Question

Pass necessary Journal entries for the following transactions on the dissolution of a firm after the transfer of assets and liabilities has been made to Realisation Account:
(i) Debtors of ₹ 60,000; provision for doubtful debts ₹ 2,000. ₹ 56,000 were collected.
(ii) Creditors were ₹ 80,000; settled at ₹ 76,000.

Hint:

On dissolution, record asset realization and liability payments through Realisation A/c. Any gain or loss is transferred appropriately.

Answer 1

Correct Answer: (i) Bank A/c Dr. 56,000
Provision for Doubtful Debts A/c Dr. 2,000
To Realisation A/c 58,000

(ii) Realisation A/c Dr. 80,000
To Bank A/c 76,000
To Profit on Settlement A/c 4,000
Step 1: For Debtors Collection.
Debtors recorded = ₹ 60,000, but only ₹ 56,000 is collected. Provision for Doubtful Debts = ₹ 2,000
\[ \text{Loss = } ₹ 60,000 - ₹ 56,000 - ₹ 2,000 = ₹ 2,000 \] So, ₹ 2,000 is absorbed by the provision. Journal Entry: \[ \text{Bank A/c Dr. ₹ 56,000}
\text{Provision for Doubtful Debts A/c Dr. ₹ 2,000}
\text{To Realisation A/c ₹ 58,000} \] Step 2: For Creditors Settlement.
\[ \text{Creditors = ₹ 80,000, settled at ₹ 76,000 → Gain = ₹ 4,000} \] Journal Entry: \[ \text{Realisation A/c Dr. ₹ 80,000}
\text{To Bank A/c ₹ 76,000}
\text{To Profit on Realisation A/c ₹ 4,000} \]