Account and the up
Ans. Loss on Realisation ? 2,800; Payments WA 10,000)
Opening Balance Sheet
After having paid off all liabilities at a discount of 10% for 3 14,750 the balance of cash was found to be
1,35,600. The realisation expenses on dissolution were ? 1,600. Prepare Opening Balance Sheet, Realisation
Alc, Capital A/cs and Cash A/c of a firm.
,789; Loss on Realisation * 2,26,000; Cash paid to Partners : A* 34,600, B* 29,600,
A, B and C were partners in a firm. They share profit and loss in the proportion of 4:4:2. Their capitals are
1,25,000; 7 1,20,000 and 1,15,000 respectively. The firm was dissolved on 31st March, 2016.
Answers
Answer:
Accounting Treatment
On dissolution, the books of the firm are to be closed. Dissolution process starts by opening the following accounts in the firm’s books:
Realisation Account,
Partner’s Loan Account,
Partners’ Capital Accounts,
Bank or Cash Account.
1] Realisation Account
The object of preparing Realisation account is to close the books of accounts of the dissolved firm and to determine profit or loss on the Realisation of assets and payment of liabilities. It is prepared by:
Transferring all the assets except Cash or Bank Account to the debit side of the account.
Transferring all the liabilities except Partner’s Loan Account and Partners’ Capital Accounts to the credit side of the account.
Crediting the Receipt on the sale of assets to the account.
Debiting the payment of Liabilities to the account.
Debiting the dissolution expenses of the firm.
The balance in the account may be either profit or loss. We transfer this balance to the Capital Accounts of the Partners in their profit-sharing ratio.
Browse more Topics under Dissolution Of Partnership Firm
Dissolution of Partnership and Settlement of Accounts
Learn more about Adjustment for Revaluation of Assets and Liabilities here
REALISATION ACCOUNT
Particulars Amount Particulars Amount
To Land and Building A/c By Provision for Doubtful Debts A/c
To Plant and Machinery A/c By Sundry Creditors A/c
To Furniture A/c By Bills Payable A/c
To Stock A/c By Outstanding Expenses A/c
To Debtors A/c By Bank Loan, Overdraft A/c
To Goodwill A/c By Bank/Cash A/c ( assets realized)
To Investment A/c Land and Building
To Bank/Cash A/c (liabilities paid): Plant and Machinery
Sundry Creditors Furniture
Bills Payable Stock
Outstanding Expenses Debtors
Bank loan, overdraft Bad Debts Recovered
Bank/Cash (expenses realised) Investment
To Partners’ Capital A/c (expenses paid) By Partners’ Capital A/c (taking over of assets )
To Partners’ Capital A/c (gain) By Partners’ Capital A/c (loss)
Accounting Treatment of Dissolution: Realisation Account, Capital Accs
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2] Partner’s Loan Account
We do not transfer the loan by a partner to firm to Realisation account, it remains in its account itself. At the time of settlement, i.e., payment of liabilities, we pay partner’s loan after paying the outside liabilities but before payment of capital.
Following entry is the entry on payment of Partner’s loan:
Date Particulars Amount (Dr.) Amount (Cr.)
Partner’s loan A/c Dr.
To Bank/Cash A/c
(being partners’ loan paid)
3] Partners’ Capital Accounts
If partners take over firm’s assets, we debit it to their Capital Accounts at the agreed value being payment against their capital. If a partner takes over the liability of the firm, we credit it to their Capital Accounts. In addition, we also transfer undistributed profits/losses, reserves and Realisation profit/loss to capital accounts in their profit-sharing ratio. Entries are:
1] On transfer of undistributed profits/losses and reserves:
Date Particulars Amount (Dr.) Amount (Cr.)
Profit and Loss A/c Dr.
General reserve A/c Dr.
To Partners’ Capital A/c
(being profit transferred to capital A/c)
Partners’ Capital A/cs Dr.
To Profit and Loss A/c
To Deferred Revenue Expenditure A/c
(being loss transferred to capital Accounts)
2] Transfer of Realisation profit/ loss
Date Particulars Amount (Dr.) Amount (Cr.)
Realisation A/c
To Partners’ Capital A/c
(being Realisation profit transferred)
Partners’ Capital A/cs
To Realisation A/c
(being Realisation loss transferred)
3] For final settlement with partners:
a. The partner brings Cash to meet the deficiency in capital
Date Particulars Amount (Dr.) Amount (Cr.)
Bank/Cash A/c Dr.
To Partners’ Capital A/c
(being amount brought by partner)
b. On payment to partners or closing partners’ capital accounts
Date Particulars Amount (Dr.) Amount (Cr.)
Partners’ Capital A/c Dr.
To Bank/Cash A/c
(being amount paid to partner)
4] Bank or Cash Account
On the debit side, we show opening balance, the amount received from the sale of assets and amount brought by partners. And on the credit side, we show payment of liabilities, expenses and amount paid to partners.
Explanation:
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