Question

Pass the necessary journal entries for the following transactions on the dissolution of a partnership firm of Vibha and Ajit after various assets (other than cash) and external liabilities have been transferred to Realisation Account:}
Creditors worth ₹ 46,000 accepted ₹ 9,000 cash and furniture of ₹ 32,000 in full settlement of their claim.

The firm had stock of ₹ 20,000. Ajit took over 40% of the stock at a discount of 10% while the remaining stock was sold for ₹ 18,000.

Vibha was appointed to look after dissolution work for which she was allowed a remuneration of ₹ 16,000. Vibha agreed to bear the dissolution expenses. Actual dissolution expenses ₹ 15,000 were paid by Vibha.

Ajit’s loan of ₹ 45,000 was settled at ₹ 42,000.

A machine which was not recorded in the books was taken over by Vibha at ₹ 23,000, whereas its expected value was ₹ 28,000.

The firm had a debit balance of ₹ 20,000 in the Profit and Loss Account on the date of dissolution.

Hint:

In dissolution, assets/liabilities are transferred to the Realisation Account. Take special care when partners take over assets, or any expense arrangements are made.

Answer 1

Ajit’s Capital A/c Dr  
    To Realisation A/c 
(Ajit acquired 40% of stock valued at $20,000$ at a 10% discount, costing $8,000 \times 0.90 = 7,200$) 7,200 7,200  Bank A/c Dr 
    To Realisation A/c 
(Remaining 60% stock sold for $18,000$) 18,000 18,000  Realisation A/c Dr 
    To Vibha’s Capital A/c 
(Vibha's remuneration for dissolution work was $16,000$; she agreed to cover actual expenses of $15,000$ personally, thus no firm expense entry) 16,000 16,000  Ajit’s Loan A/c Dr 
    To Bank A/c 
    To Realisation A/c 
(Ajit's loan of $45,000$ was settled for $42,000$, with a $3,000$ discount credited to Realisation) 45,000 42,000
3,000  Vibha’s Capital A/c Dr 
    To Realisation A/c 
(Unrecorded machine taken by Vibha for $23,000$) 23,000 23,000  Vibha’s Capital A/c Dr   ₹10,000 
Ajit’s Capital A/c Dr     ₹10,000 
    To Profit & Loss A/c   ₹20,000 
(Debit balance of P&L A/c transferred to partners in the old ratio $1:1$) 20,000 20,000