to:

⌘ state the meaning of dissolution of partnership

firm;

⌘ distinguish between dissolution of partnership

25 and dissolution of partnership firm: ⌘ explain the

Realisation account and disposal of assets and

DISSOLUTION OF payment of liabilities; ⌘ illustrate the treatment of

PARTNERSHIP FIRM unrecorded assets and liabilities; and ⌘ prepare

partners’ capital accounts and bank and/or cash

account.

Rakesh and Mukesh were very good friends. They 25.1 DISSOLUTION OF
were running a business as a partnerhsip firm. They PARTNERSHIP AND DISSOLUTION
were very successful. People were jealous of their OF PARTNERSHIP FIRM
relations. But one day people came to know that
The term dissolution means coming to an end or
they have closed the business. Some dispute had
discontinuation. The dissolution of the firm implies
arisen between the two on a trivial issue. Similarly,
a complete breakdown of the partnership relation
firm may come to an end because of dispute among
among all the
the partners or firm running in losses for last few
years or because of order of the court and so on. MODULE - 4 Partnership Account
We can say that the partnership firm is dissolved. In
this lesson, you will learn about the accounting
treatment in case of dissolution of partnership firm.

OBJECTIVES
After going through this lesson, you will be able Notes
 345

Accountancy
MODULE - 4 Partnership Account Dissolution of Partnership Firm

partners. Dissolution of the partnership (owing to

retirement, death or insolvency of a partner),
merely involves change in the relation of the
partners but it does not end the firm; the partnership
would certainly come to an end but the firm, the
reconstituted one might continue under the same
Notes name. So the dissoluton of the partnership may or
may not include the dissolution of the firm but the the happening of the following events
dissoluton of the firm necessarily means the (a) expiry of the period for which the firm was
dissoluton of the partnership. On dissolution of the formed,
firm, the business of the firm ceases to exist since (b) completion of the specific venture or project for
its affairs are wound up by selling the assets and by which the firm was formed.
paying the liabilities and discharging the claims of
(iii) Dissolution by Notice : In case of a
the partners. The dissolution of partnership among
partnership at will, the firm may be dissolved if any
all partners of a firm is called dissolution of the
one of the partner gives a notice in writing to the
firm.
other partners.
(i) Dissolution by Agreement : A firm is dissolved
(iv) Dissolution by Court : A court may order a
in case ⌘ all the partners give consent or
partnership firm to be dissolved in the following
⌘ as per the terms partnership agreement .
cases:
(ii) Compulsory dissolution : A firm is dissolved (a) When a partner becomes of unsound mind
compulsorily in the following cases ⌘ When all the (b) When a partner becomes permanently incapable
partners or all excepting one partner becomes of performing his/her duties as a partner,
insolvent or of unsound mind. (c) When partner deliberately and consistently
⌘ When the business becomes unlawful. commits breach of agreements relating to the
⌘ When all the partners excepting one decide to management of the firm;
retire from the firm. ⌘ When all the partners or all (d) When a partner’s conduct is likely to adversely
excepting one partner die. affect the business of the firm;
⌘ A firm is also dissolved compulsorily if the
partnership deed includes any provision regarding
Accountancy
346
dissolved. Dissolution of a partnership firm is
different from the dissolution of a partnership.
Dissolution of Partnership Firm(e) When a
partner transfers his/her interest in the firm to a Dissolution of a firm means that the firm closes its
third party; (g) When the court regards dissolution business and comes to an end. While dissolution of
to be just and equitable. a partnership means termination of old partnership
agreement and a reconstitution of firm due to
Distinction Between Dissolution of Partnership admission, retirement and death of a partner. In
and Dissolution of Partnership Firm dissolution of a partnership the remaining partners
You have already studied that on the occasion of may agree to carry on the business under a new
admission, retirement and death existing agreement.
partnership comes to an end, but the business of the
firm continues under a new agreement. When a
firm decides to wind up its business operations INTEXT QUESTIONS 25.1
under any of the circumstances mentioned, it stands Fill in the blanks with the appropriate word/words
: its accounts. For this purpose, it disposes off all its
i. A partnership firm comes to an end when the assets (except cash and bank balances) for
activities of the firm become ........................ satisfying all the claims against it. For this purpose
ii. When a firm decides to close its business, it is a separate account called ‘Realisation Account’ is
said to be ........................ iii. Dissolution of a opened. Realisation Account is an account in which
........................ is different from dissolution of assets excluding cash in hand and bank are
........................ iv. The firm is compulsorily transferred at their book value and all external
........................ when all the partners or all liabilities are transferred at their book value.
excepting one partner die. MODULE - 4 Partnership Account
v. The firm is dissolved by ............... when a
partner becomes of unsound mind. vi. The firm is
dissolved by .................... when all the partners
give their consent.

25.2 TREATEMENT OF ASSETS AND

LIABILITIES
Notes
When the partners decide to discontinue the
business of the firm, it becomes necessary to settle
 347

Accountancy
MODULE - 4 Partnership Account Dissolution of Partnership Firm

It also shows what amount were realised on the sale

of assets and which liabilities were discharged at
what amount.

In order to record the disposal of assets and

discharge of liabilities, the following journal entries
Notes are recorded:
 sharing ratio. The Journal entry is made:
1. For Transfer of Assets : Assets account is
closed by transferring it to the Realisation Account Partner’s capital A/c Dr. (Individually)
at its Book Value. To Profit & Loss A/c
Realisation A/c Dr. To Fictitious Assets A/c
To Assets A/c (Individually) (Transfer of loss and fictitious Assets)
(Transfer of assets)
(b) Cash in hand, and Cash at Bank, will be the
It is to be noted that the following items on the opening balance of the Cash/ Bank account;
assets side of the Balance Sheet are not transferred
(c) Provisions and reserves against assets should be
to the Realisation Account :
closed by crediting the Realisation Account.
(a) (i) Undistributed loss (i.e. Debit Balance of
The Journal entry is made :
Profits and Loss account) (ii) Fictitious assets or
Provision for Doubtful Debts A/c Dr.
deferred revenue expenditures such as preliminary
Provision for Depreciation A/c Dr.
expenses .
Any other Provision A/c Dr.
All the above items are closed by transferring them To Realisation A/c
to the partners’ Capital Account in their profit (Transfer of provision on assets)
Accountancy
348
(Cr.), Reserve Fund and other reserves on the date
of dissolution will be credited to the Partners’
Dissolution of Partnership Firm2. For Transfer Capital accounts on the basis of profit sharing ratio.
of Liabilities : The accounts of various external The following journal entry will be recorded :
liabilities are closed by transferring them to the
Profit and Loss A/c Dr.
Realisation Account. The loan given to the firm by
General Reserve A/c Dr.
a partner’s wife is treated as an external liability
Any Other Fund Dr.
and is transferred to
To Partners’ Capital A/c (Individually)
the credit of Realisation Account. The relevant
(Transfer of profit and reserve)
Journal entry is as under : External Liabilities A/c
Dr. (Individually) 4. For Sale of Assets (for cash)
To Realisation A/c Bank/ Cash A/c Dr. (Realised Value) To Realisation
(Transfer of external liability) A/c
(Sale of assets)
Capital and Loan account of the partners’ are
treated separately and so are not transferred to the 5. For Assets taken Over by the Partner
Realisation Account. Partners’ Capital A/c Dr.
To Realisation A/c (Agreed Price)
3. Treatment of Accumulated Reserves and
(Assets taken over by partner)
Profit/Loss : Any balance of accumulated reserves
(e.g. general reserves), Profit and Loss Account Bank/Cash/Partners capital A/c Dr.
 To Partner’s Loan A/c
(Settlement of loan to a partner)

6. Settlement of loans given by the Partner

Partners’ Loan A/c Dr.
To Bank/Cash/Partners’ capital A/c
(Settlement of loan given by the partner)
MODULE - 4 Partnership Account Notes
349

Accountancy
MODULE - 4 Partnership Account 7. Payment of Liabilities in
Cash Realisation A/c Dr. (Payment of liabilities)
Dissolution of Partnership
Firm

To Cash A/c
It is to be kept in mind that an unrecorded asset
would never be transferred to the debit of the
Realisation Account, because the amount realised
from its sale is in nature of a gain and the
Realization Account is only credited accordingly.
Similarly, an unrecorded liability need not be
transferred to Realisation.

Notes Reason being that its payment is a loss and

8. Payment of Liabilities by the Partner(s) Realisation Account is only debited with the
Realisation A/c Dr. actual payment. In such cases, the following
To Partner Capital A/c journal entries are made:
(Liabilities taken over by partner)
(a) When the amount realised from the sale of an
Treatment of Unrecorded Assets and Liabilities unrecorded asset. Cash/Bank A/c Dr.
To Realisation A/c
Sometimes, there may be some assets that have
(Sale of unrecorded assets)
already been written off completely in previous
years and thus, do not appear in the Balance Sheet (b) When an unrecorded asset is taken over by a
but physically they still exist for operational partner at an agreed value. Partner’s Capital A/c
purposes. For example, there is an old computer, Dr.
which is still in working condition though its book To Realisation A/c
value is zero. Similarly, there may be some (Unrecorded assets taken by partner)
liabilities, which do not appear in the Balance
Sheet, but actually they are still there. For (c) When unrecorded liability has been discharged
example, a bill discounted with bank, on by the firm. Realisation A/c Dr.
dissolution it was dishonoured and had to be taken To Bank/Cash A/c
up by the firm for payment purposes. (Payment of unrecorded liabilities)
Accountancy

350

Payment of Realisation Expenses

Dissolution of Partnership Firm(d) When an (a) When realisation expenses are paid by the firm
unrecorded liability is discharged by a partner on (i.e. borne by the firm). The following journal entry
behalf of the firm. Realisation A/c Dr.
will be recorded:
To Partner’s Capital A/c
Realisation A/c Dr.
(Unrecorded Liabilities payment by partner)
To Bank/ Cash A/c
(Payment of realisation expenses) a profit and following journal entry is made :
Realisation A/c Dr. (Individually) To Partner’s
(b) When Realisation expenses are paid by the
Capital/ Current A/c (Individually)
partner on behalf of the firm (i.e. realisation
(Profit on realisation transferred to capital
expenses paid by the partner but borne by the firm). accounts)
The following journal entry is made:
Realisation A/c Dr. If, the debit side is more than credit side, then there
To Partners’ Capital A/c is a loss on dissolution and following journal entry
is made :
(Payment of realisation expenses by partner on
behalf of firm) Partner’s Capital/Current A/c Dr. (Individually) To
Realisation A/c
(c) Realisation expenses were agreed to be paid by
(Loss on realisation transferred to capital account)
the partner and were paid by the firm
MODULE - 4 Partnership Account
Partner’s Capital A/c Dr.
To Cash/Bank A/c
(Realisation expenses paid and borne by partner)

Closing of Realisation Account

The balance in the realisation account would show

either profit or loss on dissolution. If the total of the
credit side is more than the debit side, then there is Notes
 351

Accountancy
MODULE - 4 Partnership Format of Realisation Account Firm
Account Dissolution of Partnership
 (Expenses on realisation paid
by a partner)

Partners Capital A/c

(For transferring profit on
realisation)

Notes INTEXT QUESTIONS 25.2

Realisation Account
Given below are certain statements. Some of
Dr. Cr. these statement are true and some of these are
false. Write T’ against true statement and ‘F’
against false statements.
(i) At the time of dissolution an account including
Particulars Amount Particulars Amount (`) (`) cash and bank are transferred to realisation
account.
All Assets A/c (Book Value) All External Liabilities A/c
(Except Cash/Bank) (Book Value) (ii) On dissolution of a firm, business operations
of the firm are closed down. (iii) After the
Cash/Bank A/c Cash/Bank A/c
preparation of realisation account, Gain or loss of
(Payment of external (Amount realised on sale liabilities) of
various assets)
realisation is transferred to Partners capital
account
Partners Capital A/c Partners’ capital A/c (if any liability
(iv) Amount realised from the sale of an
paid by partner) (If any asset is taken over)
unrecorded asset is recorded in Realisation
Cash/Bank A/c Partners Capital A/c (Expenses on Account.
realisation) (For transferring loss on realisation)
Partners Capital A/c
Accountancy
352

After all the adjustments related to partners’ capital

Dissolution of Partnership Firm(v) Balance of accounts and transfer of profit or loss on realisation
general reserve is transferred to partners’ capital to the partners’ capital accounts, the capital
accounts. (vi) Realisation expenses paid by the accounts are closed in the following manner:
partners on behalf of the firm are recorded in
(a) If the Partner’s Capital Account shows a debit
realisation account and partners capital account.
balance, the partner has to bring the necessary
25.3 PARTNERS’ CAPITAL ACCOUNT amount of cash. The following journal entry is
AND CASH/BANK ACCOUNT made : Bank/Cash A/c Dr.
To Partner’s Capital A/c
Settlement of Partners’ Capital Accounts
(Cash brought by the partner)
 If cash/bank account does not show any balance, it
(b) If the Partner’s Capital Account shows a credit
implies that all the accounts of the dissolved firm
balance, he/she is to be paid off the necessary
have been closed properly.
amount of cash. The following journal entry will be
made: Partner’s Capital A/c Dr. Illustration 1
To Bank/Cash A/c Arun and Seema are equal partners in a firm. They
(Cash paid to partner) decided to dissolve the partnership on December
Preparation of Cash/Bank account 31, 2014 when the balance sheet stood as under:
MODULE - 4 Partnership Account
After closing the partners’ capital accounts, bank
account is prepared and all entries pertaining to the
bank/cash are posted in it including any cash
brought in by the partner on the dissolution of firm.
Partners’ capital accounts are closed by making
payment from the bank account and thereby bank
account stands closed by making/receiving
Notes
payment. In this way all the accounts stand closed.
 353

Accountancy
MODULE - 4 Partnership Account Dissolution of Partnership Firm

Balance Sheet as on December 31, 2014

Liabilities Amount Assets Amount ( `) (`)

Notes Sundry creditors 54,000 Cash at Bank 22,000

Reserve fund 20,000 Sundry Debtors 24,000 Loan Expenses of realisation amounted to ` 6,000.
80,000 Stock 84,000 Capital : Furniture 50,000
Prepare Realisation account, Bank account,
Arun 1,20,000 Plant 94,000 Seema 1,20,000
partners’ capital accounts to close the books of the
2,40,000 Leasehold land 1,20,000
firm.

Solution :

3,94,000 3,94,000

Assets were realised as follows:

Books of Arun and Seema

`
Realisation Account
Leasehold land 1,44,000 Furniture 45,000 Stock
81,000 Plant 96,000 Sundry debtors 21,000 Dr Cr.

The creditors were paid ` 51,000 in full settlement.

 Assets transferred Sundry Creditors 54,000
Sundry Debtors 24,000 Loan 80,000 Plants 94,000
Bank
Stock 84,000 Sundry Debtors 21,000

Particulars Amount Particulars Amount (`) (`)

Accountancy
354
Creditors 51,000 Furniture 45,000 3,87,000 Loan
80,000
Dissolution of Partnership FirmLeasehold land Realisation Expense 6,000 1,37,000
1,20,000 Plant 96,000 Furniture 50,000 372000 Profit transferred to
Stock 81,000 Bank Lease hold land 1,44,000
Arun Capital 6,000
Seema Capital 6,000 12,000 Balance b/d 22,000 Realisation A/c 1,37,000
5,21,000 5,21,000 Realisation A/c 3,87,000 Arun Capital 1,36,000
Seema Capital 1,36,000

4,09,000 4,09,000
Capital Accounts
Dr. Cr. Illustration 2

Particulars Arun Seema Particulars Arun Seema (`) (`) (`) Sonya and Mayank are partners, who shared profit
(`) as 3:2. Following is the balance sheet as on
Bank 1,36,000 1,36,000 Balance b/d 1,20,000 1,20,000
December 31, 2014
Reserve fund 10,000 10,000 MODULE - 4 Partnership Account
Realisation (Profit) 6,000 6000

1,36,000 1,36,000 1,36,000 1,36,000

Bank Account
Dr. Cr.

Particulars Amount Particulars Amount (`) (`) Notes

 355

Accountancy
MODULE - 4 Partnership Account Dissolution of Partnership Firm

Balance Sheet as on December 31, 2014

Liabilities Amount Assets Amount ( `) (`)

Notes Creditors 28,000 Cash in hand 10,500 Bills payable

20,000 Cash at Bank 30,000 Profit & Loss A/c
13,500 Stock 7,500 Sonya’s Capital 32,500 Sundry
debtors 21,500
Mayank’s Capital 11,500 Less : Provision

for bad debt 500 21,000

Land & Building 36,500

1,05,500 1,05,500

The firm was dissolved on December 31, 2014.

Close the books of the firm with the following
information:
(i) Debtors realised at a discount of 5%.
(ii) Stock realised at ` 7,000.
(iii) Building realised at ` 42,000.
(iv) Realisation expenses amounted to ` 1,500 . Books of Sonya and Mayank
(v) Creditors and bills payable are paid in full. Realisation Account
Dr. Cr.
Prepare necessary ledger accounts.

Solution :
 Assets transferred Provision for bad debts 500
Stock 7,500 Creditors 28,000 Sundry assets 21,500
Bills payable 20,000 Land & Building 36,500
65500 Bank
Bank Debtors 20,425 Creditors 28,000 Stock 7,000

Particulars Amount Particulars Amount (`) (`)

Accountancy
356
Mayank’s Capital 1,170 2,925

Dissolution of Partnership FirmBills payable 1,17,925 1,17,925

20,000 Land & Building 42,000 69,425 Realisation
[Expense] 1,500 49500
Profit transferred to (3 : 2) Capital Accounts
Sonya’s Capital 1,755 Dr. Cr.
Particulars Sonya Mayank Particulars Sonya Mayank (`) (`) Illustration 3
(`) (`)
Tanu, Manu and Chetan are in partnership sharing
Bank 42,355 18,070 Balance b/d 32,500 11,500 Profit & Loss
profit in the proportion of 1/2, 1/3, 1/6 respectively.
A/c 8,100 5,400
They dissolve the partnership firm on the
Realisation (Profit) 1,755 1,170
December 31, 2014, when the balance sheet of the
42,355 18,070 42,355 18,070 firm stood as under:
MODULE - 4 Partnership Account

Bank Account

Dr. Cr.

Particulars Amount Particulars Amount (`) (`)

Balance b/d 30,000 Realisation 49,500 Cash 10,500

Sonya’s Capital 42,355 Realisation 69,425
Notes
Mayank’s Capital 18,070

1,09,925 1,09,925
 357

Accountancy
MODULE - 4 Partnership Account
Dissolution of Partnership FirmBalance Sheet as
on December 31, 2014

Liabilities Amount Assets Amount ( `) (`)

Notes
Sundry Creditors 30,000 Bank 37,500 Bills payable
25,000 Sundry debtors 58,000 Manu’s loan 40,000
Stock 39,500 Capital Investment 42,000
Tanu 90,000 Machinery 48,000 Manu 75,000
Freehold property 90,000 Chetan 55,000 2,20,000

3,15,000 3,15,000

The machinery was taken over by Manu for `

45,000, Tanu took over the investment for ` 40,000
and freehold property was taken over by Chetan at
`95,000. The remaining assets realised as follows:
Sundry Debtors ` 56,500 and Stock ` 36,500.
Sundry creditors were settled at discount of 5%.
Bills payable is taken over by Chetan for ` 23,000.
Their liabilities amounting to `3,000 not shown in Realisation Account
books are also to be paid. An office computer, not
Dr. Cr.
shown in the books of accounts, realised ` 9,000

Realisation expenses amounted to ` 3,000.

Prepare Realisation Account, Partners Capital

account and Bank Account.

Solution:
Books of Tanu Manu and Chetan
 Assets transferred Sundry Creditors 30,000
Sundry debtors 58,000 Bills payable 25,000 Stock
39,500 Tanu Capital (Investment) 40,000
Machinery 48,000 Manu Capital (Machinery)
45,000 Investment 42,000 Chetan Capital 95,000
Freehold property 90,000 277500 (freehold
property)

Particulars Amount Particulars Amount (`) (`)

Accountancy
358
(Unrecorded)
Realisation 6,000 37,500
Dissolution of Partnership FirmChetan Capital
[Expense]
23,000 Bank
(Bills payable) S.Debtors 56,500 Bank Stock Profit transferred to
36,500 S.Creditors 28,500 Computer 9,000 Tanu Capital 4,500
1,12,000 Liabilities 3,000 Manu Capital 3,000
Chetan Capital 1,500 9,000
3,47,000 3,47,000 Particulars Amount Particulars Amount (`) (`)

Capital Account Balance b/d 37,500 Realisation 37,500 Realisation

Dr. Cr. 1,12,000 Manu’s loan 40,000 Chetan Capital
15,500 Tanu Capital 54,500 Manu Capital 33,000
Particulars Tanu Manu Chetan Particulars Tanu Manu
1,65,000 1,65,000
Chetan (`) (`) (`) (`) (`) (`)
MODULE - 4 Partnership Account
Realisation 40,000 45,000 95,000 Balance b/d 90,000 75,000
55,000 (Assets) Realisation — — 23,000 Bank 54,500 33,000
— (Assets)
Realisation 4,500 3,000 1,500
(Profit)
Bank — — 15,500

94,500 78,000 95,000 94,500 78,000 79,500

Notes
Bank Account
Dr. Cr.
 359

Accountancy
MODULE - 4 Partnership Account

Dissolution of Partnership Firm

INTEXT QUESTIONS 25.3
I. Which of the following is treated as unrecorded
asset : i. Sale of old Furniture.
Notes ii. Goodwill appearing in the balance sheet.
iii. Bad debts recovered, written off in pervious
year.
iv. Sale of Investments. reconstitution of firm due to admission, retirement
v. Sale of old computer, written off in pervious and death of a partner.
year. ⌘ On dissolution of the firm the books of accounts
II. Which of the following is treated as are closed. All assets and liabilities are transferred
unrecorded liability : i. A Bill Discounted with to an account called “Realisation Account”. This
bank dishonoured. account records the realisation of assets and the
ii. Repayment of Bank Loan. payment of liabilities.
iii. Creditors for stock purchase of goods. ⌘ When the partners decide to discontinue the
iv. Settlement of a dispute against the firm. business of the firm, it becomes necessary for it to
v. Payment of outstanding bills. settle its accounts. For this purpose, it disposes off
all its assets (except cash and bank balances) for
satisfying all the claims against it.

WHAT YOU HAVE LEARNT ⌘ An unrecorded asset would never be transferred

⌘ When a firm decides to close its business and no to Realisation Account, because the amount
business activity is carried out by the firm, it is said realised from its sale is in the form of a gain and
to be dissolved. the Realization Account is only credited
accordingly.
⌘ Dissolution of a firm is different from the
dissolution of a partnership. Dissolution of a firm ⌘ After all the adjustments related to partners’
means that the firm closes its business and comes tocapital accounts and transfer of profit or loss on
an end. While dissolution of a partnership means realisation to the partners capital accounts, the
termination of old partnership agreement and a capital accounts are closed.
Accountancy
360
partners and paid by the firm.
2. Distinguish between dissolution of partnership
Dissolution of Partnership Firm⌘ Partners capital
accounts are closed through making payment from firm and dissolution of partnership. 3. Under what
the bank account and thereby bank account stands circumstances can the court dissolve the
closed by making/ receiving payment. partnership firm? 5. Sumit and Anish are equal
partners in a firm. They decided to dissolve the
partnership on December 31,2014 when the
TERMINAL EXERCISE balance sheet is as under:
1. Answer the following questions in one sentence:
Balance Sheet as on December 31, 2014
(a) What is meant by dissolution of partnership
firm ? Liabilities Amount Assets Amount ( `) (`)
(b) Why Realisation account is prepared ?
Sundry creditors 30,000 Cash at Bank 7,000
(c) What journal entry is made in case of payment
Reserve fund 7,000 Sundry Debtors 23,000 Bills
of unrecorded Liability? (d) What journal entry is
Payable 30,000 Stock 42,000 Capital Furniture
made when expenses are agreed to be borne by the
35,000 Leasehold land 62,000 Furniture 30,500 Stock
Sumit 70,000 Plant 40,000 Anish 60,000 1,30,000 40,500 Plant 48,000 Sundry debtors 22,500
Leasehold land 50,000 MODULE - 4 Partnership Account
1,97,000 1,97,000

Assets were realised as :

Notes

`
 361

Accountancy
MODULE - 4 Partnership Account Dissolution of Partnership FirmSundry creditors
were paid ` 29,500 in full settlement. Bills payable
paid 5% less. Expenses of realisation amounted to `
2,500.
Prepare realisation account, Bank account and
partners’ capital accounts to close the books of the
firm.
6. Ashu and Hemani are Partners sharing profit and
Notes
losses in the ratio of 3 : 2. They decided to dissolve
the firm on December 31 , 2014. Their balance
sheet on the above date was :
Ashu is to take over the building at ` 98,000 and
Balance Sheet as on December 31, 2014 machinery and furniture is to be taken over by
Hemani at value of ` 70,000. Ashu agreed to pay
creditor and Hemani agreed to meet bank overdraft.
Stock and investments are taken by both partners in
their profit sharing ratio.
Debtors realised for ` 46,000, expenses of
realisation amounted to ` 3,000. Prepare necessary
ledger accounts.
7. Tarun, Neeru and Vikas shared profit in the ratio
of 3:2:1. On December 31, 2014 their balance sheet
was as follows:
Liabilities Amount Assets Amount ( `) (`)
Balance Sheet as on December 31, 2014
Capital Building 90,000 Ashu 1,00,000 Machinery
60,000 Hemani 92,000 1,92,000 Furniture 10,000
Creditors 88,000 Stock 24,000 Bank overdraft
20,000 Investments 50,000 Debtors 48,000

Cash in hand 18,000

3,00,000 3,00,000
 Capital Plant 80,000 Tarun 90,000 Debtors 70,000
Neeru 1,00,000 Furniture 22,000 Vikas 80,000
2,70,000 Stock 70,000 Creditors 60,000
Investments 60,000

Liabilities Amount Assets Amount ( `) (`)

Accountancy
362
realised as follows: Plant `85,000, Debtors `69,000
Furniture `20,000, stock 95% of the book value,
Dissolution of Partnership FirmBills payable Investments ` 86,000 and Bills receivable ` 31,000.
30,000 Bills receivable 46,000 Reserve 20,000 An office Electronic Typewriter, not shown in the
Cash in hand 32,000 3,80,000 3,80,000 books of accounts realised ` 9,000. Expenses of
On this date the firm was dissolved. The assets realisation amounted to ` 4,500. Creditor are taken
over by Vikas at book value. Prepare realisation
account, Capital accounts and cash account
8. The following was the balance sheet of Anu and
Hema as on December 31,2014: Balance Sheet as
on December 31, 2014
Liabilities Amount Assets Amount ( `) (`)
Sundry Creditors 42,000 Cash at Bank 13,000 Bills
payable 26,000 Sundry debtors 50,000 Hema’s loan
20,000 Stock 40,000 Reserve fund 6,000 Bills
receivable 28,000 Provision of Bad debts 2,000
Machinery 60,000 Capital Investment 30,000
Anu 90,000 1,52,000 Fixtures 27,000 Hema 62,000
2,48,000 2,48,000
The firm was dissolved on December 31, 2014 and
assets realised and settlements of liabilities was as
follows :
(a) The realisation of the assets were as follows:

`
Sundry debtors 48,000 Stock 38,000 Bills
receivable 27,000 Machinery 62,000
(b) Investment was taken over by Hema at agreed
value of ` 36,000 and agreed to pay of creditors.
Bills payable is paid 3% less.
(c) Fixture are value less.
(d) The expenses incurred on realisation were `
2,200.
Journalise the entries to be made on the dissolution
and prepare realisation account, bank account and
partners capital accounts.
 MODULE - 4 Partnership Account

Notes
363

Accountancy
MODULE - 4 Partnership Account
 settlement of their account and stock is taken over
by Rohit at ` 19,000.
(b) Investment were taken over by Tina at book
value. Sundry debtors of book value ` 50,000 taken
over by Rohit at 10% less and remaining debtors
realised for ` 28,000.

Notes (c) Realisation expenses amounted to ` 2,000 paid

by Rohit. Prepare necessary ledger accounts to
close the books of the firm.
Dissolution of Partnership Firm9. Rohit and Tina
were partners in a firm and shared profit as 3 : 2.
They decided to dissolve their firm on March 31,
2014 when their balance sheet was as follows: ANSWERS TO INTEXT
Balance Sheet as on March 31, 2014 QUESTIONS 25.1 (i) Unlawful (ii) Dissolved
(iii) Firm, partnership (iv) Dissolved (v) Court (vi)
Agreement
25.2 (i) F (ii) T (iii) T (iv) T (v) T (vi) T

25.3 I. (c) and (e) II. (i) and (iv)

Liabilities Amount Assets Amount ( `) (`)

Capital Machinery 80,000 Rohit 80,000 ANSWERS TO TERMINAL
Investments 60,000 Tina 90,000 1,70,000 Stock EXERCISE 5. Profit on Realisation ` 13,000
22,000 Total of Cash A/c ` 210500 6. Profit on Realisation
Sundry creditors 70,000 Sundry Debtors 80,000 ` 2000 Total of Cash A/c ` 64000 7. Profit on
Realisation ` 14000 Total of Cash A/c ` 398500 8.
Reserve 10,000 Cash at bank 8,000 2,50,000
Loss on Realisation ` 23420 Total of Cash A/c `
2,50,000 188000 9. Loss on Realisation ` 92000 Total of
The assets and liabilities were disposed off as Cash A/c ` 83800
follows:
(a) Machinery were given to creditors in full

364
Accountancy