Question

What journal entries would you pass for the following transactions on the dissolution of a firm of A and B?
(i) Dissolution expenses amounted to Rs. 500.
(ii) Unrecorded assets realised Rs. 2,500.
(iii) Stock worth Rs. 2,000 already transferred to Realisation A/c was taken over by partner A.
(iv) Creditors, already transferred to Realisation A/c, were paid Rs. 3,000.
(v) Profit on realisation Rs. 4,000 is to be distributed between A and B in the ratio of 3 : 1.

Hint:

On dissolution, \textbf{all} receipts/payments related to assets/liabilities flow through \emph{Realisation A/c}. Expenses → Realisation Dr; proceeds → Realisation Cr; partner take-over → Partner Dr; final profit/loss → Partners’ capitals in old ratio.

Answer 1

Step 1: Recall dissolution rules (Realisation A/c).
On dissolution, all assets (except cash/bank, fictitious assets) and liabilities are transferred to the \emph{Realisation Account}.

Expenses of realisation are \emph{debited} to Realisation A/c when borne by the firm.
Cash received from sale/realisation of assets (including \emph{unrecorded} assets) is \emph{credited} to Realisation A/c via Bank.
If any asset is taken over by a partner, debit the partner’s Capital A/c and credit Realisation A/c at agreed value.
Payment of liabilities is debited to Realisation A/c (credit Bank).
Finally, the profit or loss on Realisation is transferred to partners’ capital accounts in their \emph{old profit-sharing ratio}.

Step 2: Apply the rules to each transaction.
(i) Dissolution expenses of Rs. 500 paid by the firm reduce the realisation profit: \(\text{Realisation Dr} \to \text{Bank}\).
(ii) Unrecorded asset realised Rs. 2,500: receipt comes in Bank; credit Realisation because it increases the realisation proceeds.
(iii) Stock (already in Realisation) taken over by A: charge A’s capital and credit Realisation with Rs. 2,000.
(iv) Creditors settled for Rs. 3,000: debit Realisation (liability paid) and credit Bank.
(v) Given \emph{profit} on Realisation = Rs. 4,000; distribute in ratio \(3:1\) → A = 3,000; B = 1,000. Entry: Realisation Dr 4,000 → A’s Capital 3,000; B’s Capital 1,000.
Step 3: Present the journal entries (with narrations).
\[ \begin{aligned} \text{(i)}\ & \text{Realisation A/c Dr 500} && \text{To Bank A/c 500} && \text{(Being dissolution expenses paid)}
\text{(ii)}\ & \text{Bank A/c Dr 2,500} && \text{To Realisation A/c 2,500} && \text{(Being unrecorded asset realised)}
\text{(iii)}\ & \text{A's Capital A/c Dr 2,000} && \text{To Realisation A/c 2,000} && \text{(Being stock taken over by A)}
\text{(iv)}\ & \text{Realisation A/c Dr 3,000} && \text{To Bank A/c 3,000} && \text{(Being creditors paid)}
\text{(v)}\ & \text{Realisation A/c Dr 4,000} && \text{To A's Capital A/c 3,000} && \text{(Being realisation profit)}
& && \text{To B's Capital A/c 1,000} && \end{aligned} \]
Final Answer: \[ \boxed{\text{Journal entries (i)–(v) as listed above; Realisation profit shared A:Rs.3,000,\ B:Rs.1,000.}} \] % Quciktip