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Q.Adiraj and Karan were partners in a firm sharing profits and losses in the ratio 3 : 2. On 31st March, 2018 the firm was dissolved. After the transfer of assets (other than cash in hand and at bank) and third party liabilities to the Realization Account, the following information was provided :

(i) Furniture of ₹ 70,000 was sold for ₹ 68,000 by auction and auctioneer's commission amounted to ₹ 2,000.
(ii) Adiraj's loan amounting to ₹ 35,000 was paid.
(iii) Out of the stock of ₹ 80,000, Karan took over 50% of the stock at a discount of 20% while the remaining stock was sold off at a profit of 30% on cost.
(iv) A bills receivable of ₹ 3,000 under discount was dishonoured as the acceptor had become insolvent and hence the bill had to be met by the firm.
(v) Profit and Loss Account showed a debit balance of ₹ 56,000.
(vi) Realization expenses amounted to ₹ 2,000 which were paid by Adiraj. Pass the necessary journal entries for the above transactions on the dissolution of the firm.
CBSECBSE Class XII Board 2019Subjective· 6mImportance★★★★★
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The question states that the assets (other than cash/bank) and third-party liabilities were ALREADY transferred to the Realization Account and then gives six specific transactions. Only the journal entries for those transactions are required - the transfer entries are not repeated, and because the full list of assets/liabilities is not given, the Realization Account cannot be closed, so no loss-on-realization entry is passed.

Concept

On dissolution, assets (except cash/bank) and outside liabilities are transferred to the Realization Account; it is credited with amounts realised and assets taken over by a partner, and debited with realization expenses and liabilities paid. Here those transfers are already done, so we record only the six transactions supplied.

Solution - Journal Entries in the books of Adiraj and Karan

DateParticularsDr (Rs)Cr (Rs)
2018 Mar 31Bank A/c Dr.68,000
To Realization A/c68,000
(Furniture sold by auction)
Mar 31Realization A/c Dr.2,000
To Bank A/c2,000
(Auctioneer's commission paid)
Mar 31Adiraj's Loan A/c Dr.35,000
To Bank A/c35,000
(Partner's loan paid off)
Mar 31Karan's Capital A/c Dr.32,000
To Realization A/c32,000
(50% of stock taken over by Karan at 20% discount)
Mar 31Bank A/c Dr.52,000
To Realization A/c52,000
(Remaining stock sold at 30% profit on cost)
Mar 31Realization A/c Dr.3,000
To Bank A/c3,000
(Discounted bill dishonoured, acceptor insolvent, met by firm)
Mar 31Adiraj's Capital A/c Dr.33,600
Karan's Capital A/c Dr.22,400
To Profit and Loss A/c56,000
(Debit balance of P&L A/c transferred in 3:2)
Mar 31Realization A/c Dr.2,000
To Adiraj's Capital A/c2,000
(Realization expenses paid by Adiraj)

Working Notes

WN 1 - Stock taken over by Karan: 50% of 80,000 = 40,000, less 20% discount = Rs 32,000.

WN 2 - Remaining stock sold: 40,000 + 30% profit = Rs 52,000. …

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