Dissolution sum

Question

Following is a balance sheet of Raj and Samar who were sharing in 2:1:

Balance Sheet (31.3.2022)

Liabilities Rs. Assets Rs.

Capitals: Goodwill 40,000

 Raj : 3,00,000 Plant & Machinery 1,00,000

 Samar : 2,00,000 5,00,000 Furniture & Fixture 50,000

Workmen Comp. reserve 30,000 Investment 1,50,000

Raj’s Loan 20,000 Stock 2,00,000

Employees Provident Fund 25,000 S. Debtors 1,30,000

S. Creditors 75,000 Less: Provision 10,000 1,20,000

Profit & Loss a/c 60,000 Cash at bank 50,000

7,10,000 7,10,000

They decided to dissolve the firm. The assets realised and liabilities were paid off as

under:

a) Half of the creditors were agreed to take over furniture and fixtures in full

settlement and the remaining creditors were paid at a discount of 20%.

b) The assets realised as under:

Debtors at 90% of book value less rupees 7,000.

Plant and machinery at rupees 70,000

Stock at 80%.

c) 1/3rd of investments was taken over by Samar at book value and remaining were

sold in open market at 120%.

d) Raj's loan was settled by paying rupees 18,500.

e) Claim against workmen compensation was paid rupees 25,000.

f) Expenses on dissolution paid by Raj rupees 7,500.

Prepare realisation account.

Answer 1

Realisation Account

Particulars Dr. (Rs.) Cr. (Rs.)

To Plant & Machinery 70,000 By S. Creditors (Half) 37,500

To S. Debtors 90% - 7,000 By Furniture & Fixtures (Half) 37,500

To Stock 80% By Raj's Loan 18,500

To S. Creditors (Remaining) 80% By Workmen Compensation Reserve 25,000

To Employees Provident Fund By Raj (Expenses on Dissolution) 7,500

To Goodwill By Investment (Sold in Open Market) 120%

To Cash at Bank (Loss on Dissolution) By Samar (Investment Taken Over) Book Value

(After all entries, the resulting balance in the Realisation Account would be a debit balance representing loss on dissolution, which would be shared among the partners in the ratio of their capitals (Raj:Samar = 3:2)).