NCERT Solutions for Class 12 Accountancy Partnership Accounts Chapter 4

Dissolution of Partnership Firm Class 12

Chapter 4 Dissolution of Partnership Firm Exercise Solutions

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Short answers : Solutions of Questions on Page Number : 252

Q1 :  

State the difference between dissolution of partnership and dissolution of partnership firm.


Answer :

Basis of Difference

Dissolution of Partnership

Dissolution of Partnership firm

 

Meaning

It means change in the partnership deed (or the agreement) among the partners.

It means that the business is wound up and the firm is dissolved.

Discontinuation

Business is not discontinued.

Business is discontinued, as the firm is dissolved.

Closure of Books of Accounts

Books of accounts are not closed, as there is only change in the existing agreement between the partners.

Books of accounts are closed, as the business is discontinued.

 

Assets and Liabilities

In this case, the assets and liabilities are revalued.

In this case, all the assets are sold off in order to pay the liabilities of the business.

Role of Court

There is no intervention by the court.

Dissolution of a partnership firm may be done with the consent of the court.

 

Nature

It is voluntary in nature.

It may be voluntary (as per the discretion of the partners) or compulsory (as per the order of the court).

 

Effect

It may or may not involve dissolution of the firm.

It necessarily involves dissolution of both the partnership as well as of the partnership firm.

 

 

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Q2 :  

State the accounting treatment for:

i. Unrecorded assets

ii. Unrecorded liabilities


Answer :

i) Accounting Treatment for Unrecorded Assets

 Unrecorded asset is an asset, the value of which has been written off in the books of accounts but the asset is still in usable position. The accounting treatment for unrecorded asset is:

a) When the unrecorded asset is sold for cash

Cash A/c

Dr.

 

To Realisation A/c

 

(Unrecorded assets sold for cash)

 

 

b) When the unrecorded asset is taken over by any partner

Partner's Capital A/c

Dr.

 

To Realisation A/c

 

(Unrecorded asset taken over by the partner)

 

 

ii) Accounting Treatment for Unrecorded Liabilities

 Unrecorded liabilities are those liabilities which are not recorded in the books of account. The accounting treatment for unrecorded liability is:

a) When the unrecorded liability is paid off

Realisation A/c

Dr.

 

To Cash A/c

 

(Unrecorded liability paid in cash)

 

 

b) When the unrecorded liability is taken over by a partner

Realisation A/c

Dr.

 

To Partner's Capital A/c

 

(Unrecorded liability  taken over by the partner)

 

 

 

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Q3 :  

On dissolution, how you deal with partner's loan if it appears on the

(a) Assets side of the Balance Sheet

(b) Liabilities side of the Balance Sheet


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Short answersnumerical questionslong answers : Solutions of Questions on Page Number : 253

Q1 :  

Journalise the following transactions regarding Realisation expenses:

[a] Realisation expenses amounted to Rs 2,500.

[b] Realisation expenses amounting to Rs 3,000 were paid by Ashok, one of the partners.

[c] Realisation expenses Rs 2,300 borne by Tarun, personally.

[d] Amit, a partner was appointed to realise the assets, at a cost of Rs 4,000. The actual amount of Realisation amounted to Rs 3,000.


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Q2 :  

Explain the process of dissolution of a partnership firm?


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Q3 :  

Record necessary journal entries in the following cases:

[a] Creditors worth Rs 85,000 accepted Rs 40,000 as cash and Investment worth Rs 43,000, in full settlement of their claim.

[b] Creditors were Rs 16,000. They accepted Machinery valued at Rs 18,000 in settlement of their claim.

[c] Creditors were Rs 90,000. They accepted Buildings valued Rs 1,20,000 and paid cash to the firm Rs 30,000.


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Q4 :  

What is a Realisation Account?


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Q5 :  

There was an old computer which was written-off in the books of Accounts in the pervious year. The same has been taken over by a partner Nitin for Rs 3,000. Journalise the transaction, supposing. That the firm has been dissolved.


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Q6 :  

Reproduce the format of Realisation Account.


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Q7 :  

Distinguish between firm's debts and partner's private debts.


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Q8 :  

What journal entries will be recorded for the following transactions on the dissolution of a firm:

[a] Payment of unrecorded liabilities of Rs 3,200.

[b] Stock worth Rs 7,500 is taken by a partner Rohit.

[c] Profit on Realisation amounting to Rs 18,000 is to be distributed between the partners Ashish and Tarun in the ratio of 5:7.

[d] An unrecorded asset realised Rs 5,500.


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Q9 :  

How deficiency of creditors is paid off?


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Q10 :  

State the order of settlement of accounts on dissolution.


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Q11 :  

Give journal entries for the following transactions:

1. To record the Realisation of various assets and liabilities,

2. A Firm has a Stock of Rs 1,60,000. Aziz, a partner took over 50% of the Stock at a discount of 20%,

3. Remaining Stock was sold at a profit of 30% on cost,

4. Land and Buildging (book value Rs 1,60,000) sold for Rs 3,00,000 through a broker who charged 2%, commission on the deal,

5. Plant and Machinery (book value Rs 60,000) was handed over to a Creditor at an agreed valuation of 10% less than the book value,

6. Investment whose face value was Rs 4,000 was realised at 50%.


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Q12 :  

On what account Realisation Account differs from Revaluation Account.


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<< Previous Chapter 3 : Reconstitution of a Partnership Firm - Retirement/Death of a partner

Numerical questions : Solutions of Questions on Page Number : 254

Q1 :  

How will you deal with the Realisation expenses of the firm of Rashim and Bindiya in the following cases:

1. Realisation expenses amounts to Rs 1,00,000,

2. Realisation expenses amounting to Rs 30,000 are paid by Rashim, a partner.

3. Realisation expenses are to be borne by Rashim for which he will be paid Rs 70,000 as remuneration for completing the dissolution process. The actual expenses incurred by Rashim were Rs 1,20,000.


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Q2 :  

The book value of assets (other than cash and bank) transferred to Realisation Account is Rs 1,00,000. 50% of the assets are taken over by a partner Atul, at a discount of 20%; 40% of the remaining assets are sold at a profit of 30% on cost; 5% of the balance being obsolete, realised nothing and remaining assets are handed over to a Creditor, in full settlement of his claim.

You are required to record the journal entries for Realisation of assets.


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Q3 :  

Record necessary journal entries to record the following unrecorded assets and liabilities in the books of Paras and Priya:

1. There was an old furniture in the firm which had been written-off completely in the books. This was sold for Rs 3,000,

2. Ashish, an old customer whose Account for Rs 1,000 was written-off as bad in the previous year, paid 60%, of the amount,

3. Paras agreed to take over the firm's goodwill (not recorded in the books of the firm), at a valuation of Rs 30,000,

4. There was an old typewriter which had been written-off completely from the books. It was estimated to realize Rs 400. It was taken away by Priya at an estimated price less 25%,

5. There were 100 shares of Rs 10 each in Star Limited acquired at a cost of Rs 2,000 which had been written-off completely from the books. These shares are valued @ Rs 6 each and divided among the partners in their profit sharing ratio.


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Q4 :  

All partners wishes to dissolve the firm. Yastin, a partner wants that her loan of Rs 2,00,000 must be paid off before the payment of capitals to the partners. But, Amart, another partner wants that the capitals must be paid before the payment of Yastin's loan. You are required to settle the conflict giving reasons.


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Q5 :  

What journal entries would be recorded for the following transactions on the dissolution of a firm after various assets (other than cash) on the third party liabilities have been transferred to Reliasation Account.

1. Arti took over the Stock worth Rs 80,000 at Rs 68,000.

2. There was unrecorded Bike of Rs 40,000 which was taken over By Mr. Karim.

3. The firm paid Rs 40,000 as compensation to employees.

4. Sundry creditors amounting to Rs 36,000 were settled at a discount of 15%.

5. Loss on Realisation Rs 42,000 was to be distributed between Arti and Karim in the ratio of 3:4.


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Q6 :  

 

Rose and Lily shared profits in the ratio of 2:3. Their Balance Sheet on March 31, 2006 was as follows:

 

Balance Sheet of Rose and Lily as on March 31, 2006

 

 

Liabilities

Amount

Rs

Assets

Amount

 Rs

Creditors

40,000

Cash

 

16,000

Lily's loan

32,000

Debtors

80,000

 

Profit and Loss

50,000

Less: Provision for doubtful Debts

3,600

76,400

Capitals:

 

 

 

 

Lily

1,60,000

Inventory

 

1,09,600

Rose

2,40,000

Bills Receivable

 

40,000

 

 

Buildings

 

2,80,000

 

5,22,000

 

 

5,22,000

 

 

 

 

 

 

Rose and Lily decided to dissolve the firm on the above date. Assets (except bills receivables) realised Rs 4,84,000. Bills Receivable were taken over by Rose at Rs 30,000. Creditors agreed to take Rs 38,000. Cost of Realisation was Rs 2,400. There was a Motor Cycle in the firm which was bought out of the firm's money, was not shown in the books of the firm. It was now sold for Rs 10,000. There was a contingent liability in respect of outstanding electric bill of Rs 5,000, Bill Receivable taken over by Rose at Rs 33,000.

Show Realisation Account, Partners Capital Account, Loan Account and Cash Account.

 

 


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Q7 :  

 

Shilpa, Meena and Nanda decided to dissolve their partnership on March 31,2006. Their profit sharing ratio was 3:2:1 and their Balance Sheet was as under:

 

Balance Sheet of Shilpa, Meena and Nanda as on March 31, 2006

 

 

Liabilities

Amount

Rs

Assets

Amount

Rs

Capitals:

 

Land

81,000

Shilpa

80,000

Stock

56,760

Meena

40,000

Debtors

18,600

Bank loan

20,000

Nanda's Capital Account

23,000

Creditors

37,000

Cash

10,840

Provision for doubtful debts

1,200

 

 

General Reserve

12,000

 

 

 

1,90,200

 

1,90,200

 

 

 

 

 

The stock of value of Rs 41,660 are taken over by Shilpa for Rs 35,000 and she agreed to discharge bank loan. The remaining stock was sold at Rs 14,000 and debtors amounting to Rs 10,000 realised Rs 8,000. land is sold for Rs 1,10,000. The remaining debtors realised 50% at their book value. Cost of Realisation amounted to Rs 1,200. There was a typewriter not recorded in the books worth Rs 6,000 which were taken over by one of the Creditors at this value. Prepare Realisation Account.

 

 


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Q8 :  

 

Surjit and Rahi were sharing profits (losses) in the ratio of 3:2, their Balance Sheet as on March 31, 2004 is as follows:

 

Balance Sheet of Surjit and Rahi as on March 31, 2004

 

 

Liabilities

Amount

Rs

Assets

Amount

Rs

Creditors

38,000

Bank

11,500

Mrs. Surjit loan

10,000

Stock

6,000

Reserve

15,000

Debtors

19,000

Rahi's loan

5,000

Furniture

4,000

Capital's:

 

Plant

28,000

Surjit

10,000

Investment

10,000

Rahi

8,000

Profit and Loss

7,500

 

86,000

 

86,000

 

 

 

 

 

The firm was dissolved on March 31, 2006 on the following terms:

1. Surjit agreed to take the investments at Rs 8,000 and to pay Mrs. Surjit's loan.

2. Other assets were realised as follows:

Stock

Rs

5,000

Debtors

Rs

18,500

Furniture

Rs

4,500

Plant

Rs

25,000

3. Expenses on Realisation amounted to Rs 1,600.

4. Creditors agreed to accept Rs 37,000 as a final settlement.

You are required to prepare Realisation Account, Partners' Capital Account and Bank Account.

 

 


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Q9 :  

 

Rita, Geeta and Ashish were partners in a firm sharing profits/losses in the ratio of 3:2:1. On March 31, 2006 their balance sheet was as follows:

 

Liabilities

Amount

Rs

Assets

Amount

Rs

Capitals:

 

 

Cash

22,500

Rita

80,000

 

Debtors

52,300

Geeta

50,000

 

Stock

36,000

Ashish

30,000

1,60,000

Investments

69,000

Creditors

 

65,000

Plant

91,200

Bills payable

 

26,000

 

 

General reserve

 

20,000

 

 

 

 

2,71,000

 

2,71,000

 

 

 

 

 

 

On the date of above mentioned date the firm was dissolved:

1. Rita was appointed to realise the assets. Rita was to receive 5% commission on the rate of assets (except cash) and was to bear all expenses of Realisation,

2. Assets were realised as follows:

 

Rs

Debtors

30,000

Stock

26,000

Plant

42,750

3. Investments were realised at 85% of the book value,

4. Expenses of Realisation amounted to Rs 4,100,

5. Firm had to pay Rs 7,200 for outstanding salary not provided for earlier,

6. Contingent liability in respect of bills discounted with the bank was also materialised and paid off Rs 9,800,

Prepare Realisation Account, Capital Accounts of Partners' and Cash Account.

 

 


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Q10 :  

 

Anup and Sumit are equal partners in a firm. They decided to dissolve the partnership on December 31, 2006. When the balance sheet is as under:

 

Balance Sheet of Anup and Sumit as on December 31, 2006

 

 

Liabilities

Amount

Rs

Assets

Amount

Rs

Sundry Creditors

27,000

Cash at bank

11,000

Reserve fund

10,000

Sundry Debtors

12,000

Loan

40,000

Plants

47,000

Capital

 

 

Stock

42,000

Anup

60,000

 

Lease hold land

60,000

Sumit

60,000

1,20,000

Furniture

25,000

 

 

1,97,000

 

1,97,000

 

 

 

 

 

 

The Assets were realised as follows:

 

 

Rs

Lease hold land

72,000

Furniture

22,500

Stock

40,500

Plant

48,000

Sundry Debtors

10,500

 

The Creditors were paid Rs 25,500 in full settlement. Expenses of Realisation amount to Rs 2,500.

Prepare Realisation Account, Bank Account, Partners Capital Accounts to close the books of the firm.

 

 


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Q11 :  

 

Ashu and Harish are partners sharing profit and losses as 3:2. They decided to dissolve the firm on December 31, 2006. Their balance sheet on the above date was:

 

Balance Sheet of Ashu and Harish as on December 31, 2006

 

 

Liabilities

Amount

Rs

Assets

Amount

Rs

Capitals:

 

 

Building

80,000

Ashu

1,08,000

 

Machinery

70,000

Harish

54,000

1,62,000

Furniture

14,000

Creditors

 

88,000

Stock

20,000

Bank overdraft

 

50,000

Investments

60,000

 

 

 

Debtors

48,000

 

 

 

Cash in hand

8,000

 

 

3,00,000

 

3,00,000

 

 

 

 

 

 

Ashu is to take over the building at Rs 95,000 and Machinery and Furniture is take over by Harish at value of Rs 80,000. Ashu agreed to pay Creditor and Harish agreed to meet Bank overdraft. Stock and Investments are taken by both partner in profit sharing ratio. Debtors realised for Rs 46,000, expenses of Realisation amounted to Rs 3,000. Prepare necessary ledger Account.

 

 


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Q12 :  

 

Sanjay, Tarun and Vineet shared profit in the ratio of 3:2:1. On December 31,2006 their balance sheet was as follows:

 

Balance Sheet of Sanjay, Tarun and Vineet as on December 31, 2006

 

 

Liabilities

Amount

Rs

Assets

Amount

Rs

Capitals:

 

 

Plant

90,000

Sanjay

1,00,000

 

Debtors

60,000

Tarun

1,00,000

 

Furniture

32,000

Vineet

70,000

2,70,000

Stock

60,000

Creditors

 

80,000

Investments

70,000

Bills payable

 

30,000

Bills receivable

36,000

 

 

 

Cash in hand

32,000

 

 

3,80,000

 

3,80,000

 

 

 

 

 

 

On this date the firm was dissolved. Sanjay was appointed to realise the assets. Sanjay was to receive 6% commission on the sale of assets (except cash) and was to bear all expenses of Realisation.

Sanjay realised the assets as follows: Plant Rs 72,000, Debtors Rs 54,000, Furniture Rs 18,000, Stock 90% of the book value, Investments Rs 76,000 and Bills receivable Rs 31,000. Expenses of Realisation amounted to Rs 4,500.

Prepare Realisation Account, Capital Accounts and Cash Account

 

 


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Q13 :  

 

The following is the Balance Sheet of Gupta and Sharma as on December 31,2006:

 

Balance Sheet of Gupta and Sharma as on December 31, 2006

 

 

Liabilities

Amount

Rs

Assets

Amount

Rs

Sundry Creditors

38,000

Cash at Bank

12,500

Mrs.Gupta's loan

20,000

Sundry Debtors

55,000

Mrs.Sharma's loan

30,000

Stock

44,000

Reserve fund

6,000

Bills Receivable

19,000

Provision of doubtful debts

4,000

Machinery

52,000

Capital

 

Investment

38,500

Gupta

90,000

 

Fixtures

27,000

Sharma

60,000

1,50,000

 

 

 

2,48,000

 

2,48,000

 

 

 

 

 

The firm was dissolved on December 31, 2006 and asset realised and settlements of liabilities as follows:

(a) The Realisation of the assets were as follows:

 

Rs

Sundry Debtors

52,000

Stock

42,000

Bills receivable

16,000

Machinery

49,000

(b) Investment was taken over by Gupta at agreed value of Rs 36,000 and agreed to pay of Mrs. Gupta's loan.

(c) The Sundry Creditors were paid off less 3% discount.

(d) The Realisation expenses incurred amounted to Rs 1,200.

Journalise the entries to be made on the dissolution and prepare Realisation Account, Bank Account and Partners Capital Accounts.

 

 


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Q14 :  

 

Ashok, Babu and Chetan are in partnership sharing profit in the proportion of 1/2, 1/3, 1/6 respectively. They dissolve the partnership of the December 31, 2006, when the balance sheet of the firm as under:

 

Balance Sheet of Ashok, Babu and Chetan as on December 31, 2006

 

 

Liabilities

Amount

Rs

Assets

Amount

Rs

Sundry Creditors

20,000

Bank

7,500

Bills payable

25,500

Sundry Debtors

58,000

Babu's loan

30,000

Stock

39,500

Capital's:

 

Machinery

48,000

Ashok

70,000

 

Investment

42,000

Babu

55,000

 

Freehold Property

50,500

Chetan

27,000

1,52,000

 

 

Current Accounts :

 

 

 

Ashok

10,000

 

 

 

Babu

5,000

 

 

 

Chetan

3,000

18,000

 

 

 

 

2,45,500

 

2,45,500

 

 

 

 

 

 

The Machinery was taken over by Babu for Rs 45,000, Ashok took over the Investment for Rs 40,000 and Freehold property took over by Chetan at Rs 55,000. The remaining Assets realised as follows: Sundry Debtors Rs 56,500 and Stock Rs 36,500. Sundry Creditors were settled at discount of 7%. A Office computer, not shown in the books of Accounts realised Rs 9,000. Realisation expenses amounted to Rs 3,000.

Prepare Realisation Account, Partners Capital Account, Bank Account.

 

 


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Q15 :  

The following is the Balance sheet of Tanu and Manu, who shares profit and losses in the ratio of 5:3, On December 31,2006:

 

Balance Sheet of Tanu and Manu as on December 31, 2006

 

 

Liabilities

Amount

Rs

Assets

Amount

Rs

Sundry Creditors

 

62,000

Cash at Bank

16,000

Bills Payable

 

32,000

Sundry Debtors

55,000

Bank Loan

 

50,000

Stock

75,000

Reserve fund

 

16,000

Motor car

90,000

Capital:

 

 

Machinery

45,000

Tanu

1,10,000

 

Investment

70,000

Manu

90,000

2,00,000

Fixtures

9,000

 

 

3,60,000

 

3,60,000

 

 

 

 

 

 

On the above date the firm is dissolved and the following agreement was made: Tanu agree to pay the bank loan and took away the sundry debtors. Sundry creditors accepts stock and paid Rs 10,000 to the firm. Machinery is taken over by Manu for Rs 40,000 and agreed to pay of bills payable at a discount of 5%.. Motor car was taken over by Tanu for Rs 60,000. Investment realized Rs 76,000 and fixtures Rs 4,000. The expenses of dissolution amounted to Rs 2,200.

Prepare Realisation Account, Bank Account and Partners Capital Accounts.

 

 


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