Rita, Geeta and Ashish were partners in a firm sharing profits/losses in the ratio of 3:2:1. On March 31, 2017 their balance sheet was as follows: **Balance Sheet of Rita, Geeta and Ashish as on March 31, 2017** | Liabilities | Amount (₹) | Assets | Amount (₹) | |---|---:|---|---:| | Capitals: | | Cash | 22,500 | | Rita | 80,000 | Debtors | 52,300 | | Geeta | 50,000 | Stock | 36,000 | | Ashish | 30,000 | Investments | 69,000 | | Creditors | 65,000 | Plant | 91,200 | | Bills payable | 26,000 | | | | General reserve | 20,000 | | | | **Total** | **2,71,000** | **Total** | **2,71,000** | On the above mentioned date the firm was dissolved: 1. Rita was appointed to realise the assets. Rita was to receive 5% commission on the sale of assets (except cash) and was to bear all expenses of realisation. 2. Assets were realised as follows: 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 ₹4,100. 5. Firm had to pay ₹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 ₹9,800. Prepare Realisation account, Capital Accounts of Partners and Cash Account.

> [!TLDR] > Realisation Account closes with a **Loss on Realisation of ₹1,15,970**, shared by Rita : Geeta : Ashish = 3 : 2 : 1. Rita's realisation **commission is ₹7,870** (she personally bears the ₹4,100 expenses, so they are not recorded in the firm's books). Final cash payments: **Rita ₹39,885, Geeta ₹18,010, Ashish ₹14,005**; the Cash Account totals **₹1,79,900**. ## Concept and treatment - **Rita bears all realisation expenses** in return for a commission, so the ₹4,100 expenses are **not** entered in the firm's books — Rita pays them privately. Only her **commission** is recorded (debited to Realisation, credited to Rita's capital). - **Commission = 5% on assets realised (except cash)** = 5% × ₹1,57,400 = **₹7,870**. - **Outstanding salary ₹7,200** and the **contingent liability ₹9,800** were **not on the books**, so only their **payment** is debited to Realisation — they are pure losses (no transfer credit). - **General Reserve ₹20,000** is credited directly to the capital accounts in 3:2:1. ## Realisation Account | Particulars | Amount (₹) | Particulars | Amount (₹) | |:---|---:|:---|---:| | To Sundry Assets (transferred): | | By Creditors | 65,000 | | Debtors | 52,300 | By Bills Payable | 26,000 | | Stock | 36,000 | By Cash A/c (assets realised): | | | Investments | 69,000 | Debtors 30,000; Stock 26,000; | | | Plant | 91,200 | Plant 42,750; Investments 58,650 | 1,57,400 | | To Cash A/c (Creditors paid) | 65,000 | By Loss on Realisation transferred: | | | To Cash A/c (Bills Payable paid) | 26,000 | Rita's Capital A/c (3/6) | 57,985 | | To Cash A/c (Outstanding salary paid) | 7,200 | Geeta's Capital A/c (2/6) | 38,656.67 | | To Cash A/c (Contingent liability paid) | 9,800 | Ashish's Capital A/c (1/6) | 19,328.33 | | To Rita's Capital A/c (Commission) | 7,870 | | | | **Total** | **3,64,370** | **Total** | **3,64,370** | Loss = Debit total (₹3,64,37

Rita, Geeta and Ashish were partners in a firm sharing profits/losses in the ratio of 3:2:1. On March 31, 2017

Numerical Questions · Q14

Rita, Geeta and Ashish were partners in a firm sharing profits/losses in the ratio of 3:2:1. On March 31, 2017 their balance sheet was as follows:

Balance Sheet of Rita, Geeta and Ashish as on March 31, 2017

Liabilities	Amount (₹)	Assets	Amount (₹)
Capitals:		Cash	22,500
Rita	80,000	Debtors	52,300
Geeta	50,000	Stock	36,000
Ashish	30,000	Investments	69,000
Creditors	65,000	Plant	91,200
Bills payable	26,000
General reserve	20,000
Total	2,71,000	Total	2,71,000

On the above mentioned date the firm was dissolved:

Rita was appointed to realise the assets. Rita was to receive 5% commission on the sale of assets (except cash) and was to bear all expenses of realisation.
Assets were realised as follows: Debtors ₹30,000; Stock ₹26,000; Plant ₹42,750.
Investments were realised at 85% of the book value.
Expenses of realisation amounted to ₹4,100.
Firm had to pay ₹7,200 for outstanding salary not provided for earlier.
Contingent liability in respect of bills discounted with the bank was also materialised and paid off ₹9,800.

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

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Concept understanding — Partnership Accounting

Partnership Accounting — Your First Look

Think of a partnership as a group of friends starting a food stall together. One brings the money, another brings the cooking skills, a third brings the location. They agree to share the profits — but not necessarily equally. They also agree that if the stall loses money, they'll share the loss too.

That's the everyday intuition. Now let's make it precise.

What is a Partnership?

According to the Indian Partnership Act, 1932, a partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. The NCERT Class-12 textbook defines it as a business owned and run by two or more persons (maximum 50, as per Companies Act, 2013) who contribute capital and share profits/losses in an agreed ratio.

The key features are:

Two or more persons — minimum 2, maximum 50
Agreement — written (partnership deed) or oral
Profit-sharing — the core purpose
Unlimited liability — each partner is personally liable for the firm's debts
Mutual agency — each partner can bind the firm and other partners

Why Does Partnership Accounting Matter?

A sole proprietor has one owner — simple. A company has many shareholders — complex but structured. A partnership sits in between. The accounting challenge is: how do we track each partner's claim on the business?

The business is separate from the partners for accounting purposes, but the partners are personally involved. We need to record:

What each partner brings in (capital)
What each partner takes out (drawings)
What each partner earns (interest, salary, commission, share of profit)
What happens when a partner joins or leaves

The Two Key Accounts

1. Capital Account

This records the permanent investment of each partner. There are two methods:

Fixed Capital Method — Capital remains constant unless partners decide to change it. All other transactions go to a separate Current Account.

Fluctuating Capital Method — Capital changes with every transaction (drawings, interest, salary, share of profit/loss). Only one account per partner.

NCERT recommends the Fixed Capital Method for clarity. Here's the format:

Partner's Capital Account (Fixed Capital Method) | Particulars | A (₹) | B (₹) | | Particulars | A (₹) | B (₹) | |---|---|---|---|---|---| | To Balance c/d | 50,000 | 30,000 | | By Balance b/d | 50,000 | 30,000 | | | | | | By Bank (additional capital) | — | — | | Total | 50,000 | 30,000 | | Total | 50,000 | 30,000 |

The opening balance is the capital brought in. The closing balance is the same unless additional capital is introduced or capital is withdrawn permanently.

2. Current Account

This records everything else — drawings, interest on capital, interest on drawings, salary, commission, and share of profit/loss.

Partner's Current Account (Fixed Capital Method) | Particulars | A (₹) | B (₹) | | Particulars | A (₹) | B (₹) | |---|---|---|---|---|---| | To Drawings | 5,000 | 4,000 | | By Balance b/d | 2,000 | 1,000 | | To Interest on Drawings | 250 | 200 | | By Interest on Capital | 3,000 | 1,800 | | To Balance c/d | 5,750 | 3,600 | | By Salary | 6,000 | — | | | | | | By Commission | — | 4,000 | | | | | | By Share of Profit | — | 1,000 | | Total | 11,000 | 7,800 | | Total | 11,000 | 7,800 |

The balance in the Current Account can be debit (overdrawn) or credit (undrawn profit).

The Profit and Loss Appropriation Account

This is the heart of partnership accounting. It shows how the net profit is distributed among partners — not how it is earned.

Important

The Profit and Loss Appropriation Account is an extension of the Profit and Loss Account. It starts with Net Profit (from the P&L Account) and then shows appropriations.

Format:

Profit and Loss Appropriation Account | Particulars | Amount (₹) | | Particulars | Amount (₹) | |---|---|---|---| | To Interest on Capital: | | | By Net Profit (transferred from P&L A/c) | 1,00,000 | | — A | 6,000 | | By Interest on Drawings: | | | — B | 4,000 | | — A | 500 | | To Partner's Salary: | | | — B | 300 | | — A | 12,000 | | | | | To Partner's Commission: | | | | | | — B | 8,000 | | | | | To Profit transferred to: | | | | | | — A's Current A/c (3/5) | 42,120 | | | | | — B's Current A/c (2/5) | 28,080 | | | | | Total | 1,00,800 | | Total | 1,00,800 |

Notice: The total on the debit side equals the total on the credit side. The net profit plus interest on drawings is the distributable profit. …

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On dissolution of the firm of Rita, Geeta and Ashish (profit-sharing ratio 3:2:1), we prepare the Realisation Account, Partners' Capital Accounts and Cash Account.

Key treatment:

Cash (₹22,500) is not transferred to the Realisation Account — it opens the Cash Account.
General Reserve (₹20,000) is transferred directly to the partners' capital accounts in the ratio 3:2:1, not to Realisation.
Rita's commission = 5% on assets sold = 5% of (Debtors 30,000 + Stock 26,000 + Plant 42,750 + Investments 58,650 = ₹1,57,400) = ₹7,870.
Realisation expenses are borne personally by Rita, so they are not recorded in the firm's books.
Investments (book value ₹69,000) realised at 85% = ₹58,650.

Realisation Account

Particulars	Amount (₹)	Particulars	Amount (₹)
To Debtors A/c	52,300	By Creditors A/c	65,000
To Stock A/c	36,000	By Bills Payable A/c	26,000
To Investments A/c	69,000	By Bank A/c (assets realised):
To Plant A/c	91,200	Debtors	30,000
To Bank A/c (Creditors)	65,000	Stock	26,000
To Bank A/c (Bills Payable)	26,000	Plant	42,750
To Bank A/c (Outstanding Salary)	7,200	Investments	58,650
To Bank A/c (Contingent Liability)	9,800	By Loss transferred to:
To Rita's Capital A/c (Commission)	7,870	Rita (3/6)	57,985
		Geeta (2/6)	38,657
		Ashish (1/6)	19,328
Total	3,64,370	Total	3,64,370

Loss on Realisation = ₹1,15,970.

Partners' Capital Accounts

Particulars	Rita (₹)	Geeta (₹)	Ashish (₹)	Particulars	Rita (₹)	Geeta (₹)	Ashish (₹)
To Realisation (Loss)	57,985	38,657	19,328	By Balance b/d	80,000	50,000	30,000
To Bank (Final payment)	39,885	18,010	14,005	By General Reserve (3:2:1)	10,000	6,667	3,333
				By Realisation (Commission)	7,870	—	—

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Realisation Account closes with a Loss on Realisation of ₹1,15,970, shared by Rita : Geeta : Ashish = 3 : 2 : 1. Rita's realisation commission is ₹7,870 (she personally bears the ₹4,100 expenses, so they are not recorded in the firm's books). Final cash payments: Rita ₹39,885, Geeta ₹18,010, Ashish ₹14,005; the Cash Account totals ₹1,79,900.

Concept and treatment

Rita bears all realisation expenses in return for a commission, so the ₹4,100 expenses are not entered in the firm's books — Rita pays them privately. Only her commission is recorded (debited to Realisation, credited to Rita's capital).
Commission = 5% on assets realised (except cash) = 5% × ₹1,57,400 = ₹7,870.
Outstanding salary ₹7,200 and the contingent liability ₹9,800 were not on the books, so only their payment is debited to Realisation — they are pure losses (no transfer credit).
General Reserve ₹20,000 is credited directly to the capital accounts in 3:2:1.

Realisation Account

Particulars	Amount (₹)	Particulars	Amount (₹)
To Sundry Assets (transferred):		By Creditors	65,000
Debtors	52,300	By Bills Payable	26,000
Stock	36,000	By Cash A/c (assets realised):
Investments	69,000	Debtors 30,000; Stock 26,000;
Plant	91,200	Plant 42,750; Investments 58,650	1,57,400
To Cash A/c (Creditors paid)	65,000	By Loss on Realisation transferred:
To Cash A/c (Bills Payable paid)	26,000	Rita's Capital A/c (3/6)	57,985
To Cash A/c (Outstanding salary paid)	7,200	Geeta's Capital A/c (2/6)	38,656.67
To Cash A/c (Contingent liability paid)	9,800	Ashish's Capital A/c (1/6)	19,328.33
To Rita's Capital A/c (Commission)	7,870
Total	3,64,370	Total	3,64,370

Loss = Debit total (₹3,64,370) − Credits before loss (₹2,48,400) = ₹1,15,970.

Cross-check (loss build-up): loss on assets ₹91,100 (Debtors 22,300 + Stock 10,000 + Plant 48,450 + Investments 10,350) + unrecorded liabilities paid ₹17,000 + commission ₹7,870 = ₹1,15,970.

Partners' Capital Accounts

Particulars	Rita (₹)	Geeta (₹)	Ashish (₹)	Particulars	Rita (₹)	Geeta (₹)	Ashish (₹)
To Realisation A/c (Loss)	57,985	38,656.67	19,328.33	By Balance b/d	80,000	50,000	30,000
To Cash A/c (Final payment)	39,885	18,010	14,005	By General Reserve (3:2:1)	10,000	6,666.67	3,333.33
				By Realisation A/c (Commission)	7,870	—	—
Total	97,870	56,666.67	33,333.33	Total	97,870	56,666.67	33,333.33

Cash Account …

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Concept and treatment

Realisation Account

Partners' Capital Accounts

Cash Account …

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