Question

Pass necessary journal entries for the following transactions on dissolution of the firm of Sachin, Virat, and Rohit after various assets (other than cash) and third-party liabilities have been transferred to Realisation Account:

(i) Sachin took over stock of book value of ₹ 80,000 at a discount of 10%.

(ii) Virat agreed to take over the firm's creditors of the book value of ₹ 70,000 at a valuation of ₹ 65,000.

(iii) Rohit took over his wife's loan of ₹ 3,00,000.

(iv) There was an old typewriter which had been written off completely from the books. It realised ₹ 10,000.

(v) Land and Building of the book value of ₹ 50,00,000 was sold for ₹ 70,00,000 through a broker who charged 5% commission on the deal.

(vi) Loss on realisation ₹ 30,000 was to be distributed between Sachin, Virat, and Rohit equally.

Hint:

In Dissolution: - Assets taken by partner: Partner Capital Dr, Realisation Cr. - Liability paid/taken by partner: Realisation Dr, Partner Capital Cr. - Asset realised (Cash/Bank): Bank Dr, Realisation Cr. - Liability paid (Cash/Bank): Realisation Dr, Bank Cr. - Realisation Expenses paid by firm: Realisation Dr, Bank Cr. (If paid by partner: Realisation Dr, Partner Capital Cr). - Unrecorded Asset Realised: Bank Dr, Realisation Cr. - Unrecorded Liability Paid: Realisation Dr, Bank Cr. - Final Balance of Realisation A/c (Profit/Loss) transferred to Partners' Capital A/cs in PSR.

Answer 1

Journal Entries for Partnership Dissolution

Date	Particulars	L.F.	Debit (₹)	Credit (₹)
(i)	Sachin's Capital Account		72,000
	To Realisation Account			72,000
(Sachin acquired stock at a 10% discount)
(ii)	Realisation Account		70,000
	To Virat's Capital Account			65,000
	To Bank Account			5,000
(Creditors of ₹70,000 were taken over by Virat for ₹65,000)
(iii)	Realisation Account		3,00,000
	To Bank Account			3,00,000
(Rohit assumed responsibility for his wife's loan)
(iv)	Bank Account		10,000
	To Realisation Account			10,000
(Proceeds from the sale of an old typewriter)
(v)	Bank Account		66,50,000
	To Realisation Account			70,00,000
	Realisation Account		3,50,000
	To Bank Account			3,50,000
(Land and Building sold for ₹70,00,000; 5% commission paid)
(vi)	Sachin's Capital Account		10,000
	Virat's Capital Account		10,000
	Rohit's Capital Account		10,000
	To Realisation Account			30,000
(Loss on realisation distributed equally)

Calculations:

• (i) Stock taken by Sachin: ₹80,000 - (10% of ₹80,000) = ₹72,000
• (ii) Creditors taken by Virat:
  • Original Creditor Amount = 70,000
  • Settlement Amount = 65,000
  • Excess Liability Paid = 5,000
• (v) Land and Building Sale Proceeds:
  • Gross Sale Amount = 70,00,000
  • Commission = 5% of 70,00,000 = 3,50,000
  • Net Proceeds = 70,00,000 - 3,50,000 = 66,50,000
• (vi) Distribution of Realisation Loss:
  • Loss per partner (Sachin) = 30,000 ÷ 3 = 10,000
  • Loss per partner (Virat) = 30,000 ÷ 3 = 10,000
  • Loss per partner (Rohit) = 30,000 ÷ 3 = 10,000

Explanation:

• Asset Acquisition/Liability Assumption by Partners: When a partner takes over an asset or assumes a liability, their capital account is debited or credited accordingly. The Realisation account is used to record these transactions.
• Asset Sales: Proceeds from asset sales are credited to the Realisation account. Any commissions paid for sales are debited.
• Distribution of Realisation Loss: Any loss incurred during realisation is divided among the partners according to their profit-sharing ratio (in this case, equally), reducing their respective capital balances.