Question

Pass necessary journal entries for the following at the time of dissolution of partnership firm of A and
B who are sharing profits and losses in the ratio of 3 : 2.
(a) Machinery costing 40,000 were taken over by B at 10% less than the book value.
(b) There were unrecorded investment costing 30,000 which were taken over by creditors of~ 75,000
in part payment, rest creditors were paid at 10% discount.
(c) A agreed to take~ 3,800 in full settlement of his loan of~ 4,000 given to the firm.
(d) Expenses of realisation f 15,000 were paid by partner B, of which f 12,000 were borne by firm.

Answer 1

Answer :

• (a) Machinery (Dr.) 40,000, B's Capital (Cr.) 36,000, Loss on Sale of Machinery (Dr.) 4,000, A's Capital (Cr.) 2,400, B's Capital (Cr.) 1,600.

• (b) Unrecorded Investment (Dr.) 30,000, Creditors (Cr.) 75,000, A's Capital (Cr.) 45,000, B's Capital (Cr.) 30,000.

• (c) A's Loan (Dr.) 4,000, A's Capital (Cr.) 3,800, Loss on Settlement (Dr.) 200, A's Capital (Cr.) 120, B's Capital (Cr.) 80.

• (d) Realization Expenses (Dr.) 15,000, A's Capital (Dr.) 7,200, B's Capital (Dr.) 4,800.

Explanation :

• For (a) Machinery:

Machinery has a book value of 40,000

B is taking over the machinery at 10% less than the book value, so the purchase price is 40,000 - (10/100)*40,000 = 36,000

Loss on sale of machinery is 40,000 - 36,000 = 4,000

As per the profit and loss sharing ratio, A will bear 3/54,000 = 2,400 of the loss and B will bear 2/54,000 = 1,600 of the loss

• For (b) Unrecorded Investment:

Unrecorded Investment has a book value of 30,000

Creditors are taking over the investment for 75,000, which is more than the book value, so there is no loss on this transaction

A and B will settle their capital accounts as per the profit and loss sharing ratio, 3/575,000 = 45,000 will be credited to A's capital account and 2/575,000 = 30,000 will be credited to B's capital account

• For (c) Settlement of Loan:

A's loan has a book value of 4,000

A is accepting 3,800 in full settlement, so there is a loss of 4,000 - 3,800 = 200

As per the profit and loss sharing ratio, A will bear 3/5200 = 120 of the loss and B will bear 2/5200 = 80 of the loss

• For (d) Realization Expenses:

Realization expenses are 15,000, of which 12,000 are borne by the firm

A and B will settle their capital accounts as per the profit and loss sharing ratio, 3/512,000 = 7,200 will be debited from A's capital account and 2/512,000 = 4,800 will be debited from B's capital account.

So the journal entries would be as follows:

(a) Machinery (Dr.) 40,000

B's Capital (Cr.) 36,000

Loss on Sale of Machinery (Dr.) 4,000

A's Capital (Cr.) 2,400

B's Capital (Cr.) 1,600

(b) Unrecorded Investment (Dr.) 30,000

Creditors (Cr.) 75,000

A's Capital (Cr.) 45,000

B's Capital (Cr.) 30,000

(c) A's Loan (Dr.) 4,000

A's Capital (Cr.) 3,800

Loss on Settlement (Dr.) 200

A's Capital (Cr.) 120

B's Capital (Cr.) 80

(d) Realization Expenses (Dr.) 15,000

A's Capital (Dr.) 7,200

B's Capital (Dr.) 4,800

It's important to note that these entries assume that the assets, liabilities and capital are recorded at the book value.

To know more about the concept please go through the links :

https://brainly.in/question/10785718

https://brainly.in/question/28180575

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