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 Dissolution of the Firm

Date	Particulars	L.F.	Debit (₹)	Credit (₹)
(i)	Sachin's Capital A/c		72,000
	To Realisation A/c			72,000
(Sachin took over stock at a discount of 10%)
(ii)	Realisation A/c		70,000
	To Virat's Capital A/c			65,000
	To Bank A/c			5,000
(Creditors of ₹70,000 taken over by Virat at ₹65,000)
(iii)	Realisation A/c		3,00,000
	To Bank A/c			3,00,000
(Rohit took over his wife's loan)
(iv)	Bank A/c		10,000
	To Realisation A/c			10,000
(Old typewriter realised)
(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 through a broker; 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 took over stock: ₹80,000 - (10% of ₹80,000) = ₹80,000 - ₹8,000 = ₹72,000
• (ii) Virat agreed to take over creditors:
  • Creditor value = 70,000
  • Settlement Price = 65,000
  • Additional Payment for liability on Realisation account = 5,000
• (v) Land and Building sale:
  • Amount Received = 70,00,000
  • Commission amount = 70,00,000 × 5% = 3,50,000
  • Net amount = 70,00,000 - 3,50,000 = 66,50,000
• (vi) Realisation Loss:
  • Equal distribution for Sachin = 30,000 ÷ 3 = 10,000
  • Equal distribution for Virat = 30,000 ÷ 3 = 10,000
  • Equal distribution for Rohit = 30,000 ÷ 3 = 10,000

Explanation:

• Taking over assets/liabilities: When a partner takes over an asset or agrees to pay a liability, their capital account is adjusted. The Realisation account is used to reflect the transaction.
• Sale of Assets: Money Received is credited to realisation and deducted from brokers commission (if they charge brokerage commission).
• Distribution of Realisation Loss: The loss is distributed between the partners in their profit-sharing ratio (stated as equal in the given question), which reduces their capital balances.