Chapter-5 Dissolution of Partnership Firm

The following is the Balance sheet of Tanu and Manu, who shares profit and losses in the ratio of 5:3, On December 31,2006:

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

Prepare Realisation Account, Bank Account and Partners Capital Accounts.

What journal entries would be recorded for the following transactions on the dissolution of a firm after various assets (other than cash) on the third party liabilities have been transferred to Reliasation Account.

1. Arti took over the Stock worth Rs 80,000 at Rs 68,000.

2. There was unrecorded Bike of Rs 40,000 which was taken over By Mr. Karim.

3. The firm paid Rs 40,000 as compensation to employees.

4. Sundry creditors amounting to Rs 36,000 were settled at a discount of 15%.

5. Loss on Realisation Rs 42,000 was to be distributed between Arti and Karim in the ratio of 3:4.

All partners wishes to dissolve the firm. Yastin, a partner wants that her loan of Rs 2,00,000 must be paid off before the payment of capitals to the partners. But, Amart, another partner wants that the capitals must be paid before the payment of Yastin's loan. You are required to settle the conflict giving reasons.

Record necessary journal entries to record the following unrecorded assets and liabilities in the books of Paras and Priya:

1. There was an old furniture in the firm which had been written-off completely in the books. This was sold for Rs 3,000,

2. Ashish, an old customer whose Account for Rs 1,000 was written-off as bad in the previous year, paid 60%, of the amount,

3. Paras agreed to take over the firm's goodwill (not recorded in the books of the firm), at a valuation of Rs 30,000,

4. There was an old typewriter which had been written-off completely from the books. It was estimated to realize Rs 400. It was taken away by Priya at an estimated price less 25%,

5. There were 100 shares of Rs 10 each in Star Limited acquired at a cost of Rs 2,000 which had been written-off completely from the books. These shares are valued @ Rs 6 each and divided among the partners in their profit sharing ratio.

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

You are required to record the journal entries for Realisation of assets.

How will you deal with the Realisation expenses of the firm of Rashim and Bindiya in the following cases:

1. Realisation expenses amounts to Rs 1,00,000,

2. Realisation expenses amounting to Rs 30,000 are paid by Rashim, a partner.

3. Realisation expenses are to be borne by Rashim for which he will be paid Rs 70,000 as remuneration for completing the dissolution process. The actual expenses incurred by Rashim were Rs 1,20,000.

Give journal entries for the following transactions:

1. To record the Realisation of various assets and liabilities,

2. A Firm has a Stock of Rs 1,60,000. Aziz, a partner took over 50% of the Stock at a discount of 20%,

3. Remaining Stock was sold at a profit of 30% on cost,

4. Land and Buildging (book value Rs 1,60,000) sold for Rs 3,00,000 through a broker who charged 2%, commission on the deal,

5. Plant and Machinery (book value Rs 60,000) was handed over to a Creditor at an agreed valuation of 10% lessthan the book value,

6. Investment whose face value was Rs 4,000 was realised at 50%.

State the order of settlement of accounts on dissolution.

How deficiency of creditors is paid off?

What journal entries will be recorded for the following transactions on the dissolution of a firm:

[a] Payment of unrecorded liabilities of Rs 3,200.

[b] Stock worth Rs 7,500 is taken by a partner Rohit.

[c] Profit on Realisation amounting to Rs 18,000 is to be distributed between the partners Ashish and Tarun in the ratio of 5:7.

[d] An unrecorded asset realised Rs 5,500.

Distinguish between firm's debts and partner's private debts.

Reproduce the format of Realisation Account.

There was an old computer which was written-off in the books of Accounts in the pervious year. The same has been taken over by a partner Nitin for Rs 3,000. Journalise the transaction, supposing. That the firm has been dissolved.

What is a Realisation Account?

Record necessary journal entries in the following cases:

[a] Creditors worth Rs 85,000 accepted Rs 40,000 as cash and Investment worth Rs 43,000, in full settlement of their claim.

[b] Creditors were Rs 16,000. They accepted Machinery valued at Rs 18,000 in settlement of their claim.

[c] Creditors were Rs 90,000. They accepted Buildings valued Rs 1,20,000 and paid cash to the firm Rs 30,000.

Explain the process of dissolution of a partnership firm?

Journalise the following transactions regarding Realisation expenses:

[a] Realisation expenses amounted to Rs 2,500.

[b] Realisation expenses amounting to Rs 3,000 were paid by Ashok, one of the partners.

[c] Realisation expenses Rs 2,300 borne by Tarun, personally.

[d] Amit, a partner was appointed to realise the assets, at a cost of Rs 4,000. The actual amount of Realisation amounted to Rs 3,000.

On dissolution, how you deal with partner's loan if it appears on the

(a) Assets side of the Balance Sheet

(b) Liabilities side of the Balance Sheet

State the accounting treatment for:

i. Unrecorded assets

ii. Unrecorded liabilities

State the difference between dissolution of partnership and dissolution of partnership firm.