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Dissolution of a Partnership Firm 5.3

Payment of an unrecorded liability (which Realisation A/c ...Dr. Paid amount
does not exist in the Balance Sheet) To Cash/Bank A/c
Payment of realisation expenses by Realisation A/c ...Dr. Amount of payment
any partner To Partner’s Capital A/c
Credit balance of Realisation Account Realisation A/c ...Dr. In profit-sharing ratio
(Gain or Profit) To Partners’ Capital A/cs
Debit balance of Realisation Account Partners’ Capital A/cs ...Dr. In profit-sharing ratio
(Loss) To Realisation A/c

Notes:

1. When an asset or liability is taken to the Realisation Account any related fund or reserve is also transferred
to Realisation Account and not to Partners’ Capital Accounts.
2. If the question is silent about the realisation of an asset, its value is assumed to be nil.
3. If the question is silent about the payment of a liability, then it has to be paid out in full.
4. Bank overdraft is taken to the Bank/Cash A/c and not transferred to Realisation Account but bank loan is
transferred to Realisation Account.
5. Loan taken from a partner is passed through Cash or Bank Account.
6. Loan given to a partner is transferred (debited) to his Capital Account.

Solved Questions

Illustration 1.
Following was the Balance Sheet of Fox and Wolf as at 31st March, 2018, when they
decided to dissolve the firm:
Liabilities ` Assets `
Creditors 88,500 Cash at Bank 4,500
Ms. Wolf’s Loan 40,000 Stock 18,000
Bills Payable 23,000 Debtors 42,000
Capital A/cs: Furniture 12,000
Fox 30,000 Machinery 1,06,500
Wolf 24,000 54,000 Profit and Loss A/c 22,500
2,05,500 2,05,500
The assets realised: Stock—` 10,500; Debtors—` 27,750; Machinery—` 88,500. Furniture
was taken by Fox at ` 7,500. Bills Payable were paid in full, while Creditors were settled
at 2% discount. Ms. Wolf accepted ` 38,500 in full settlement of her Loan Account. There
was a claim for damages against the firm for ` 4,000 which was settled at ` 2,000.
One customer, whose account was written off as bad, now paid ` 1,800, which is not
included in ` 27,750 given above. Actual Realisation Expenses amounted to ` 2,100.
Prepare Realisation Account, Partners’ Capital Accounts and Bank Account to close the
books of the firm. (ISC 1995, Modified)