) Debtors — misappropriation 7,000] Investment - misappropriation 11,000] 158,000) Less:_Realization Profit (2,789) General Reserve (8,889) Contribution from private assets (7,000) Net Deficiency of Capital 39,322, This deficiency of € 39,322 in R's capital account will be shared by other partners P, Q and S in their capital ratio of 15 :15 :6. Accordingly, P's share of deficiency = [39,322x (15/36)] = = 16,384 Q's share of deficiency= [39,322x (15/36)] = % 16,384 S's share of deficiency = [39,322x (6/36)] = % 6,554 NOTE: The above solution is provided by ICAI. But we:have to calculate adjusted capitals by considering General Reserve and Profit on sale of ingyetments before dissolution then only we will get correct adjusted capitals. We have to shore ie deficiency of insolvent partner by using those adjusted capitals. SL’ ‘ANSWERS TO CONCEPT QUESTIONS: Sy 2) Then the folowing entry shouldbe recognizea, >> Realization Ale Dr. To P Capital Ale It is assumed that trade loans, bank overdraff, other loans, and creditors have equal priority at the time of Payment. Therefore, they all have been paid in the ratio of their dues outstanding __ Capitals ‘Amount due '3,00,000 | 300,000 | 20,000 | 2,00.000 | 2,00,000| 300,000 | 2,00,000 | 1,00.000 (Cash in hand 2000 Less, Amount keptior 10,000 realization expenses 70,000 Less, Distrbated among (9.000) @.000)| (000) (2,000) (000) - - - outsiders (33:22) Balance Due | 2.97.000| 2,67,000 | 1.98000 | 1,98,000 | 2.00000 | 2.00000 | 2.00000 —1,00.000 Debtors realized on 11-202 | _3,50,000 Less, Distributed among (@.50,000) | (108,000) _(9,05.000) | (70.000) | (70.000) , outsiders (33:22) Balance Due wii] 4.92.000| _1,82,000| 1.28000 | 128,000 | 2,00.000| 2,00.000 | 2.00000] —#,00,000 Fixed Asset eaizeg on 16-1- | 400,000 202 Less, Distibted among (4.00,000) | (120,000) 1,20.000) | (80,000) | (80.000) - , outsiders (33:22) Balance Due ni] _72000| 72000] 48,000 48,000 | 2,00.000 | 2,00,000 | 2,00.000 | —¥,00,000 Debtors reaizad on 12-202 | 50,000 CANTER | ADV ACCOUNTING | 46€ 4.42Cree ud ue WWW.MASTERMINDSINDIA.COM | 98851 25025 / 26 (ess, Diatrbted among (60.000)] (15,000) —(15,000)] (10.000) | 0,000) - - - outsiders (53:22). Balance Dus i] 57.000| 57,000 38,000 | 38,000 | 200.000 | 2,00,000 | 2.00,000 | 1,00,000 Bils Receivable realzed on 15- | 140,000 2.20%2 Less, Dietbted among (#-40,000) | ¢42.000)) (42,000) | (28,000) | (28.000) a : : outsiders (3:22) Balance Dus wi] 15000 | 15,000] 10,000 | 10.000 | 2.00.00 |”“2,00,000 | 2.00,000 | 1,00,000 Fixed Assets realizedon 13. | 50,000 20x2 Less, Dietibted among (60.000) (18,000) | (18,000) (10,000) | (10,000) outsiders 3322) Balance Dus Ni : E - = | 2,00,000 | 3.00.00 | “2,00,000 | 1.00.00, Land nd bulding realized on | 6,00,000 $53:20K2 Less: Adational payment of 10,005 ‘eaizaton ‘expenses (20,005 -10.000) 7,89.985 Less: Payment of Sadharts | 2,00,000 *2,00,000 - - Loan ‘Amount avaiable forpariers’ | 5169.85, =| 8.00000 2.00,000 |” 1.00.00 Capital Less: Dakah « Commission (2 5.80,99545/105) (25005) 5,81 900 Less: Sianarts Gaptalis paié_| (100,000) (.09,000) feet because he wil nt shave ‘any loss on account of ‘eng minoe partner “481,900 300000 | 200,000 Less: Pala to Daksh to make | (100,000) (400,000) is esptal equal to that of Yash 3.61 900 72,00,000 | 200,000 zi Less: Distribated equally (261.900) (1.80,950) | (80,850) between Daksh and Vath Balance Due ya050 | 19050[ wir Siddhart will get 1/5 share (.e., share of profit) of what remains after paying ® 19,050 to each Daksh and Yash out of the proceeds of stock-in- trace. If stock does not realize any amount, then amount unpaid to Daksh and Yash will become loss on realization. Siddhart has been paid first because he is not to share any loss on realization. ANSWERS TO CONCEPT QUESTIONS: a) Then, the distribution of cash Rs.5,61,900 to partners will be as follows: Capital due 3,00,000 |” 2,00,000]” —1,00,000/ —_6,00,000 Less: Maximum Loss (6,00,000- 561,900) (15,240) (15,240) (7,820) | __(38,100) Cash distributed 2.84760 184,760 92,380 | 561,900 ‘AGSP-9 Statement of Distribution of Cash Balances due (1) 2,800 1400| 13,440| 8,400] 11,760] 33,600 CH.4 | BASIC UNDERSTANDING OF DISSOLUTION OF PARTNERSHIP FIRMS| 46E 4.43PIONEER FOR MEC / CEC TO CA/ CMA FINAL fi, CALL i) Sale of Patent 1,400 | (1400) = 1,400 1,400 ii) Sale of furniture 2,800 | (1,400) (1,400) ili) Sale of machinery 1,680 Maximum possible loss (15,960) | (8.576) | (6,384)| (31,920) (Jotal of capitals ® 33,600 less cash availablet1,680) allocated to partners in the profit sharing ratio ie. 532 Balance (2,520) | (1,176)|_5,376| 1,680 Deficiency of AD and BD 2,520| 1,176] (3,696) - Written off against SD ‘Amount paid (2) : =| 1,680| 1,680 Balances in capital 13,440] 8,400 10,080] 31,920 accounts (1 - 2) = (3) (iv) Sale of stock 5,600 Maximum possible loss (13,160) | (7,896) | (5,264) | (26,320) (#31,920- ® 5,600) allocated to partners in the ratio 5:3:2 ‘Amounts at credit and 280| 504/ 4,816] 5,600 cash paid (4) Balances in capital 13,160| 7,896] 5,264] 26,320 ‘accounts left unpaid— Loss (3-4) = (5) ANSWERS TO CONCEPT QUESTION: a) Then, as and when cash available for payment tn Bitside liabilities, distribute towards Creditors and Bank Loan in the ratio of 3:4 til the total settlement of Creditors ahd Bank Loan. PART 4- ANSWERS TO SHORT ANSWER TYPE QUESTIONS (SELF STUDY) 4) Reference: PG NO: 4.8 in this material. 'G NO: 4.3 in this material. PART 5 - KEY FOR MCQs (SELF STUDY) fe: Ge Be ee * ee THEEND COPYRIGHTS RESERVED TO MASTERMINDS COMMERCE INSTITUTE PVT. LTD., GUNTUR. UNAUTHORISED COPYING OF ANY PORTION OF THIS MATERIAL BY USING 2) Reference: PHOTOCOPYING OR ANY OTHER MEANS OR UNAUTHORISED USAGE OF THIS MATERIAL IS A PUNISHABLE OFFENSE (MAY ATTRACT IMPRISONMENT OR PENALTY OR BOTH) CANTER | ADV ACCOUNTING | 46€ 4.44