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 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.