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Numerical Questions · Q8

Q.Record necessary journal entries to realise 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 realise 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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Journal entries are recorded to bring unrecorded assets and liabilities into the books at the time of realisation, debiting the Realisation Account with the realised value and crediting the respective partner’s capital account or the Realisation Account as per the transaction.

Concept and Accounting Treatment

When a firm is dissolved or when assets and liabilities are being realised, any asset or liability that was previously written off (i.e., not appearing in the current books) must be brought into the accounts. The Realisation Account is the central account used to record the sale or disposal of all assets and the settlement of all liabilities. The rule is:

  • Debit the Realisation Account with the amount realised from an unrecorded asset (because the asset is now being converted into cash or its value is being recognised).
  • Credit the Realisation Account with the amount paid to settle an unrecorded liability.

However, when a partner takes over an unrecorded asset (like goodwill or a typewriter), the partner’s capital account is debited (since they are taking the asset) and the Realisation Account is credited (since the firm is gaining that value). Similarly, if a partner takes over an asset at a discount, the entry reflects the agreed value.

For amounts recovered from previously written-off debts, the cash received is credited to the Realisation Account because it is a gain on realisation.

Let’s go through each transaction step by step.


Solution: Journal Entries

DateParticularsL.F.Debit (₹)Credit (₹)
(1)Bank A/c Dr.3,000
To Realisation A/c3,000
(Being old furniture, written off earlier, sold for ₹3,000)
(2)Bank A/c Dr.600
To Realisation A/c600
(Being 60% of ₹1,000 recovered from Ashish, whose account was written off as bad)
(3)Paras’s Capital A/c Dr.30,000
To Realisation A/c30,000
(Being goodwill not recorded in books taken over by Paras at valuation of ₹30,000)
(4)Priya’s Capital A/c Dr.300
To Realisation A/c300
(Being old typewriter taken over by Priya at estimated price less 25%: ₹400 – 25% of ₹400 = ₹300)
(5)Realisation A/c Dr.600
To Paras’s Capital A/c300
To Priya’s Capital A/c300
(Being 100 shares of Star Ltd valued at ₹6 each, total ₹600, divided equally between partners in their profit sharing ratio 1:1)

Working Notes

Working Note 1: Recovery from Ashish (Transaction 2)

Amount written off = ₹1,000

Recovery = 60% of ₹1,000 = ₹600

This is a gain on realisation, so credited to Realisation A/c.

Working Note 2: Goodwill taken over by Paras (Transaction 3)

Goodwill valuation = ₹30,000

Paras takes it over, so his capital is debited (he owes the firm this amount) and Realisation A/c is credited.

Working Note 3: Typewriter taken over by Priya (Transaction 4)

Estimated realisable value = ₹400

Discount allowed to Priya = 25% of ₹400 = ₹100

Amount charged to Priya = ₹400 – ₹100 = ₹300

Priya’s capital is debited, Realisation A/c credited.

Working Note 4: Shares of Star Limited (Transaction 5)

Number of shares = 100 …

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