Question

Madhur and Neeraj were partners in a firm sharing profits and losses in the ratio of 3 : 2. The Balance Sheet as at 31st March, 2024 was as follows: Balance Sheet of Madhur and Neeraj as at 31^st March, 2024

Liabilities	Amount (₹)	Assets	Amount (₹)
Capitals:		Machinery	7,00,000
Madhur	9,00,000	Investments	4,00,000
Neeraj	8,00,000	Debtors	11,00,000
Creditors	6,00,000	Stock	2,00,000
Bills Payable	2,00,000	Cash at Bank	1,00,000
Total	25,00,000	Total	25,00,000

The firm was dissolved on the above date and the following transactions took place: 

Machinery was taken over by creditors in full settlement of their account. 
Investments were taken over by Neeraj at 5,00,000. 
One of the debtors of  1,00,000 was untraceable. Remaining debtors were realised at 10% less. 
Stock was taken over by Madhur at 50% discount. 
Realisation expenses amounting to 1,00,000 were paid by Madhur. 
Prepare Realisation Account.

Hint:

For realisation accounts, always list asset values at book value on the debit side and realised/taken-over values on the credit side.

Answer 1

Phase 1: Ascertaining Realized Amounts

• Creditors assumed machinery; no cash flow occurred.
• Neeraj took over investments valued at ₹5,00,000, recorded as a debit to Realisation A/c and a credit to Neeraj's Capital A/c.
• Debtors:
  • Gross amount: ₹11,00,000
  • Less: Unrecoverable: ₹1,00,000
  • Recoverable amount: ₹10,00,000, realized at 90% = ₹9,00,000
• Stock: 50% of ₹2,00,000 = ₹1,00,000 (acquired by Madhur)
• Realisation Expenses: ₹1,00,000 (settled by Madhur, debited to Realisation A/c)

Phase 2: Realisation Account Summary

Item	Debit (₹)	Item	Credit (₹)
Machinery A/c	7,00,000	Creditors (assets taken over)	6,00,000
Investments A/c	4,00,000	Neeraj's Capital A/c (Investments)	5,00,000
Debtors A/c	11,00,000	Bank A/c (Debtors realized)	9,00,000
Stock A/c	2,00,000	Madhur's Capital A/c (Stock)	1,00,000
Bank A/c (Expenses)	1,00,000
Total	25,00,000	Total	21,00,000

 

Total Loss on Realisation: ₹4,00,000

Distribution of Loss (Ratio 3:2):

• Madhur's Share: (3/5) × ₹4,00,000 = ₹2,40,000
• Neeraj's Share: (2/5) × ₹4,00,000 = ₹1,60,000

Conclusion: A realization loss of ₹4,00,000 is allocated between Madhur (₹2,40,000) and Neeraj (₹1,60,000).