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Illustrations · Illustration 1
Q.

Supriya and Monika are partners, who share profit in the ratio of 3:2. Following is the balance sheet as on March 31, 2020.

Balance Sheet of Supriya and Monika as on March 31, 2020

LiabilitiesAmount (₹)AssetsAmount (₹)
Supriya's Capital32,500Cash and Bank40,500
Monika's Capital11,500Stock7,500
Sundry Creditors48,000Sundry debtors 21,500
General Reserve13,500Less: Provision for doubtful debts 50021,000
Fixed Assets36,500
Total1,05,500Total1,05,500

The firm was dissolved on March 31, 2020. Close the books of the firm with the following information:

  1. Debtors realised at a discount of 5%,
  2. Stock realised at ₹7,000,
  3. Fixed assets realised at ₹42,000,
  4. Realisation expenses of ₹1,500,
  5. Creditors are paid in full. Record necessary journal entries at the time of dissolution of the firm.
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Transfer assets (₹65,500) and liabilities (₹48,500) to the Realisation Account, record ₹69,425 realised and ₹49,500 paid; the account closes with a ₹2,925 profit (3:2). After the General Reserve is distributed, Supriya is paid ₹42,355 and Monika ₹18,070.

Concept

Every dissolution runs through the Realisation Account: assets (except cash/bank and fictitious assets) go to its debit at book value, external liabilities to its credit. Cash actually received from selling assets is credited; cash actually paid to settle liabilities and expenses is debited. Reserves belong to the partners and go straight to their capital accounts, not through Realisation.

Working Note — Profit on Realisation

Debtors realised = ₹21,500 − 5% = ₹20,425; with Stock ₹7,000 and Fixed assets ₹42,000, total realised = ₹69,425.

Solution — Journal

DateParticularsL.F.Debit (₹)Credit (₹)
2020 Mar 31Realisation A/c  Dr.65,500
  To Stock A/c7,500
  To Sundry Debtors A/c21,500
  To Fixed Assets A/c36,500
(Assets transferred to Realisation Account)
Sundry Creditors A/c  Dr.48,000
Provision for Doubtful Debts A/c  Dr.500
  To Realisation A/c48,500
(Liabilities transferred to Realisation Account)
Bank A/c  Dr.69,425
  To Realisation A/c69,425
(Assets realised)
Realisation A/c  Dr.49,500
  To Bank A/c49,500
(Creditors ₹48,000 and realisation expenses ₹1,500 paid)
General Reserve A/c  Dr.13,500
  To Supriya's Capital A/c8,100
  To Monika's Capital A/c5,400
(Reserve distributed 3:2)
Realisation A/c  Dr.2,925
  To Supriya's Capital A/c1,755
  To Monika's Capital A/c1,170
(Profit on realisation transferred 3:2)
Supriya's Capital A/c  Dr.42,355
Monika's Capital A/c  Dr.18,070
  To Bank A/c60,425
(Final amounts paid to partners)

Realisation Account

| Particulars | Amount (₹) | Particulars | Amount (₹) | …

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