A, B and C are sharing profits and loss equally. Their Balance Sheet as at 31st March, 2022 was as under:

Liabilities — Sundry Creditors 31,000; General Reserve 18,000; Profit and Loss Account 12,000; A's Wife loan 12,000; 12% Bank loan 20,000; Capital Accounts: A 60,000, B 50,0

Question

A, B and C are sharing profits and loss equally. Their Balance Sheet as at 31st March, 2022 was as under:

Liabilities — Sundry Creditors 31,000; General Reserve 18,000; Profit and Loss Account 12,000; A's Wife loan 12,000; 12% Bank loan 20,000; Capital Accounts: A 60,000, B 50,000, C 20,000; Current Accounts: A 10,000, B 5,000; Total 2,38,000.
Assets — Bank 6,300; Debtors 55,000; Stock 81,000; Furniture 20,000; Plant 53,700; Current Account: C 22,000; Total 2,38,000.

The firm was dissolved on 1st April, 2022:
(a) There was a bill for ₹ 5,000 under discount. This bill was received from 'R'. 'R' proved insolvent and 60% were received from his estate.
(b) It was found that an investment not recorded in the books is worth ₹ 8,000. This is taken over by one of the creditors at this value.
(c) A agreed to accept furniture in full settlement of his wife's loan.
(d) Bank loan was repaid along with interest for nine months.
(e) Assets realised as follows: Debtors ₹ 24,500; Stock ₹ 60,000; Plant ₹ 28,000.
Prepare Realisation Account.

Accepted Answer

>

> [!TLDR]
> Realisation loss = 81,000; each partner 27,000.
>
> Realisation Account (A, B, C — equal partners):
>
> Debit side:
> - To Debtors 55,000
> - To Stock 81,000
> - To Furniture 20,000
> - To Plant 53,700
> - To Bank — Creditors (31,000 - 8,000 investment taken over) 23,000
> - To Bank — 12% Bank Loan + 9 months interest (20,000 + 1,800) 21,800
> - To Bank — discounted bill honoured on R's insolvency 5,000
> - To A's Capital A/c — wife's loan settled (via furniture) 12,000
> Total Debit = 2,71,500
>
> Credit side:
> - By Sundry Creditors 31,000
> - By A's Wife's Loan 12,000
> - By 12% Bank Loan 20,000
> - By Bank — Debtors 24,500 + Stock 60,000 + Plant 28,000 = 1,12,500
> - By A's Capital A/c — Furniture taken over in settlement of wife's loan 12,000
> - By Bank — recovered from R's estate (60% of 5,000) 3,000
> Total Credit = 1,90,500
> …

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

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

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

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