Question

ABC & Co. had 3 partners: Alok, Bhavya, and Chirag, sharing profits in 4:3:3. The firm dissolved on 31 March 2024. Assets worth ₹9,00,000 were realized at 80%, creditors of ₹70,000 were paid, and an unrecorded liability of ₹20,000 was settled for ₹15,000. Realization expenses of ₹25,000 were borne by Alok.
Find the amount realized from assets.
What journal entry is made for realization expenses paid by Alok?
The unrecorded liability settled at a lesser value causes:

Hint:

In partnership dissolution, realization expenses and savings from unrecorded liabilities are shared among the partners based on their profit-sharing ratio.

Answer 1

Q1: Proceeds from Asset Sale
Assets valued at ₹9,00,000 were sold at 80% of their value. The realization amount is calculated as: \[ \text{Amount realized} = 9,00,000 \times 0.80 = ₹7,20,000 \] Consequently, the asset sale proceeds amount to ₹7,20,000.
Q2: Journal Entry for Realization Expenses Borne by Alok
Alok incurred ₹25,000 in realization expenses. The corresponding journal entry is: \[ \text{Realization Expenses Account} \quad Dr. \quad ₹25,000 \text{To Alok’s Capital Account} \quad ₹25,000 \] This entry reflects Alok's responsibility for the expenses, debiting the realization expenses account and crediting Alok’s capital account.
Q3: Settlement of Unrecorded Liability at a Discount
An unrecorded liability of ₹20,000 was settled for ₹15,000, resulting in a saving of ₹5,000. This saving is distributed among partners based on their profit-sharing ratio of 4:3:3. The journal entry for the liability settlement is: \[ \text{Creditors Account} \quad Dr. \quad ₹15,000 \text{To Realisation Account} \quad ₹15,000 \] The resulting saving of ₹5,000 is then credited to the partners' capital accounts as follows:

- Alok’s share: \( 5,000 \times \frac{4}{10} = ₹2,000 \)
- Bhavya’s share: \( 5,000 \times \frac{3}{10} = ₹1,500 \)
- Chirag’s share: \( 5,000 \times \frac{3}{10} = ₹1,500 \) The journal entry for this distribution is: \[ \text{To Alok’s Capital Account} \quad ₹2,000 \text{To Bhavya’s Capital Account} \quad ₹1,500 \text{To Chirag’s Capital Account} \quad ₹1,500 \]