DK Goel Solutions Chapter 6 Dissolution of Partnership Firm

Read below DK Goel Solutions for Class 12 Chapter 6 Dissolution of Partnership Firm. These solutions have been designed based on the latest Class 12 DK Goel Accountancy book used by commerce stream students issued for the current year and the questions given in each chapter.

A partnership firm can be dissolved because of various reasons such as the closure of Business or agreement amongst all partners to completely dissolve the partnership or maybe because of the death of partners. students will be able to understand in this chapter what are the different types of reasons for the dissolution of a partnership as well as how the accounting treatment has to be performed in such cases.

The chapter contains a lot of questions which can be very helpful for Class 12 commerce students of Accountancy and will also help build strong concepts which will be really helpful in your career. These solutions are free and will help you to prepare for Class 12 Accountancy. Just scroll down and read through the answers provided below

Dissolution of Partnership Firm DK Goel Class 12 Accountancy Solutions

Short Answer Questions

Q1. Write the circumstances under which a firm is dissolved.
Solution 1 The conditions in which a corporation is dissolved are below:—
1.) Where an unsound spirit has become a companion.
2.) Where a partner has been permanently unaware of fulfilling his responsibilities as a partner, rather than the partner filing a suit.
3.) Where a partner is accused of wrongdoing that may damage the relationship, rather than the partner bringing a suit.
4.) When a partner, rather than the partner filing a suit, commits a violation of the relationship arrangement will fully or persistently.
5.) If a partner has passed all of his rights in the business to a third party, rather than the partner filing a suit.

Q2. Clarify the difference between dissolution of a firm and dissolution of partnership.
Solution 2

Class 12 Chapter 6 Dissolution of a Partnership Firm

Q3. What is a Realisation Account?
Solution 3 To dispose of all the company’s properties and make payments to all the creditors, a ‘Realisation Account’ is opened. The account realization is a nominal account and the intent of such an account is to assess the benefit or loss on the asset realization and the payment of liabilities.

Q4. Mention the order in which the proceeds from the sale of Assets are utilised at the time of dissolution of partnership firm.
Solution 4 The sum recognized by the selling of the company’s properties shall be spent in the following manner and order:
1.) Second of all, the company’s external debts would be paid for.
2.) The loans advanced by partners will be paid off out of the remaining sum.
3.) The balance of the Spouses’ Capital Account will be restored afterwards.
4.) If any amount exists, in their benefit share ratio it will be split among the partners.

Q5. How will you deal with the Realisation expenses at the time of dissolution of a firm?
Solution 5 (i) When expenses are paid by the firm:

(Realisation expenses paid on behalf of the partner)
(v) No entry will be passed if the expenses are to be borne and paid by the partner out of his pocket.

Q6. Explain the accounting treatment at the time of dissolution of a partnership firm of the assets and liabilities not already recorded in the books of the firm.
Solution 6 (i) When assets are sold for cash:

(iii) If an asset is given away to a Creditor in part or full payment of his dues, the agreed amount of the asset is deducted from the claim of the creditor and the balance is paid to him. No entry is passed for the transfer of assets to the creditor.

Q7. What accounting record is made on dissolution of partnership firm?
Solution 7 The following accounts are opened in the order to dissolution of partnership firm:-
1.) Realisation Account
2.) Partner’s Loan Account
3.) Partner’s Capital Account
4.) Cash or Bank Account

Practical Questions

Q1. Manoj and Nand were partners sharing Gains in the ratio of 3 : 2. Pass journal entries under following situations at the time of dissolution of firm:
(i) Workmen Compensation Reserve stood at Rs.1,00,000 and there was no liability towards Workmen Compensation.
(ii) Workmen Compensation Reserve stood at Rs. 1,00,000 and liability in respect of it was ascertained at Rs. 75,000.
(iii) Workmen Compensation Reserve stood at Rs. 1,00,000 and liability in respect of it was ascertained at Rs. 1,20,000.
(iv) Workmen Compensation Reserve stood at Rs. 1,00,000 and liability in respect of it was ascertained at Rs. 1,00,000.
Solution 1

Q2. (i) Expenses of realization Rs. 8,000.
(ii) Expenses of realisation Rs. 10,000 were paid by a partner.
(iii) Realisation expenses of Rs. 12,000 were to be met by Tushar, a partner, but were paid by the firm.
(iv) Suresh, a partner, was paid remuneration of Rs. 10,000 and he was to meet all expenses. (v) Viru, a partner, was paid remuneration of Rs. 15,000 and he was to meet all expenses. Actual Expenses amounted to Rs. 20,000 which were paid by the firm.
(vi) Realisation expenses amounting to Rs. 15,000 were paid by the firm, Rs. 10,000 were to be borne by a partner and the balance by the firm.
(vii) Gauri, a partner, was allowed a remuneration of Rs. 25,000 and he was to meet all expenses. Firm paid an expense of Rs. 5,000.
Solution 2

DK Goel Solutions Chapter 6 Dissolution of Partnership Firm

Points for Students:-
If a partner has given any loan to the firm, his loan will be paid off after all the outside liabilities are paid in full. Therefore, Partner’s loan account is not transferred to the realisation account and his loan account is prepare separately and paid off by passing the following entry:
Journal Entry:-
Partner’s Loan A/c Dr.
To Cash/Bank A/c
(Paid Partners loan

Q3. Pass necessary Journal Entries on the dissolution of a partnership firm in the following cases:
(i) L, a partner, was appointed to look after the dissolution process for which he was given a remuneration of Rs. 10,000.
(ii) Dissolution expenses Rs. 8,000 were paid by the partner, M.
(iii) Dissolution expenses were Rs. 5,000.
(iv) P, a partner, was appointed to look after the process of dissolution for which he was allowed a remuneration of Rs. 7,000. P agreed to bear the dissolution expenses. Actual dissolution expenses Rs. 4,000 were paid by P.
(v) N, a partner, was appointed to look after the process of dissolution for which he was allowed a remuneration of Rs. 9,000. N agreed to bear the dissolution expenses. Actual dissolution expenses Rs. 4,000 were paid by the firm.
(vi) Q a partner was appointed to look after the process of dissolution for which he was allowed a remuneration of Rs. 18,000. Q agreed to take over stock worth Rs. 18,000 as his
Remuneration The stock had already been transferred to Realisation Account.
Solution 3

Point for Students:-
If Cash balance and Bank balance both are given in the balance sheet, only one account, either cash account or a Bank account is prepared. If cash account is prepared, an entry is passed for withdrawing the Bank balance and if a Bank account is prepare the cash balance is deposited into the bank.

Q4. The following is the Balance Sheet of A and B as at 31st March, 2018. The Gain sharing ratio of the partners are 3 : 2.

The partners decided to dissolve the firm on and from the date of the Balance Sheet Motor Vehicles and Stock were sold for cash at Rs. 16,950 and Rs. 77,600 respectively and all Debtors were realised in full. Land & Buildings were sold at Rs. 43,500. Creditors were paid off subject to discount of Rs. 1,700. Expenses of realisation were Rs. 1,250.
Prepare Realisation Account, Bank Account and Partners’ Capital Accounts to close the books of the firm as a result of its dissolution.
Solution 4

Q5. P, Q and R are partners sharing Gains and losses in the ratio of 2:1:1. They decide to dissolve their firm on 31-03-2018, the date on which their Balance Sheet stands as under:

Prepare the necessary ledger accounts to close the books of the firm.
Solution 5

Q6. A and B were partners sharing profits and losses in 2:1. Their Balance Sheet as at 31st March, 2021 was as follows:

Partners decide to dissolve the firm on the above date. Assets and liabilities realised as follows:
(i) Plant & Machinery was taken over by A at 60% of the book value.
(ii) Investments were taken over by B at 120%.
(iii) Sundry Creditors were paid off by giving them stock at 75% of the book value and the balance in cash.
(iv) Debtors realised 20% less of the amount due from them.
(v) A’s loan was paid off with interest for six months.
(vi) Realisation expenses amounted to Rs. 1,000.
you are required to prepare:
(a) Realisation Account
(b) A’s Loan Account and B’s Loan Account
(c) Partner’s Capital Accounts, and
(d) Bank Account.
Solution 6 Realisation Account
For the year of 31 March, 2021

Q7. A, B and C were in partnership sharing Gains in the ratio of 2:1:1. Their Balance Sheet showed the
following position on the date of dissolution :

I. A agreed to take over furniture at 20% less than the book value.
II. Fixed assets realised Rs. 32,000 and stock Rs. 55,000.
III. Bad Debts amounted to Rs. 5,000.
IV. Expenses of realisation were Rs. 3,000. Creditors were paid at a discount of 5%.
V. There was a claim of Rs. 6,400 for damages against the firm. It had to be paid. Prepare necessary accounts.
Solution 7

Points for Students:-
In all questions it is necessary to prepare various accounts in the following order:
(a) First all realisation account should be prepared.
(b) Secondly, if a partner has given any loan to the firm, Partner’s Loan Account should be prepared.
(c) Thereafter Partner’s Capital Accounts are prepared.
(d) Bank Account is prepared last of all.

Q8. X, Y and Z are in partnership, sharing Gains and losses equally. They to dissolve the partnership on 31st March, 2018, at which date the Balance Sheet of the firm was as follows

The assets realised as under :
Premises 20% more; Machinery 40% less; Stock Rs. 5,000 more, Sundry Debtors and Bills Receivable at book values. Expenses of realisation amounted to Rs. 2,000 Sundry Creditors agreed to accept Rs. 57,500 in full settlement.
Show necessary ledger accounts to close the books of the firm.
Solution 8

Q9. The following was the Balance Sheet of X, Y and Z as at 28.2.2021 :

The firm was dissolved on the above date on the following terms:
(1) Debtors realized Rs. 29,000 and creditors and bills payable were paid at a discount of 10%.
(2) Stock was taken over by X for Rs. 17,000 and furniture was sold to K for Rs. 20,000.
(3) Land and Building was sold for Rs. 2,98,000.
(4) G’s loan was paid by a cheque of the same amount.
(5) Compensation to workmen paid by the firm amounted to Rs. 15,000.
Prepare Realisation Account, Capital Accounts and Bank Account.
Solution 9 Realisation Account
For the year of 31 March, 2021

Point of Knowledge:-
(i) When expenses are paid by the firm:
Realisation A/c Dr.
To Cash/Bank A/c
(Being Realisation expenses paid in cash)
(ii) When expenses of realisation are paid by a partner on behalf of the firm:
Realisation A/c Dr.
To Partner’s Capital A/c
(Being Remuneration expenses paid by the partner)

Q10. (A) Pritam and Naresh decided to dissolve their firm on September 30,2018, when the Balance Sheet stood as follows:

The assets were realized as follows: Stock Rs. 20,000; Bills Receivable Rs. 3,800; Furniture Rs. 5,100; Plant & Machinery Rs. 35,000; Sundry Debtors at 10% less than book value.
Sundry Creditors allowed a discount of 5%. Pritam agreed to pay his wife’s loan Naresh agreed to pay outstanding rent. Expenses on dissolution came to Rs. 800.
Pritam and Naresh shared Gains and losses in the ratio of their Capitals. Accounts were finally settled. Prepare Journal, Realisation Account, Capital Accounts and Bank Account.
Solution 10 (A)

Point of Knowledge:-
(i) Below is the entry of expenses paid by the firm:
Realisation A/c Dr.
To Cash/Bank A/c
(Realisation expenses paid in cash)
(ii) Below is the entry of if expenses realisations are paid by a partner:
Realisation A/c Dr.
To Partner’s Capital A/c
(Remuneration expenses paid by the partner)

Q10. (B) Mrs. Rita Chowdhary and Miss Shobha are partners in a firm, ‘Fancy Garments Exports’ sharing Gains and losses equally. On 1st April, 2018, the Balance Sheet of the firm was as follows:

The firm was dissolved on the date given above. The following transactions took place:
(i) Mrs. Rita Chowdhary undertook to pay Mr. Chowdhary’s Loan and took over 50 per cent of stock at a discount of 20 per cent.
(ii) Book-debts realised Rs. 54,000, balance of the stock was sold off at a Gain of 30 per cent on cost.
(iii) Sundry Creditors were paid out at a discount of 10 per cent Bills payable were paid in full.
(iv) Plant and Machinery realised Rs. 75,000 and Land and Buildings Rs. 1,20,000
(v) Mrs. Rita Chowdhary took over the goodwill of the firm at a valuation of Rs. 30,000.
(vi) Realisation expenses were Rs. 5,250.
Show the Realisation Account, Bank Account and Partner’s Capital de the books of the firm.
Solution 10 (B)

Q11. Anurag and Prem were partners sharing Gains and losses in 2 : 1. On 31 March, 2020 their Balance Sheet was as follows:

The firm was dissolved on the above date:
(i) Anurag took over 60% of the stock at a discount of 20%, 25% of the remaining stock was sold at a Gain of 40% on cost; Remaining stock was found obsolete and realised nothing.
(ii) Firm had to pay Rs. 90,000 as compensation to workers.
(iii) Sundry Creditors took over investments in full settlement.
(iv) Sundry Debtors realised at 75% and plant realised 20% less.
(v) Prem agreed to take over the responsibility of completing dissolution work and he was given furniture as his remuneration.
(vi) Realisation expenses amounted to Rs. 10,000.
Prepare Realisation Account.
Solution 11

Q12. The following is the Balance Sheet of A and B as at 31st March, 2018:

1. Half the stock was sold at 10% less than the book value and the remaining half was taken over by A at 20% more than the book value.
2. During the course of dissolution a liability under action for damages was settled at Rs. 12,000 against Rs. 10,000 included in the creditors.
3. Assets realised as follows:
Plant & Machinery – Rs. 1,00,000; Truck – Rs. 1,20,000; Goodwill was sold for Rs. 25,000; Bad Debts amounted to Rs. 5,000. Half the investments were sold at book value.
4. A promised to pay off Mrs. A’s Loan and took away half the investments at 10% discount.
5. Trade Creditors and Bills Payable were due on average basis of one month after 31st March, but were paid immediately on 31st March, at 12% discount per annum.
Prepare necessary accounts.

3. Cash balance of Rs. 4,200 has been transferred to the debit of Bank Account.
Solution 12

Q13. The following is the Balance Sheet of A, B and C, as at 31st March, 2018:

The Gain and loss sharing ratios of the partners are 3:2 : 1. At the above date, partners decide to dissolve the firm. The assets realised were as follows:
(i) Bills Receivable were realised at a discount of 5%. Debtors were all good; Stock realised Rs. 32,000. Land and Buildings realised at 40% higher than the book value.
(ii) Furniture was sold for Rs. 6,000 by auction and auctioneer’s commission amounted to Rs. 300.
(iii) Typewriters were taken over by A for an agreed valuation of Rs. 5,000.
(iv) Investments were sold in the open market at a price of Rs. 25,000, for which a commission of 2% was paid to the broker.
(v) Creditors agreed to accept 10% less. All other liabilities were paid off at their book value.
(vi) The firm retrenched their employees three months before the dissolution of the firm and the firm had to pay Rs. 25,000 as compensation. This liability was not appearing in the above Balance Sheet. Close the books of the firm by preparing Realisation Account, Partner’s Capital Accounts, and Bank Account.
Solution 13

Q14. Following is the Balance Sheet of Ramji Lal and Panna Lal as at 31st March, 2021 :

They decided to dissolve the firm. Assets are realised as follows:
(i) Machinery 10% less than book value; Plant Rs. 12,500 and Goodwill Rs. 2,520.
(ii) Ramji Lal is to take over Debtors amounting to Rs. 6,800 at Rs. 6,000, remaining Debtors were realised for 90% of the book value.
(iii) One bill of Rs. 600 under discount having been dishonoured had to be taken up by them.
(iv) The Bill payable of Rs. 2,600 to be assumed by Panna Lal at that figure.
(v) Creditors are paid off at a discount od 10%.
(vi) An amount of Rs. 2,500 had to be paid for Workmen Compensation.
(vii) The liquidation expenses amounted to Rs. 400.
You are required to show the Realisation Account, Capital Accounts and Bank Account.
Solution 14 Realisation Account
as at 31 March, 2021

Q15. Raman and Richa were partners in a firm sharing Gains in the ratio of 7:3. On 31.3.2018 the Balance Sheet of the firm was as follows:

BALANCE SHEET OF RAMAN AND RICHA
as at 31.3.2018

The firm was dissolved on 1.4.2018 and the assets and liabilities were settled as follows:
(i) Land and building was taken over by Raman at a depreciation of 10% for cash;
(ii) Creditors of Rs. 1,25,000 took over stock and debtors in full settlement of their claim;
(iii) Remaining creditors were paid by Richa;
(iv) Furniture realised Rs. 5,000 less than the book value.
(v) Expenses of realisation were Rs. 400.
Pass necessary journal entries for dissolution of the firm.
Solution 15

Working Note:-
1.) Computation of Realisation Loss/ Gain:-

Q16. Verma and Sharma were partners in a firm sharing Gains in the ratio of 3:1. On 31.3.2018 their Balance Sheet was as follows:

BALANCE SHEET OF VERMA AND SHARMA
as at 31.3.2018

The firm was dissolved on 1.4.2018 and the assets and liabilities were settled as follows:
(i) Creditors of Rs. 50,000 took over Land and Building in full settlement of their claim;
(ii) Remaining creditors were paid in cash;
(iii) Machinery was sold at a depreciation of 30%;
(iv) Debtors were collected at a cost of Rs. 500;
(v) Expenses of realisation were Rs. 1,700.
Pass necessary journal entries for dissolution of the firm.
Solution 16

Working Note:-
1.) Computation of Realisation Loss:-

Q17. Mala Neela and Kala were partners sharing Gains in the ratio of 3:2:1. On 1-3-2015 their firm was dissolved. The assets were realized and liabilities were Paid off. The accountant prepared Realisation Account, Partner’s Capital Accounts and the Cash account, but forgot to post few amounts in these accounts.

You are required to complete these below given accounts by posting correct amounts.
Realisation Account

Q18. A. B and C are in partnership sharing in 4:3 :3. They decide to dissolve the partnership firm. At the date of dissolution their creditors amounted to Rs. 16,800 and in the course of dissolution a contingent liability of Rs. 3,500 not brought into the accounts matured and had to be met. Their capitals stood at Rs. 12,000, Rs. 10,000 and Rs. 8,000 respectively. B had lent to the firm in addition to Capital Rs. 13,200 The assets realised Rs. 45,670.
Prepare the Realisation Account and Partners’ Capital Accounts. Also show the Bank Account.’
Solution 18

Q19. A and B who were in partnership sharing Gains and losses in the proportion of 4/7 and 3/7 respectively, decided to dissolve the firm as on 31st March, 2018. At the time of dissolution A’s capital was Rs. 1,25,030, B’s Rs. 2,070, the creditors amounted Rs. 23,150 and cash Rs. 4,520. Remaining assets realised Rs. 1,24,910 and expenses of dissolution were rs. 1,860. A & B both were solvent. Prepare the Balance Sheet as on the date of dissolution and the accounts necessary to close the books of the firm. Show the final adjustments of cash between partners.
Solution 19

Q20. Ashok and Kishore were in partnership sharing Gain in the ratio of 3:1. They agreed to dissolve the firm. The assets (other than cash of Rs. 2,000) of the realised Rs. 1,10,000. The liabilities and other particulars of the firm on that date were as follows:

Creditors were settled in full settlement at Rs. 38,000. Prepare realisation and Cash account.
Solution 20

Q21. X and Y were partners in a firm sharing Gain and losses in the ration of 5:3. They agreed to dissolve the firm on June 30, 2018. On that date, the Capitals of X and Y were Rs. 80,000 and Rs. 40,000 respectively, the amount owed by X to the firm was Rs. 32,000 and the amount owed by the firm to Y was Rs. 25,000 the creditors amounted to Rs. 37,000 and balance at bank Rs. 10,000. The assets other than the amount owning by X to the firm realised Rs. 46,000. Realisation expenses amounted to Rs. 2,000. Prepare the Balance Sheet of the firm as on June 30, 2018 and necessary ledger accounts to close the books of the firm.
Solution 21

Q22. On 1st April, 2017 A, B and C commenced business in partnership sharing Gain and losses in proportion of 1/2, 1/3 and 1/6 respectively. They paid into their Bank A/c as their capital Rs. 22,000 Rs. 10,000 by A Rs. 7,000 by B and Rs 5,000 by C. During the year they drew Rs. 5,000, Rs. 1,900 by A Rs. 1,700 by B and Rs. 1,400 By C.
On 31st March, 2018, they dissolved their firm, A taking up stock at an agreed valuation of Rs. 5,000, B taking up furniture at Rs. 2,000 and C taking up debtors at Rs. 3,000. After paying up their creditors, there remained a balance of Rs. 1,000 at Bank. Prepare the necessary accounts showing the distribution of the cash at the Bank and of the further cash brought in by any partner as the case required.
Solution 22

Points for Students:-
Dissolution of partnership means termination of the old partnership agreement and a reconstruction of the firm due to admission, retirement and death of a partner. Dissolution of partnership may or may result into closing down of the business as the remaining partners may agree to carry on the business under a new agreement.

Q23. X, Y and Z entered into partnership on 1st October, 2017 sharing Gains and losses in the proportions of 4:3:2, respectively, and with capitals of Rs. 30,000, Rs. 20,000 and Rs. 10,000.
Their assets and liabilities on 1st October, 2018, the date on which they decided to wind up their affairs, were as follows:
Office Fixtures Rs. 1,000; Debtors Rs. 28,000; Bills Receivable Rs. 5,000; and Stock-in-trade Rs. 45,000. Sundry creditors were Rs. 30,000; Bills Payable Rs. 4,000.
X agreed to take over the Stock-in-trade at a discount of 10% and pay off the Bills Payable.
Y agreed to take over the Book Debts at a discount of 20% and pay off the Creditors.
Z took over the Bills Receivable at Rs. 4,877 and Office Fixtures at a depreciation of 10%.
5% p.a. interest is to be credited to each partner on his capital.
Prepare Realisation A/c and Capital A/cs of the partners and an account showing adjustment of Gains or losses in the business.
Solution 23

Q24. P, Q and R started business on 1st April, 2017. They shared Gain and loss in the ratio of 2:2:1. Capitals contributed by them were P Rs. 40,000; Q Rs. 30,000 and R Rs. 20,000. The partners were entitled to interest on capital @ 6% p.a.
During the year the firm earned a Gain (before interest) of Rs. 25,000. The partners had withdrawn P Rs. 10,000; Q Rs. 8,000 and R Rs. 5,000.
On 31st March, 2018 the firm was dissolved. The assets realised Rs. 1,00,000. The creditors of Rs. 15,000 were paid at a discount of 3% Expenses incurred on realisation were Rs. 1,450.
Prepare Partner’s Capital Accounts, Realisation Account, Cash Account, Gain and Loss Appropriation Account and Balance Sheet to close the books of the firm.
Solution 24

Q25. A, B and C were partners from 1st April, 2016 with capitals of Rs. 3,00,000; Rs. 2,00,000 and Rs. 1,50,000 respectively. They shared Gain in the ration of 2:2:1. They carried on business for two years. In the first year ending on 31st March, 2018, a loss of Rs. 60,000 was incurred. As the business was no longer Gainable they dissolved the firm on 31st March, 2018. Creditors on that date were Rs. 75,000. The partners withdrew for personal use Rs. 40,000 per partner per year. The assets realised Rs. 4,00,000. The expenses of realisation were Rs. 5,000.
Prepare Realisation Account and show your working clearly.
Solution 25

Q26. (A) Following is the Balance Sheet of Deepak and Jyoti, who were sharing Gain and losses in the ratio 3:2, as at March 31, 2018:

The firm was dissolved on that date and the following arrangements were made:
(i) Assets realised as follows: Debtors Rs. 18,000; Furniture Rs. 5,500; Plant Rs. 32,000.
(ii) Deepak agreed to take over stock in full settlement of his wife’s loan.
(iii) Creditors were paid at 2% discount and Bank Loan was discharged along with interest due for six months @ 10% p.a. and
(iv) Expenses of realisation amounted to Rs. 1,800.
Solution 26 (A)

Q26. (B) A, B and C sharing Gains in the proportion of 3:2:1 agreed upon dissolutions of their partnership on 31st March, 2018 on which date their balance sheet was as under:

The investments are taken over by A for Rs. 17,500. A agrees to discharge his wife’s loan. B takes over all the Stock at Rs. 7,000 and debtors amounting to Rs. 5,000 at Rs. 4,000. Machinery is sold for Rs. 67,000. The remaining debtors realise 50% of book value. The expenses of realisation amount to Rs. 600.
In is found that an investment not recorded in the books is wroth Rs. 3,000 and it is taken over by one of the creditors at this value.
Show the necessary ledger accounts on completion of the dissolution of firm.
Solution 26
(B)

Points for Students:-
(i) Below is the entry of expenses paid by the firm:
Realisation A/c Dr.
To Cash/Bank A/c
(Realisation expenses paid in cash)
(ii) Below is the entry of expenses on realisation paid by a partner:
Realisation A/c Dr.
To Partner’s Capital A/c
(Remuneration expenses paid by the partner)
(iii) Dissolution of partnership means termination of the old partnership agreement and a reconstruction of the firm due to admission, retirement and death of a partner. Dissolution of partnership may or may result into closing down of the business as the remaining partners may agree to carry on the business under a new agreement.
Dissolution of partnership ‘firm’ means that the firm closes down its business and comes to an end. On the dissolution of the firm, the assets of the firm are sold and liabilities are paid off and out of the remaining amount, the accounts of partners are settled.

Q27. Mehta and Menon were partners in a firm, sharing Gain and losses in the ratio of 7:3.
They decided to dissolve their partnership firm on 31st March, 2016. On that date their books showed the following ledger account balances:

Additional information:-
(a) Bills Payable falling due on 31st May, 2016 were retired on the date of dissolution of the firm, at a rebate 0f 6% per annum.
(b) The bankers accepted the furniture (included in sundry assets) having a book value of Rs. 18,000 in full settlement of the loan given by them.
(c) Remaining assets were sold for Rs. 1,50,000
(d) Liability on account of outstanding salary not recoded in the books, amounting to Rs. 15,000 was met.
(e) Menon agreed to take over the responsibility of completing the dissolution work and to bear all expenses of realisation expenses were Rs. 1,500 which were paid by the fir, on behalf of Menon.
You are required to prepare:
(i) Realisation Account and
(ii) Partners Capital Accounts.
Solution 27

Q28. (A) X, Y and Z were in partnership sharing Gains and losses in the ratio of 7:2:1 and the Balance Sheet of the firm stood on 31st March, 2018, as under:

On 31st March, 2018 it was decided to dissolve the firm on the following terms:
(i) X is to take over the building at Rs. 7,300.
(ii) Y, who will continue with business, to take over Goodwill, Stock and Debtors at book values, Patents at Rs. 6,500 and Machinery at Rs. 1,500. He also agreed to pay the Creditors.
(iii) Z agreed to take share in C co. Ltd. at Rs. 5 each.
(iv) The shares in B Co. Ltd. to be divided in Gain sharing ratio.
Show the ledger accounts to record the dissolution.
Solution 28 (A)

Point of Knowledge:-
Treatment of goodwill is very easy in case of dissolution of a firm. It may be summarised as under:
(i) If goodwill is already appearing in the Balance Sheet, it is treated like any other asset, and is transferred to the Realisation Account at the value given in balance sheet. Following entry will be passed for it:
Realisation A/c Dr.
To Goodwill A/c
(ii) If goodwill is not appearing in the Balance Sheet, the above mentioned entry will not be passed.

Q28. (B) Following is the balance sheet of P, Q and R who were sharing Gains and losses in the ratio of 3:2:1

The firm was dissolved on that date and the following arrangements were made:
1.) Assets realised as follows: Debtors Rs. 15,000; Plant at 30% discount.
2.) Stock was valued at Rs. 36,000 and this was taken over by P and Q equally.
3.) Market value of the share of A Ltd. is Rs. 16 per share. Half the shares were sold in the market and the balance half were taken over by P and Q in their Gain sharing ratio.
4.) A creditor for Rs. 50,000 took over Motor Car in full settlement of his claim and the balance of creditors was paid at a discount of 2%.
5.) Expenses of realisation amount to Rs. 6,000. P agreed to discharge his wife’s Loan.
Prepare Journal entries and Ledger accounts.
Solution 28 (B)

Q29. P, Q, and R were partners in a firm sharing Gains in the ratio of 1:2:2. Their Balance Sheet as at 31st March, 2019 was as follows:

Partners agreed to dissolve the firm on that date. You are given the following information about dissolution :
(i) One of the Debtors for Rs. 20,000 paid Rs. 12,000 in full settlement of his account and debtors of Rs. 5,000 were proved bad.
(ii) Part of the stock was sold for Rs. 20,000 (25% more than the book value).
(iii) Office Equipment was accepted by the creditor for Rs. 7,000 in full settlements. Another creditor of Rs. 40,000 was paid only 40% in full settlement of his account and remaining creditors accepted remaining stock in full settlement of their account.
(iv) An unrecorded asset of Rs. 20,000 was handed over to an unrecorded liabilities of Rs. 15,000 in full settlement.
(v) Land & Buildings were sold at a loss of 20%.
(vi) Q’s Loan was settled by payment of Rs. 30,000.
(vii) Realisation expenses Rs. 16,000 were paid by R.
You are required to prepare the necessary accounts.
Solution 29

Q30. A, B and C were partners in a firm sharing Gains & losses in the ratio of 2:2:1. The Balance Sheet of the firm at the date of dissolution was as follows:

You are informed that:
(1) They appointed B to realise the assets. He is to receive 5% of the amounts realised from Debtors, Stock and Machinery, and is to bear all expenses of realisation.
(2) Bad Debts amounted to Rs. 2,000; Stock realised Rs. 36,000 and Machinery realised Rs. 46,000. There was an unrecorded asset of Rs. 10,000 which was taken over by A at Rs. 8,000.
(3) Market value of Investments was ascertained to be Rs. 20,000, and one of the creditors agreed to accept the Investments at this value. Remaining creditors were paid at a discount of Rs. 6,000.
(4) An office typewriter, not shown in the books of accounts, realised Rs. 20,000.
(5) There were outstanding expenses amounting to Rs. 6,000. These were settled for Rs. 4,500. Expenses of realisation met by B amounted to Rs. 2,000.
Prepare necessary accounts.
Solution 30

Q31. A, B and C are partners sharing Gains and losses in the ratio of 4:2:1. On 31st March 2018, their Balance Sheet was as follows:

It was decided to dissolve the firm, A agreeing to take over the business (except Cash at Bank) at the following valuations :
Leasehold Premises at Rs. 60,000
Plant and Machinery at Rs. 12,000 less than the book value.
1/4 th stock at 331/3% more than its book value.
Remaining Stock at 20% more than the book value.
Sundry Debtors subject to a provision of 5%.
Mrs. B’s Loan was paid in full and the creditor were proved at Rs. 2,000 and were taken over by A. Expenses of dissolution came to Rs. 900.
Prepare necessary accounts to close the books of the firm and prepare the Balance Sheet of A.
Solution 31

Points for Students:-
(i) Below is the entry of expenses paid by the firm:
Realisation A/c Dr.
To Cash/Bank A/c
(Realisation expenses paid in cash)

Q32. Give journal entries in each of the following alternative cases on the dissolution of a firm:
(i) Realisation expenses paid by X on behalf of the firm.
(ii) Realisation expenses paid by the firm Rs. 1,000. However, the expenses were to be borne by partner X for which he was to be given a commission of 5% on net cash realised on dissolution. Cash realised from assets was Rs. 2,00000.
(iii) General Reserve appearing in the balance sheet was Rs. 20,000.
(iv) Sundry Creditors amounted to Rs. 15,000. These were paid at a discount of 2%.
[Ans. (i) Debit Realisation A/c and Credit X’s Capital A/c.
(ii) Debit Y’s Capital A/c and Credit Bank A/c by Rs. 1,000;
Debit Bank A/c and Credit Realisation A/c by Rs. 2,00,000;
Debit Realisation A/c and Credit Bank A/c by Rs. 40,000;
Debit Realisation A/c and Credit X’s Capital A/c by Rs. 8,000.
(iii) Debit General Reserve A/c and Credit Partner’s Capital A/cs in Gain sharing ratio.
(iv) Debit Realisation A/c and Credit Bank A/c by Rs. 14,700.
Solution 32

Q33. Jain, Sharma and Verma were partners in a firm sharing Gains in the ratio of 1: 2: 1. On 31st March, 2018 their firm was dissolved. It was agreed that Sharma will look after the dissolution work and will be paid Rs. 15,000 as remuneration. The dissolution expenses were Rs. 5,000, Rs. 2,84,000 were paid to the creditors in full settlement of their claim of Rs. 3,00,000. Dissolution of the firm resulted into a loss of Rs. 18,000.
Pass necessary journal entries for the above transactions.
[Ans.(a) Debit Realisation A/c and Credit Sharma’s Capital A/c by Rs. 15,000.
(b) Debit Realisation A/c and Credit Bank A/c by Rs. 5,000.
(c) Debit Realisation A/c and Credit Bank A/c by Rs. 2,84,000.
(d) Debit Partners Capital A/cs respectively by Rs. 4,500, Rs. 9,000 and Rs. 4,500 and Credit Realisation A/c by Rs. 18,000.]
Solution 33

Q34. Pass the necessary journal entries for the following transactions on the dissolution of the firm of James and Haider who were sharing Gains and losses in the ratio of 2 : 1. The various assets (other than cash) and outside liabilities have been transferred to Realisation Account:
(i) James agreed to pay off his brother’s loan Rs. 10,000.
(ii) Debtors realised Rs. 12,000.
(ii) Haider took over all investments at Rs. 12,000.
(iv) Sundry creditors Rs. 20,000 were paid at 5% discount.
(v) Realisation expenses amounted to Rs. 2,000.
(vi) Realisation Loss was Rs. 10,200.
[Ans.(i) Debit Realisation A/c and Credit Jame’s Capital A/c by Rs. 10,000.
(ii) Debit Bank A/c and Credit Realisation A/c by Rs. 12,000.
(iii) Debit Haider’s Capital A/c and Credit Realisation A/c by Rs. 12,000.
(iv) Debit Realisation A/c and Credit Bank A/c by Rs. 19,000.
(v) Debit Realisation A/c and Credit Bank A/c by Rs. 2,000.
(vi) Debit Jame’s Capital A/c by Rs. 6,800 and Haider’s Capital A/c by Rs. 3,400 and Credit Realisation A/c by Rs. 10,200.]
Solution 34

Q35. P and Q were partners in a firm sharing Gains and losses equally. On 15th March,2014 the firm was dissolved. The dissolution resulted in a loss of Rs. 60,000. On that date the Capital Accounts of P and Q showed credit balances of Rs. 70,000 and Rs. 50,000 respectively. There was a bank balance of Rs. 60,000.
Pass the necessary Journal Entries for :
(i) The transfer of loss to the Capital accounts of the partners, and
(ii) Making final payments to the partners.
Solution 35

Points for Students:-
(i) Below is the entry of expenses paid by the firm:
Realisation A/c Dr.
To Cash/Bank A/c
(Realisation expenses paid in cash)

Q36. Gaurav, Saurabh and Vaibhav were partners in a firm sharing Gains and losses in the ratio of 2:2:1. They decided to dissolve the firm on 31st March, 2018. After transferring Sundry assets (other than cash in hand and cash at Bank) and third party liabilities to realisation account, the assets were realized and liabilities were paid off as follows:
(i) A machinery with a book value of Rs. 6,00,000 was taken over by Gaurav at 50% and stock worth Rs. 5,000 was taken over by a creditor of Rs. 9,000 in full settlement of his claim.
(ii) Land and building (book value Rs. 3,00,000) was sold for Rs. 4,00,000 through a broker who charged 2% commission.
(iii) The remaining creditors were paid Rs. 76,000 in full settlement of their claim and the remaining assets were taken over by Vaibhav for Rs. 17,000.
(iv) Bank loan of Rs. 3,00,000 was paid along with interest of Rs. 21,000.
Pass necessary journal entries for the above transactions in the books of the firm.
Solution 36

Q37. Adiraj and Karan were partners in a firm sharing Gains and losses in the ratio 3:2. On 31st March, 2018 the firm was dissolved. After the transfer of assets (other than cash in hand and at bank) and third party liabilities to the Realisation Account, the following information was provided :
(i) Furniture of Rs. 70,000 was sold for Rs. 68,000 by auction and auctioneer’s commission amounted to Rs. 2,000.
(ii) Adiraj’s loan amounting to Rs. 35,000 was settled at Rs. 37,500.
(iii) Out of the stock of Rs. 80,000, Karan took over 50% of the stock at a discount of 20% while the remaining stock was sold off at a Gain of 30% on cost.
(iv) A bills receivable of Rs. 3,000 under discount was dishonored as the acceptor had become insolvent and hence the bill had to be met by the firm
(v) Gain and Loss Account showed a debit balance of Rs. 56,000.
(vi) Realization expenses amounted to Rs. 2,000 which were paid by Adiraj
Pass the necessary journal entries for the above transactions on the dissolution of the firm.
Solution 37

Points for Students:-
Dissolution of partnership means termination of the old partnership agreement and a reconstruction of the firm due to admission, retirement and death of a partner. Dissolution of partnership may or may result into closing down of the business as the remaining partners may agree to carry on the business under a new agreement.
Dissolution of partnership ‘firm’ means that the firm closes down its business and comes to an end. On the dissolution of the firm, the assets of the firm are sold and liabilities are paid off and out of the remaining amount, the accounts of partners are settled.

Q38. Give the necessary journal entries for the following transactions on dissolution of the firm of Aman and Rajat on 31st March, 2016, after the transfer of various assets (other than cash) and the third party liabilities to Realisation Account. They shared Gains and losses in the ratio of 2:1.
(a) There was a bill of exchange of Rs. 10,000 under discount. The bill was received from Derek who became insolvent.
(b) Bills Payable of Rs. 30,000 falling due on 30th April, 2016 was discharged at Rs. 29,550.
(c) Creditors of Rs. 30,000 took over stock of Rs. 10,000 at 10% discount and the balance was paid to them in cash.
(d) There was an old typewriter which had been written off completely. It was estimated to realize Rs. 600. It was taken away by Rajat at 25% less than the estimated price.
(e) Aman agreed to take over the responsibility of completing dissolution at an agreed remuneration of Rs. 1,000 and to bear all realization expenses. Actual realisation expenses Rs. 800 were paid by the firm.
(f) Loss on realization was Rs. 54,000.
Solution 38

Q39. Disha, Mohit and Nandan are partners. They decide to dissolve their firm. Pass necessary Journal Entries for the following after various Assets (other than Cash and Bank) and the third party liabilities have been transferred to Realisation Account:
(a) An old typewriter which was not recorded in the books was sold for Rs. 2,000 whereas its expected value was Rs. 5,000.
(b) Stock of Rs. 70,000 was taken by Disha at a discount of 30%.
(c) Total creditors of the firm were Rs. 20,000. A creditor for Rs. 2,000 was untraceable and other creditors accepted payment allowing 10% discount.
(d) Mohit paid realisation expenses of Rs. 18,000 out of his private funds, who was responsible to bear all the realisation expenses.
(e) Nandan had taken taken a loan of Rs. 50,000 from the firm, which was paid fully by him to the firm.
(f) Rs. 12,000 was recovered from a debtor which was written off as Bad debts last year.
Solution 39

Q40 (new). Harish and Gopal were partners in a firm sharing profits in the ratio of 3:2. On 31st March, 2018, their Balance Sheet was as follows:
Balance Sheet of Harish and Gopal
As at March 31, 2018

On the above date the firm was dissolved. Various assets were realized and liabilities were settled as under:
(i) Gopal agreed to pay his wife’s Loan.
(ii) Leasehold premises realised Rs. 1,50,000 and Debtors Rs. 12,000 less.
(iii) Half of the creditors agreed to accept furniture of the firm as full settlement of their claim and remaining half agreed to accept 10% less.
(iv) 50% stock was taken over by Harish on payment by cheque of Rs. 90,000 and remaining stock was sold for Rs. 94,000.
(v) Realization expenses of Rs. 10,000 were paid by Gopal on behalf of the firm.
Prepare Realization Account.
Solution 40 (new).

Q40. Angad, Raman and Harshit were partners in a firm. They decided to dissolve their firm. Pass necessary journal entries for the following after various assets (other than cash bank) and the third party liabilities have been transferred to Realisation Account :
(i) There was a stock of Rs. 90,000. Raman took over 50% of the stock at 10% discount and remaining stock was sold at 40% Gain on book value.
(ii) Gain and Loss A/c was showing a debit balance of Rs. 15,000 which was distributed among the partners.
(iii) A machinery which was not recorded in the books was sold for Rs. 2,000.
(iv) Angad was paid only Rs. 5,000 (in full settlement) for his loan to the firm which amounted to Rs. 5,500.
(v) Realisation expenses amounting to Rs. 5,000 paid by Harshit.
(vi) There were 100 shares of Rs. 10 each in DCM Ltd. acquired at a cost of Rs. 1,200 which had been written off completely from the books. These shares are valued at Rs. 9 each and divided among the partners in their Gain sharing ratio. (vi) Debit Partner’s Capital A/cs by Rs. 300 each and Credit Realisation A/c by Rs. 900.]
Solution 40

Q41. If total assets are Rs. 12,00,000; total liabilities are Rs. 3,00,000; assets are realised at 70% and expenses on realisation are Rs. 10,000, what will be the Gain or Realisation Loss?
[Ans. Realisation Loss Rs. 3,70,000.]
Solution 41 Realisation Loss can be easily calculated by preparing a realisation account:

Q42. In a firm’s Balance Sheet, Total Debtors were appearing at Rs. 5,00.000 and provision for doubtful debts appeared at Rs. 10,000. On dissolution, bad debte were Rs. 1,00,000 and the remaining debtors were realised at 10% discount. How much amount was realised from debtors?
Solution 42

Q43. X and Y are partners. They decided to dissolve their firm. Pass necessary entries assuming that various assets and external liabilities have been transferred Realisation Account:
(1) X’s loan was appearing on the liabilities side of Balance Sheet at Rs. 40,000. He accepted an unrecorded asset of Rs. 60,000 in full settlement of his account.
(2) Raman, a Creditor to whom Rs. 25,000 were due to be paid, accepted an unrecorded computer of Rs. 18,000 at a discount of 10% and the balance was paid to him in Cash.
(3) Sudhir, an unrecorded creditor of Rs. 40,000 accepted an unrecorded vehicle of Rs. 20,000 at Rs. 25,000 and the balance was paid to him in Cash.
(4) There was a Contingent liability in respect of bill discounted but not matured Rs. 20,000.
(5) Furniture of Rs. 20,000 and goodwill of Rs. 30,000 were appearing in the Balance Sheet but no other information was provided regarding these two items.
Solution 43

Q44. Michael Jackson and John were partners in a firm sharing Gains in the ratio of 3: 1: 1. On 31st March, 2017, they decided to dissolve their firm. On that date their Balance Sheet was as follows:

It was agreed that:
(i) Michael was to take over Furniture at Rs. 2,600 and Debtors amounting to Rs.40,000 at Rs. 34,400 and the Creditors of Rs. 10,000 were to be paid by him at this figure.
(ii) Jackson was to take over all the stock in trade at Rs. 14,000 and some of the other Sundry Assets at Rs. 28,800 (10% less than book value).
(iii) John was to take was to take over the remaining Sundry Assets at 90% of the book value and assumed the responsibility for the discharge of the loan.
(iv)The remaining debtors were sold to a debt collecting agency for 50% of the book value. The expenses of dissolution Rs. 600 were paid by John.
Prepare Realisation Account, Bank Account and Partners’ Capital Accounts.
Solution 44

Q45. Srijan, Raman and Manan were partners in a firm sharing Gains and losses in the ratio of 2:2:1. On 31st March, 2017 their Balance Sheet was as follows:

On the above date they decided to dissolve the firm
(i) Srijan was appointed to realise the assets and discharge the liabilities. Srijan was to receive 5% commission on sale of assets (except cash) and was to bear all expenses of realisation.
(ii) Assets were realised as follows:

(iii) Investments were realised at 95% of the book value.
(iv) The firm had to pay Rs. 7,500 for an outstanding repair bill not provided for earlier.
(v) A contingent liability in respect of bills receivable, discounted with the bank had also materialised and had to be discharged for Rs. 15,000
(vi) Expenses of realisation amounting to Rs. 3,000 were paid by Srijan.
Prepare Realisation Account, Partners’ Capital Accounts and Bank Account.
Solution 45

Point for Students:-
(i) Below is the entry of expenses paid by the firm:
Realisation A/c Dr.
To Cash/Bank A/c
(Realisation expenses paid in cash)
(ii) Below is the entry of expenses on realisation paid by a partner:
Realisation A/c Dr.
To Partner’s Capital A/c
(Remuneration expenses paid by the partner)

Q46. Hema and Garima were partners in a firm sharing Gains in the rain 3:2. On 31st March, 2015, their Balance Sheet was as follows:

On the above date the firm was dissolved. The various assets were realised and liabilities were settled as under:
(i) Garima agreed to pay her husband’s loan.
(ii) Leasehold Premises realised Rs. 1,50,000 and Debtors Rs. 2,000 less.
(iii) Half the creditors agreed to accept furniture of the firm in full settlement of their claim and remaining half agreed to accept 5% less.
(iv) 50% Stock was taken over by Hema on cash payment of Rs. 90,000 and remaining stock was sold for Rs. 94,000.
(v) Realisation expenses Rs. 10,000 were paid by Garima on behalf of firm.
Pass necessary Journal entries for the dissolution of the firm.
Solution 46

Q47. Following is the Balance Sheet of Vinit and Yogesh as at 31st March, 2015:

The firm was dissolved on 31st March, 2015. The assets were realised and the liabilities were paid as under:
(a) Vinit promised to pay off Mrs. Vinit’s Loan and took away stock at 20% discount.
(b) Yogesh took away 90% of the investment at 10% discount.
(c) Sunil, a debtor Rs. 50,000 had to pay the amount due 3 months after the date dissolution. He was allowed a discount of 5% for making payment immediately. The remaining debtors were collected in full.
(d) Creditors were paid 3,50,000 in full settlement of their claim.
(e) Fixed Assets realised Rs. 2,82,000 and remaining investment realised Rs. 7,500.
(f) There was an old furniture which has been written off completely from the books. Yogesh took away the same for 4,000.
(g) Realisation expenses Rs. 2,000 were paid by Vinit.
Prepare Realisation A/c, Bank A/c and Partners’ Capital A/cs.
Solution 47

Q48. P, Q and R were partners in a firm sharing Gains in the ratio of 1: 2: 2. Their Balance sheet as at 31st March, 2018 was as follows:

Partners agreed to dissolve the firm on that date. You are given the following information about dissolution:
(a) Office Equipment was accepted by a creditor for Rs. 7,000 in full settlement. The remaining creditors were paid in full by cheque.
(b) Assets realised as follows:

(c) Other liabilities were paid in full.
(d) Dissolution expenses amounted to Rs. 3,000.
You are required to prepare Realisation Account, Bank Account and Accounts of the Partners.
Solution 48

Q49. A, B and C are in partnership sharing Gains and losses in the proportions of 1/2, 1/3 and 1/6 respectively. On 31st January, 2018 they decide to dissolve the partnership, and the position of the firm on this date is represented by the following Balance Sheet :

During the course of realisation, a liability under a suit for damages is settled at Rs. 20,000 as against Rs. 5,000 only provided for in the books of the firm.
Land and Buildings were sold for Rs. 40,000 and the Stock and Sundry Debtors realised Rs. 30,000 and Rs. 42,000 respectively. The expenses of realisation amounted to Rs. 1,200. You are required to prepare Realisation Account, Cash Account and Partners Capital Accounts in the books of the firm.
Solution 49

Q50. The following is the Balance Sheet of X and Y as at 30th June, 2018.

The firm was dissolved on 30th June, 2018 and the following arrangements were decided upon :
(a) X agreed to pay off his brother’s loan;
(b) Debtors realised Rs. 12,000;
(c) Y took over all the investments at Rs. 12,000.
(d) Other assets realised as follows:
Plant – Rs. 20,000, Building – Rs. 50,000, Goodwill – Rs. 6,000
(e) Sundry Creditors and bills payable were settled at 5% discount, Y accepted Stock at Rs. 8,000 and X took over Bills Receivable at 20% discount.
(f) Realisation Expenses amounted to Rs. 2,000.
You are required to pass Journal Entries.
Solution 50

Q51. A, B and C were partners in a firm sharing Gains in the ratio of 5:3:2. On 1-4-2018 they decided to dissolve the firm. On that date A’s Capital was Rs. 2,00,000 B’s Capital was Rs. 10,000 (Dr.) and C’s Capital was Rs. 25,000 (Dr.). The Creditors amounted to Rs. 80,000 and Cash balance was Rs. 12,000. The assets realised Rs. 2,00,000; Creditors were paid at a discount of 10% and the expenses of dissolution were Rs. 1,240. All partners were solvent. Prepare realisation account, partner’s capital accounts and the cash account.
Solution 51

Q52. The partnership between X and Y was dissolved on March 31, 2018. On that date their respective credits to the Capitals were Rs. 1,50,000 and Rs. 10,000. Rs. 1,20,000 were due to creditors. Rs. 60,000 were due for Bank Loan and Reserve has been maintained for Rs. 20,000. X and Y shared Gains in the ratio of 4: 1. Cash balance of Rs. 18,000 was also kept in the firm. Assets realised Rs. 3,02,000. Prepare Memorandum Balance Sheet, Realisation Account; Partner’s Capital Accounts and Cash Account.
Solution 52

Q53. Peter, Roberts and Sunny commenced business on 1st April 2016 with Capitals of Rs. 60,000, Rs. 50,000 and Rs. 40,000 respectively. Gain for the first year was Rs. 48,000 while losses in the second year amounted to Rs. 12,000. Drawings per partner were 7,000 per annum.
The firm was dissolved on the first day of the third year, 1st April 2018. Creditors on that day were Rs. 14,000 who were paid Rs. 12,500 in full and final settlement. Cash amounted to Rs. 5,000 on that date. Other assets realised Rs. 1,62,000. Expense amounted to Rs. 3,000.
Prepare the Realisation Account.
Solution 53

Q54. A and B dissolve their partnership. Their position as at 31st March 2018 was as follows:

The balance of A’s Loan Account to the firm stood at Rs. 20,000. The realisation expenses amounted to Rs. 800. Stock realised Rs. 40,000 and Debtors Rs. 30,000. B took a machine at the agreed valuation of Rs. 20,000. Other fixed assets realised Rs. 60,000.
Prepare necessary accounts.
Solution 54

Q55. The following was the Balance Sheet of Fox and Wolf as at 31st March, 2018, when they decided to dissolve the firm:

Furniture was taken over by Fox at Rs. 7,500. Bills payable were paid in full, while creditors were settled at 2% discount. Mrs. Wolf accepted Rs. 38,500 in full settlement of her Loan Account.
There was a claim of damages against the firm for Rs. 4,000 which was settled at Rs. 2,000.
One customer, whose account was written off as bad, now paid Rs. 1,800, which is not insluded in Rs. 27,750 given above. Actual realisation expenses amounted to Rs. 2,100.
Prepare (a) Realisation A/c, (b) Capital Accounts of Partners, (c) Bank Account to close the Books of the firm.
Solution 55

Q56. J, S and R were in partnership sharing Gains and losses in the ratio of 3:2:1. Their Balance Sheet as at 31st March, 2018 was as follows:

It was agreed to dissolve the firm, and the terms of the dissolution were:
(i) J took over Buildings at book value and agreed to pay off creditors.
(ii) Accrued interest was not collected whereas there was a contingent liability of Rs. 600 which was met. (iii) Other assets realised: Plant : Rs. 25,000, Stock: Rs. 11,200, Debtors: Rs. 4,600.
(iv) Realisation expenses Rs. 600.
Prepare Realisation Account, Capital Accounts and Cash Account.
Solution 56

Q57. Sanjay and Sameer were partners in a firm sharing profits in the ratio of 2:3. On 31.3.2021 their Balance Sheet was as follows:
BALANCE SHEET OF S SANJAY AND SAMEER
as at 31.3.2021

The firm was dissolved on 1.4.2018 and the assets and liabilities were settled as follows:
(i) Sanjay agreed to take over land and building at Rs. 3,50,000 by paying cash.
(ii) Stock was sold for Rs. 90,000;
(iii) Creditors accepted Debtors in full settlement of their claim.
Pass necessary journal entries for dissolution of the firm.
Solution 57

Realisation Account
as at 31st March, 2021

Q58. Arun, Tarun and Varun shared Gains in the ratio of 2:2:1. On 31.12.2018 their Balance Sheet was as follows:

On this date the firm was dissolved. Arun was appointed to realise the assets. Arun was to receive 5% commission on the sale of assets (except cash) and was to bear all expenses of realisation.
Arun realised the assets as follows:
Stock Rs. 36,000, Debtors Rs. 45,000, Investments 80% of the book value, Plant Rs. 65,500. Expenses of realisation amounted to Rs. 5,500. Commission received in advance was returned to the customers after deducting Rs. 4,000. Firm had to pay Rs. 8,000 for outstanding wages. This liability was not provided for in the above Balance Sheet Rs. 20,000 had to be paid for provident fund.
Prepare Realisation Account, Capital Accounts and Cash Account.
Solution 58

Q59. Arnab, Ragini and Dhrupad were partners sharing Gains in the ratio of 3 : 1 : 1 On 31st March, 2015, they decided to dissolve their firm. On that date their Balance Sheet was as under:

The assets were realised and the liabilities were paid as under :
(i) Arnab agreed to pay his brother’s loan.
(ii) Investments realised 20% less.
(iii) Creditors were paid at 10% less.
(iv) Building was auctioned for Rs. 3,55,000. Commission on auction was Rs. 5,000.
(v) 50% of the stock was taken over by Ragini at market price which was 20% less than the book value and the remaining was sold at market price.
(vi) Dissolution expenses were Rs. 8,000. Rs. 3,000 were to be borne by the firm and the balance by Dhrupad. The expenses were paid by him.
Prepare Realisation Account, Bank Account and Partner’s Capital Accounts.
Hint. Realisation of Building will be recorded at the net amount of Rs. 3,50,000.
Solution 59

Point for Students:-
(i) Below Entries will be passed if expenses are paid by the firm:
Realisation A/c Dr.
To Cash/Bank A/c
(Realisation expenses paid in cash)
(ii) Below Entries will be passed if expenses of realisation are paid by a partner:
Realisation A/c Dr.
To Partner’s Capital A/c
(Remuneration expenses paid by the partner)

Q60. A, B and C sharing Gains and losses in the ratio of 3 : 2 : 1 agreed to dissolve their partnership firm on 31st March, 2018. A was asked to realise the assets and pay off liabilities. He had to bear the realisation expenses for which he was promised a lump sum amount of Rs. 3,000. Their financial position on that date was as follows:

Information’s :-
(i) Stock was valued at Rs. 40,000 and this was taken over by A and B equally. Lease realised Rs. 1,10,000; Equipment’s at Rs. 18,000; and Accounts Receivable at Rs. 20,000 and other assets proved valueless.
(ii) Actual realisation expenses paid by A amounted to Rs. 1,800.
(iii) There was an unrecorded asset of Rs. 10,000 which was taken over by A at Rs. 12,000.
(iv) A bill of Rs. 3,200 due for sales tax was received during the course of realisatie and this was also paid.
(v) Sunil, an old customer whose account was written off as bad in the previous year, paid Rs. 2,500 which is not included in the above stated accounts receivable.
(vi) Market value of the Shares in X Ltd. is Rs. 100 per share. Half the shares were sold in the market subject to a commission of 2% and the balance half were divided by all the partners in their Gain sharing ratio.
Prepare necessary accounts.
Solution 60

Q61. X, Y and Z decided to dissolve partnership. The position as at 31st December, 2021, the date of dissolution was as follows:

They shared profile in the ratio of X: 1/2, Y: 3/10 and Z: 1/5.
X agreed to bear all realisation expenses. For this service X is paid Rs. 2,000. Actual expenses amounted to Rs. 3,200 which was withdrawn by him from the firm.
Other information’s are :
(1) Assets, with the exception of investments and Cash, are sold for Rs. 1,25,100. 75% of the investments are taken over by X at 75% of their book value. He also agrees to discharge the Bank Loan. The investments were taken over by Y at the market value of 120%
(2) There were outstanding expenses amounting to Rs. 5,000. These were settled for Rs. 2,000. The previous accounts.
(3) A B/R for Rs. 10,000 was received from a customer Mr. Surender Kumar and the bill was discounted from the bank. Surender became insolvent and 75 paise per Rs. were received from his estate.
(4) Commission received in advance was returned to the customers after deducting 60% for work done.
You are required to prepare the necessary accounts.
Solution 61 Realisation Account
As at 31st March, 2021

Q62. A and B shared Gains in the ratio of 7 : 3. They dissolved the partnership and appointed A to realise the assets. A is to receive 6% commission on the amount realised from Stock, Debtors, B/R and Shares. The position of the firm was as follows:

Information’s:
1. A realised the assets as follows:- Full amount from Sundry Debtors and B/R except from one for Rs. 2,000 insolvent. Stock realised Rs. 52,000; Shares in D.C.M were sold for Rs. 60 each.
2. Half the trade creditors accepted plant and machinery at an agreed valuation of 10% less than the book value and cash of Rs. 7,000 in full settlement of their claims.
3. Remaining creditors were paid off at a discount of 10%. Expenses of realisation amounted to Rs. 700.
4. One quarter’s tax amounting to Rs. 1,500 was due and had to be paid.
5. There was a contingent liability amounting to Rs. 13,000. It was settled for Rs. 6,000.
6. Bank Loan was discharged along with interest due for two months @ 18% p.a.
Prepare necessary accounts.
Solution 62

Q63 (new). Pass necessary Journal entries for the following transaction, at the time of dissolution of the firm:
1. Realisation Expenses Rs. 3,000 paid.
2. Realisation Expenses paid by the firm Rs. 2,000; Mr. X one of the partners has to bear these expenses.
3. Y, one of the partners, took over a machine for Rs. 20,000.
4. Z, one of the partners agreed to take over the creditors of Rs. 30,000 for Rs. 20,000.
5. A, one of the partners has given loan to the firm of Rs. 10,000. It was paid back to him at the time of dissolution.
6. Profit and Loss Account balance of Rs. 50,000 appeared on the assets side of the Balance Sheet.
Solution 63 (new).

Q63. E, F and were partners in a firm sharing Gains in the ratio of 2:2:1. On March 31, 2017, their firm was dissolved. On the date of dissolution, the Balance Sheet of the firm was as follows:

F was appointed to undertake the process of dissolution for which he was allowed a remuneration of Rs. 5,000. F agreed to bear the dissolution expenses. Assets realized as follows:
(i) The Land & Building was sold for Rs. 1,08,900.
(ii) Furniture was sold at 25% of book value.
(iii) Machinery was sold as scrap for Rs. 9,000.
(iv) All Debtors were realised at full value.
Creditors were payable on an average of 3 months from the date of dissolution. On discharging the Creditors on the date of dissolution, they allowed a discount of 5%.
Pass necessary Journal entries for dissolution in the books of the firm.
Solution 63

Q64 (new). P and Q share profits and losses in 5:3. What Journal entries would be passed for the following transactions on the dissolution of their firm, after various assets (other than cash) and third party liabilities have been transferred to Realisation Account?
(i) Profit and Loss Account (Dr. Balance) appeared in the books at Rs. 30,000.
(ii) P was asked to look into the dissolution of the firm for which he was allowed a commission of Rs. 2,500.
(iii) Q took over part of the stock at Rs. 6,400 (being 20% less than the book value).
(iv) An unrecorded liabilities amounting to Rs. 10,000 was settled at Rs. 8,000.
(v) Mother Car of the book value of Rs. 80,000 taken over by Creditors of the book value of Rs. 60,000 in full settlement.
Solution 64 (new).

Q64. A, B and C shared Gains in the ratio of 1:2:2. Following is their Balance Sheet on the date of dissolution :

Information:
(i) Land & Buildings were sold at 80% of the book value.
(ii) Stock was given to bills payable in full settlement
(iii) Sundry creditors accepted machinery and paid Rs. 10,000 to the firm.
(iv) Debtors were all good.
(v) An unrecorded asset estimated at Rs. 60,000 was taken over by partner B at Rs. 50,000.
(vi)Firm had to pay Rs.40,000 asw Workmen Compensation.
(vii) A’s Loan was settled by giving him an unrecorded asset of Rs. 75,000 at Rs. 60,000 and the balance in cash.
(viii) Partner A is to be paid remuneration of Rs. 20,000 for dissolution work Realisation expenses of Rs. 15,000 were paid by the firm.
Prepare necessary accounts.
Solution 64

Q65 (new). Ravi and Mukesh were partners in a firm sharing profit and losses equally. On 31st March, 2019 their firm was dissolved. On the date of dissolution their Balance sheet showed stock of Rs. 60,000 and creditors of Rs. 70,000. After transferring stock and creditors to realisation account the following transactions took palace:
(i) Ravi took over 40% of total stock at 20% discount.
(ii) 30% of total stock was taken over by creditors of Rs. 20,000 in full settlement.
(iii) Remaining stock was sold for cash at a profit of 25%.
(iv) Remaining creditors were paid in cash at a discount of 10%.
Pass necessary journal entries for the above transactions in the books of the firm.
Solution 65 (new).

Q65. Susan, Geeta and Rashi are partners sharing Gains and losses in the ratio of 5: 3:2. Their Balance Sheet as at 31st March, 2017, is as under:

The partners decided to dissolve their partnership on 31st March, 2017.
The following transactions took place at the time of dissolution :
(a) Realization expenses of Rs. 2,000 were paid by Susan on behalf of the firm.
(b) Geta took over the goodwill for her own business at Rs. 40,000.
(c) Building was taken over by Rashi at Rs. 3,00,000.
(d) Only 80% of the debtors paid their dues.
(e) Furniture was sold for Rs. 97,000.
(f) Bank Loan was settled along with interest of Rs. 5,000.
You are required to prepare the Realization Account
Solution 65

DK Goel Solutions Class 12th Chapter 6 Dissolution of Partnership

What do you mean by the dissolution of a partnership firm?

The dissolution of a Partnership firm basically depicts the discontinuation of a business owned by two or more partners. This terminates all the contracts and bonds between the partners of the firm and clear-outs the operation of the business.

When does the dissolution of a partnership firm occur?

Generally, dissolution of a partnership firm occurs when all the partners of the respective firm are termed insolvent. It can also take place when the partnership agreement between the members needs to be subjected to modification. This change in the agreement can occur due to various reasons. For instance, a firm can be dissolved with the change in composition by either adding a new member or eliminating a partner. In these types of circumstances, the dissolution of a partnership, the firm comes into play.

State some primary reasons for the dissolution of a partnership firm?

Although there may be a bunch of reasons for the dissolution of a partnership firm, here are the most prominent ones –
● If there are any modifications in the current profit-sharing ratio between the existing members of the firm.
● If an existing partner retires or deceases.
● In case the partnership was created on the ground of pre-defined objectives, and they are fulfilled presently.
● In case there is any violation of the terms and conditions by the partners.

Mention the ways to dissolve a partnership firm?

Here are the common ways to dissolve a partnership firm –
Pre-defined Contracts – In case the partnership was created for a pre-fined duration, it can be terminated at the accomplishment of the short-term objectives defined in the partnership deed at the time of its creation.
Legal Order – If a partner legally applies to the court to dissolve a firm, and the authority is satisfied to grant the permission, the firm may be dissolved.

What is Partnership Dissolution Deed?

A Partnership Dissolution Deed is a legal document that permits the dissolution of a partnership firm.

What are the three types of a partnership between the members of a firm?

The three types of partnerships are –
● General Partnership
● Limited Liability Partnership
● Limited Partnership

Also refer to TS Grewal Solutions for Class 12

DK Goel Solutions

DK Goel Solutions Chapter 6 Dissolution of Partnership Firm

Dissolution of Partnership Firm DK Goel Class 12 Accountancy Solutions

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