At the time of dissolution total assets of the firm are of Rs. 8,00,000. Out of that 40% are current assets. Where cash is included of Rs. 40,000. 120% of fixed assets are realised. 80% are realised from current assets. Show necessary calculations and write journal entries. [Narr

Question

At the time of dissolution total assets of the firm are of Rs. 8,00,000. Out of that 40% are current assets. Where cash is included of Rs. 40,000. 120% of fixed assets are realised. 80% are realised from current assets. Show necessary calculations and write journal entries. [Narration not necessary]

OR

In which circumstances court can pass the order for dissolution of a firm? Explain.

Accepted Answer

>

> [!TLDR]
> Fixed assets Rs 4,80,000 realise Rs 5,76,000 (120%); non-cash current assets Rs 2,80,000 realise Rs 2,24,000 (80%); cash Rs 40,000 already in hand. OR — grounds for dissolution by the court are listed.
>
> **Calculations:**
>
> | Particulars | Working | Amount (Rs.) |
> |---|---|---|
> | Total assets | given | 8,00,000 |
> | Current assets | 40% of 8,00,000 | 3,20,000 |
> | Of which: Cash | given | 40,000 |
> | Non-cash current assets | 3,20,000 − 40,000 | 2,80,000 |
> | Fixed assets | 8,00,000 − 3,20,000 (60%) | 4,80,000 |
> | Fixed assets realised | 120% of 4,80,000 | 5,76,000 |
> | Non-cash current assets realised | 80% of 2,80,000 | 2,24,000 |
>
> **Journal Entries (narration not required):**
>
> | No. | Particulars | Dr (Rs.) | Cr (Rs.) |
> |---|---|---|---|
> | 1 | Bank A/c ..... Dr (fixed assets realised) | 5,76,000 | |
> | |    To Realisation A/c | | 5,76,000 |
> | 2 | Bank A/c ..... Dr (current assets realised) | 2,24,000 | |
> | |    To Realisation A/c | | 2,24,000 |
>
> Note: The cash of Rs 40,000 is already part of the firm's cash balance; it is not 'realised', so no Realisation entry is passed for it (it is simply carried in the Cash/Bank Account and used to settle liabilities/partners). Total cash brought in by realising assets = 5,76,000 + 2,24,000 = Rs 8,00,000, plus the Rs 40,000 cash already on hand.
>
> **OR — Circumstances in which the court can order dissolution of a firm (Section 44, Indian Partnership Act, 1932):**
>
> 1. Unsound mind — a partner has become of unsound mind (suit by other partners or next friend).
> 2. Permanent incapacity — a partner has become permanently incapable of performing his duties as a partner.
> 3. Misconduct — a partner is guilty of conduct likely to prejudicially affect the business. …

Transaction	Debit	Credit
Transfer of all assets (except cash/bank)	Realisation A/c	Respective Asset A/c
Transfer of all external liabilities	Respective Liability A/c	Realisation A/c
Sale of an asset	Bank A/c (cash received)	Realisation A/c
Payment of a liability	Realisation A/c	Bank A/c (cash paid)
Payment of dissolution expenses	Realisation A/c	Bank A/c
When a partner takes over an asset	Partner's Capital A/c	Realisation A/c
When a partner takes over a liability	Realisation A/c	Partner's Capital A/c
Profit on realisation (transferred)	Realisation A/c	Partners' Capital A/c (in PSR)
Loss on realisation (transferred)	Partners' Capital A/c (in PSR)	Realisation A/c

Dr.	Realisation Account		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Sundry Assets (all transferred)	xxx	By Sundry Liabilities (all transferred)	xxx
To Bank (liabilities paid)	xxx	By Bank (assets sold)	xxx
To Bank (dissolution expenses)	xxx	By Partner's Capital A/c (asset taken over)	xxx

Item	Amount	Side of Realisation A/c
Debtors (gross)	24,500	Debit
Bad debt reserve (provision)	2,500	Credit
…

Concept understanding — Realisation Account

The Realisation Account: Winding Up the Business Books

What the Realisation Account Actually Is

Why It Matters (The "Why")

Accounting Treatment: The Debit and Credit Rules

The Proforma (Format) of the Realisation Account

Particulars	Working	Amount (Rs.)
Total assets	given	8,00,000
Current assets	40% of 8,00,000	3,20,000
Of which: Cash	given	40,000
Non-cash current assets	3,20,000 − 40,000	2,80,000
Fixed assets	8,00,000 − 3,20,000 (60%)	4,80,000
Fixed assets realised	120% of 4,80,000	5,76,000
Non-cash current assets realised	80% of 2,80,000	2,24,000

No.	Particulars	Dr (Rs.)	Cr (Rs.)
1	Bank A/c ..... Dr (fixed assets realised)	5,76,000
	To Realisation A/c		5,76,000
2	Bank A/c ..... Dr (current assets realised)	2,24,000
	To Realisation A/c		2,24,000

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