Question

At the time of dissolution of a firm, firm’s total assets were ₹ 5,00,000, creditors were ₹ 1,00,000. Realisation expenses amounted to ₹ 10,000. Assets realised 20% more than the book value and creditors were paid 5% less. Gain/loss on realisation will be

• A. Gain ₹ 95,000.
• B. Loss ₹ 75,000.
• C. Gain ₹ 4,95,000.
• D. Loss ₹ 1,00,000.

Hint:

A faster way to calculate this is to look at the "net changes":
• Profit from Assets: +₹ 1,00,000 (20% of 5L)
• Profit from Creditors: +₹ 5,000 (5% of 1L)
• Realisation Expenses: -₹ 10,000
• Net Result: $1,00,000 + 5,000 - 10,000 = ₹ 95,000$ Gain.

Answer 1

The Correct Option is A

Step 1: Understanding the Concept:
The Gain or Loss on Realisation is determined by comparing the total amounts credited to the Realisation Account (sale of assets and liabilities settled at a lower value) against the total amounts debited (book value of assets, settlement of liabilities, and expenses).
Key Formula or Approach:
\[ \text{Gain/Loss} = (\text{Assets Realised} + \text{Book Value of Liabilities}) - (\text{Book Value of Assets} + \text{Payment to Liabilities} + \text{Realisation Expenses}) \]
Step 2: Detailed Explanation:
1. Calculate Realised Assets:
Book Value = 5,00,000
Realised at 20% more = \( 5,00,000 + (20% \text{ of } 5,00,000) = 5,00,000 + 1,00,000 = 6,00,000 \).
2. Calculate Creditors Payment:
Book Value = 1,00,000
Paid at 5% less = \( 1,00,000 - (5% \text{ of } 1,00,000) = 1,00,000 - 5,000 = 95,000 \).
3. Realisation Expenses: 10,000.
4. Final Calculation:
\[ \text{Gain/Loss} = (6,00,000 + 1,00,000) - (5,00,000 + 95,000 + 10,000) \]
\[ \text{Gain/Loss} = 7,00,000 - 6,05,000 = 95,000 \]
Since the result is positive, it is a Gain.
Step 3: Final Answer:
The gain on realization is Rs. 95,000.