Semester III Financial Accounting-III Unit V – Dissolution of Partnership Firm

Dissolution of a Partnership Firm

Session – 55
Accounting for Dissolution- Ledger Accounts

Illustration 3

The Balance Sheet of Ram, Rahim and Robert as on 31st March, 2020 was as under:

Liabilities Amount Assets Amount

[Rs.] [Rs.]

Creditors 17,800 Machinery 30,000

Loan from Brown 6.200 Fixtures 2,000

Ram's Loan 15,000 Stock 10,400

Joint Life Policy Reserve 12,400 Debtors 18,400

Capitals: Less: R.B.D 400 18,000

Ram 30,000 Joint Life Policy 15,000

Rahim 10,000 Patents 10,000

Robert 2,000 Cash 8,000

93,400 93,400

The partners shared profits and losses in the ratio of 4:2:3. The firm was dissolved on
31.3.2020 and you are given the following information:

1. Robert had taken a loan from insurers for Rs. 5,000 on the security of the Joint life policy.
The policy was surrendered and insurers paid a sum of Rs.10,200 after deducting Rs.5,000
for Robert's loan and Rs.300 interest

2. One of the creditor took some of patents whose book value was Rs. 6,000 at a valuation
of Rs. 4,500. The balance to that creditor was paid in cash.

3. Shares worth Rs. 3,000 not shown in the Balance Sheet were given to Brown at this value.

4. The remaining assets realised as follows:

Machinery Rs. 17.000, Fixtures Rs.1,000, Stock Rs.9,000, Debtors Rs.16,500.

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Semester III Financial Accounting-III Unit V – Dissolution of Partnership Firm

5. All liabilities were paid and a total discount of Rs. 500 was allowed by the creditors.

6. The expenses of realisation amounted to Rs. 2,300

7. The remaining patents realised 50% of their book value.

Prepare Realisation Account, Partners’ Capital Accounts, Ram's Loan A/c and Bank Alc. to
close the books of the firm.

Books of Ram, Rahim and Robert

Realisation Account
Amount Amount
[Rs.] [Rs.]

To Machinery 30,000 By R.B.D 400

To Fixtures 2,000 By Creditors 17,800

To Stock 10,400 By Loan from Brown 6,200

To Debtors 18,400 By Joint Life Policy Reserve 12,400

To Joint Life Policy 15,000 By Roberts Capital [Note.1] 5,300

To Patents 10,000 By Bank A/c

To Bank Account: Joint Life Policy [Note 1] 10,200

Creditors (Note 2) 12,800 Machinery 17,000

Brown's loan 3,200 Fixtures 1,000

[6,200 - 3,000] Stock 9,000

To Realisation Debtors 16,500

Expenses 2,300 18,300 Patents [50% of Rs.4,000] 2000 55,700

By Capitals:

Ram 2,800

Rahim 1,400

Robert 2,100 6,300

1,04,100 1,04,100

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Semester III Financial Accounting-III Unit V – Dissolution of Partnership Firm

Partners' Capital Accounts

Ram Rahim Rober Ram Rahim Robert
t

To Realisation A/c - - 5,300 By Balance B/d 30,000 10,000 2000

To Realisation A/c. 2,800 1,400 2,100 By Bank Account - - 5,400

To Bank A/c. 27,200 8,600 -

30,000 10,000 7,400 30,000 10,000 7,400

Ram's Loan A/c

Amount Amount
[Rs.] [Rs.]

To Bank Account 15,000 By Balance B/d 15,000

15,000 15,000

Bank Account
Amount Amount
[Rs.] [Rs.]

To Balance B/d 8,000 By Realisation Account 18,300

To Realisation Account 55,700 By Ram's Loan Account 15,000

To Roberts Capital Account 5,400 By Capitals:

Ram 27,200

Rahim 8,600

69,100 69,100

Note: 1. Amount realised from Joint Life Policy:

Amount received from insurers 10,200

Robert's loan and interest 5,300

Total amount duo 15,500

Entry for that:

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Semester III Financial Accounting-III Unit V – Dissolution of Partnership Firm

Bank A/c. Dr. 10,200

Robert's Capital A/c. Dr. 5,300

To Realisation Ac 15,000

2. Amount paid to creditors: Rs.

Creditor due 17,800
Less: Patents taken by creditors 4,500

13,300
Less Discount allowed by creditors 500

12,800

Reference:

Karunakar Nayak, (2019), Financial Accounting III, Mangalore, United Agencies.

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