Question

Simar, Tanvi and Umara were partners in a firm sharing profits and losses in the ratio of 5:6:9. On 31st March, 2024 their Balance Sheet was as follows:

Umara died on 30th June, 2024. The partnership deed provided for the following on the death of a partner: 
 

Hint:

On death of a partner: 1. Calculate deceased partner's share of goodwill (based on valuation method in deed) and adjust via Gaining Partners Dr. to Deceased Partner Cr. 2. Calculate deceased partner's share of profit up to date of death (based on time or turnover basis as per deed). Record using P\ Suspense A/c Dr. to Deceased Partner's Capital A/c Cr. 3. Remember to consider the time period for profit calculation and the correct base year profit/loss.

Answer 1

Journal Entries for Partnership Dissolution

Date	Particulars	L.F.	Debit (₹)	Credit (₹)
(i)	Sachin's Capital A/c		72,000
	To Realisation A/c			72,000
(Sachin acquired stock at a 10% discount)
(ii)	Realisation A/c		70,000
	To Virat's Capital A/c			65,000
	To Bank A/c			5,000
(Creditors amounting to ₹70,000 assumed by Virat for ₹65,000)
(iii)	Realisation A/c		3,00,000
	To Bank A/c			3,00,000
(Rohit assumed his wife's loan)
(iv)	Bank A/c		10,000
	To Realisation A/c			10,000
(Old typewriter sold)
(v)	Bank A/c		66,50,000
	To Realisation A/c			70,00,000
	Realisation A/c		3,50,000
	To Bank A/c			3,50,000
(Land and Building sold for ₹70,00,000, with 5% commission paid)
(vi)	Sachin's Capital A/c		10,000
	Virat's Capital A/c		10,000
	Rohit's Capital A/c		10,000
	To Realisation A/c			30,000
(Loss on realisation distributed equally)

Calculations:

• (i) Sachin's stock acquisition: ₹80,000 less 10% discount (₹8,000) equals ₹72,000
• (ii) Virat's creditor assumption:
  • Creditor value: ₹70,000
  • Settlement price: ₹65,000
  • Additional liability settlement on Realisation account: ₹5,000
• (v) Land and Building sale proceeds:
  • Sale amount: ₹70,00,000
  • Commission: ₹70,00,000 × 5% = ₹3,50,000
  • Net proceeds: ₹70,00,000 - ₹3,50,000 = ₹66,50,000
• (vi) Distribution of Realisation Loss:
  • Sachin's share: ₹30,000 / 3 = ₹10,000
  • Virat's share: ₹30,000 / 3 = ₹10,000
  • Rohit's share: ₹30,000 / 3 = ₹10,000

Explanation:

• Asset/Liability Assumption: When a partner takes over an asset or assumes a liability, their capital account is debited or credited accordingly, with the Realisation account reflecting the transaction.
• Asset Sales: Proceeds from asset sales are credited to the Realisation account. Brokerage commissions are deducted from the sale proceeds.
• Realisation Loss Distribution: Any loss incurred on realisation is divided among the partners based on their profit-sharing ratio (equal in this case), reducing their respective capital balances.