Question

A, B, C, and D share profit and loss in the ratio of 4 : 3 : 2 : 1. The partnership was dissolved on 31st March, 2024. The firm’s balance sheet on this date was as follows: 

 

Liabilities	Amount (Rs.)	Assets	Amount (Rs.)
Creditors	1,20,000	Cash at Bank	8,000
Bills Payable	20,000	Bills Receivable	40,000
Capital A	80,000	Debtors	1,40,000
Capital C	1,20,000	Stock	92,000
		Capital B	40,000
		Capital D	20,000
Total	3,40,000	Total	3,40,000

90% of Book value was realised from Debtors and Bills Receivable. Stock could be sold for ₹ 78,000. Outstanding salary of ₹ 2,000, which was not shown in the Balance Sheet, was also paid. The realisation expenses amounted to ₹ 6,000.
B is insolvent and only ₹ 32,000 could be recovered from him. The rule of Garner v/s Murray shall apply.
Prepare Realisation Account and Partners' Capital Account.

Hint:

In the dissolution of a partnership, the Realisation Account records the realization of assets and payment of liabilities before distributing the remaining balance among the partners.

Answer 1

Step 1: Preparation of Realisation Account.
The first step in the dissolution of a partnership is to prepare a Realisation Account, which records the sale of assets and settlement of liabilities. The Realisation Account helps to transfer the assets and liabilities to the respective partners' capital accounts.

Step 2: The Realisation Account.
\[ \text{Realisation Account} \] \[ \begin{array}{|l|r|r|} \hline \textbf{Particulars} & \textbf{Debit (Rs.)} & \textbf{Credit (Rs.)} \\ \hline \text{To Cash/Bank (Assets realized)} & 78,000 & \\ \text{To Bills Receivable (90\% of Book Value)} & 72,000 & \\ \text{To Debtors (Recovered)} & 32,000 & \\ \text{To Stock (Sale proceeds)} & 92,000 & \\ \hline \text{By Creditors (Paid off)} & & 120,000 \\ \text{By Bills Payable (Paid off)} & & 20,000 \\ \text{By Realisation Expenses (Expenses incurred)} & & 6,000 \\ \text{By Capital A (Remaining Balance)} & & 80,000 \\ \text{By Capital B (Remaining Balance)} & & 40,000 \\ \text{By Capital C (Remaining Balance)} & & 20,000 \\ \text{By Capital D (Remaining Balance)} & & 60,000 \\ \hline \text{Total} & 310,000 & 310,000 \\ \hline \end{array} \] 
Step 3: Adjustments of Assets and Liabilities.
The realisation of assets was completed by the sale of bills receivable, stock, and debtors. Debtors were recovered at 90% of their book value. The liabilities were settled, and the realisation expenses incurred amounted to Rs. 6,000.

Step 4: Allocation of Profit/Loss.
The profit or loss from the realisation account is shared among the partners in their profit-sharing ratio. In this case, the ratio is 4 : 3 : 2 : 1.

Step 5: Conclusion.
The final step involves transferring the balances from the Realisation Account to the respective partners’ capital accounts based on the agreed-upon profit-sharing ratio.

Final Answer:
\[ \boxed{\text{The Realisation Account is prepared to settle the assets and liabilities during the dissolution of the partnership.}} \]