Sanjay, Tarun and Vineet shared profit in the ratio of 3:2:1. On March 31, 2017 their balance sheet was as follows: **Balance Sheet of Sanjay, Tarun and Vineet as on March 31, 2017** | Liabilities | Amount (₹) | Assets | Amount (₹) | |---|---:|---|---:| | Capitals: | | Plant | 90,000 | | Sanjay | 1,00,000 | Debtors | 60,000 | | Tarun | 1,00,000 | Furniture | 32,000 | | Vineet | 70,000 | Stock | 60,000 | | Creditors | 80,000 | Investments | 70,000 | | Bills payable | 30,000 | Bills receivable | 36,000 | | | | Cash in hand | 32,000 | | **Total** | **3,80,000** | **Total** | **3,80,000** | On this date the firm was dissolved. Sanjay was appointed to realise the assets. Sanjay was to receive 6% commission on the sale of assets (except cash) and was to bear all expenses of realisation. Sanjay realised the assets as follows: Plant ₹72,000, Debtors ₹54,000, Furniture ₹18,000, Stock 90% of the book value, Investments ₹76,000 and Bills receivable ₹31,000. Expenses of realisation amounted to ₹4,500. Prepare Realisation Account, Capital Accounts and Cash Account.

Sanjay, Tarun and Vineet shared profit in the ratio of 3:2:1. On March 31, 2017 their balance sheet was as fol

Numerical Questions · Q17

Sanjay, Tarun and Vineet shared profit in the ratio of 3:2:1. On March 31, 2017 their balance sheet was as follows:

Balance Sheet of Sanjay, Tarun and Vineet as on March 31, 2017

Liabilities	Amount (₹)	Assets	Amount (₹)
Capitals:		Plant	90,000
Sanjay	1,00,000	Debtors	60,000
Tarun	1,00,000	Furniture	32,000
Vineet	70,000	Stock	60,000
Creditors	80,000	Investments	70,000
Bills payable	30,000	Bills receivable	36,000
		Cash in hand	32,000
Total	3,80,000	Total	3,80,000

On this date the firm was dissolved. Sanjay was appointed to realise the assets. Sanjay was to receive 6% commission on the sale of assets (except cash) and was to bear all expenses of realisation. Sanjay realised the assets as follows: Plant ₹72,000, Debtors ₹54,000, Furniture ₹18,000, Stock 90% of the book value, Investments ₹76,000 and Bills receivable ₹31,000. Expenses of realisation amounted to ₹4,500. Prepare Realisation Account, Capital Accounts and Cash Account.

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Concept understanding — Partnership Accounting

Partnership Accounting — Your First Look

Think of a partnership as a group of friends starting a food stall together. One brings the money, another brings the cooking skills, a third brings the location. They agree to share the profits — but not necessarily equally. They also agree that if the stall loses money, they'll share the loss too.

That's the everyday intuition. Now let's make it precise.

What is a Partnership?

According to the Indian Partnership Act, 1932, a partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. The NCERT Class-12 textbook defines it as a business owned and run by two or more persons (maximum 50, as per Companies Act, 2013) who contribute capital and share profits/losses in an agreed ratio.

The key features are:

Two or more persons — minimum 2, maximum 50
Agreement — written (partnership deed) or oral
Profit-sharing — the core purpose
Unlimited liability — each partner is personally liable for the firm's debts
Mutual agency — each partner can bind the firm and other partners

Why Does Partnership Accounting Matter?

A sole proprietor has one owner — simple. A company has many shareholders — complex but structured. A partnership sits in between. The accounting challenge is: how do we track each partner's claim on the business?

The business is separate from the partners for accounting purposes, but the partners are personally involved. We need to record:

What each partner brings in (capital)
What each partner takes out (drawings)
What each partner earns (interest, salary, commission, share of profit)
What happens when a partner joins or leaves

The Two Key Accounts

1. Capital Account

This records the permanent investment of each partner. There are two methods:

Fixed Capital Method — Capital remains constant unless partners decide to change it. All other transactions go to a separate Current Account.

Fluctuating Capital Method — Capital changes with every transaction (drawings, interest, salary, share of profit/loss). Only one account per partner.

NCERT recommends the Fixed Capital Method for clarity. Here's the format:

Partner's Capital Account (Fixed Capital Method) | Particulars | A (₹) | B (₹) | | Particulars | A (₹) | B (₹) | |---|---|---|---|---|---| | To Balance c/d | 50,000 | 30,000 | | By Balance b/d | 50,000 | 30,000 | | | | | | By Bank (additional capital) | — | — | | Total | 50,000 | 30,000 | | Total | 50,000 | 30,000 |

The opening balance is the capital brought in. The closing balance is the same unless additional capital is introduced or capital is withdrawn permanently.

2. Current Account

This records everything else — drawings, interest on capital, interest on drawings, salary, commission, and share of profit/loss.

Partner's Current Account (Fixed Capital Method) | Particulars | A (₹) | B (₹) | | Particulars | A (₹) | B (₹) | |---|---|---|---|---|---| | To Drawings | 5,000 | 4,000 | | By Balance b/d | 2,000 | 1,000 | | To Interest on Drawings | 250 | 200 | | By Interest on Capital | 3,000 | 1,800 | | To Balance c/d | 5,750 | 3,600 | | By Salary | 6,000 | — | | | | | | By Commission | — | 4,000 | | | | | | By Share of Profit | — | 1,000 | | Total | 11,000 | 7,800 | | Total | 11,000 | 7,800 |

The balance in the Current Account can be debit (overdrawn) or credit (undrawn profit).

The Profit and Loss Appropriation Account

This is the heart of partnership accounting. It shows how the net profit is distributed among partners — not how it is earned.

Important

The Profit and Loss Appropriation Account is an extension of the Profit and Loss Account. It starts with Net Profit (from the P&L Account) and then shows appropriations.

Format:

Profit and Loss Appropriation Account | Particulars | Amount (₹) | | Particulars | Amount (₹) | |---|---|---|---| | To Interest on Capital: | | | By Net Profit (transferred from P&L A/c) | 1,00,000 | | — A | 6,000 | | By Interest on Drawings: | | | — B | 4,000 | | — A | 500 | | To Partner's Salary: | | | — B | 300 | | — A | 12,000 | | | | | To Partner's Commission: | | | | | | — B | 8,000 | | | | | To Profit transferred to: | | | | | | — A's Current A/c (3/5) | 42,120 | | | | | — B's Current A/c (2/5) | 28,080 | | | | | Total | 1,00,800 | | Total | 1,00,800 |

Notice: The total on the debit side equals the total on the credit side. The net profit plus interest on drawings is the distributable profit. …

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On dissolution, all assets (except cash) and all outside liabilities are transferred to the Realisation Account at book value; the actual realisations and payments are then recorded, and the balancing figure is the profit or loss. The key point here is that Sanjay bears all realisation expenses personally in return for his commission, so the ₹4,500 expenses are not recorded in the firm's books — only his commission is. Commission = 6% on assets realised (except cash) = 6% of ₹3,05,000 = ₹18,300 (Plant ₹72,000 + Debtors ₹54,000 + Furniture ₹18,000 + Stock ₹54,000 + Investments ₹76,000 + Bills Receivable ₹31,000 = ₹3,05,000).

Realisation Account

Particulars	Amount (₹)	Particulars	Amount (₹)
To Plant	90,000	By Creditors	80,000
To Debtors	60,000	By Bills Payable	30,000
To Furniture	32,000	By Cash A/c (assets realised)	3,05,000
To Stock	60,000	By Loss transferred to Capital A/cs:
To Investments	70,000	Sanjay (3/6)	30,650
To Bills Receivable	36,000	Tarun (2/6)	20,433
To Cash A/c (Creditors paid)	80,000	Vineet (1/6)	10,217
To Cash A/c (Bills Payable paid)	30,000
To Sanjay's Capital A/c (Commission)	18,300
Total	4,76,300	Total	4,76,300

Loss = debit total ₹4,76,300 − credits before loss ₹4,15,000 (Creditors ₹80,000 + Bills Payable ₹30,000 + assets realised ₹3,05,000) = ₹61,300, shared 3 : 2 : 1.

Partners' Capital Accounts

Particulars	Sanjay (₹)	Tarun (₹)	Vineet (₹)	Particulars	Sanjay (₹)	Tarun (₹)	Vineet (₹)
To Realisation A/c (Loss)	30,650	20,433	10,217	By Balance b/d	1,00,000	1,00,000	70,000
To Cash A/c (Final payment)	87,650	79,567	59,783	By Realisation A/c (Commission)	18,300	—	—
Total	1,18,300	1,00,000	70,000	Total	1,18,300	1,00,000	70,000

Cash Account …

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Realisation Account closes with a Loss on Realisation of ₹61,300, shared by Sanjay : Tarun : Vineet = 3 : 2 : 1. Sanjay's commission is ₹18,300 (6% on assets realised, except cash) and he bears the ₹4,500 expenses personally, so they are not in the firm's books. Final payments: Sanjay ₹87,650, Tarun ₹79,567, Vineet ₹59,783; the Cash Account totals ₹3,37,000.

Concept and treatment

Sanjay bears all realisation expenses in return for commission, so the ₹4,500 expenses are not recorded in the firm's books (he pays them privately). Only his commission is recorded.
Commission = 6% on assets realised (except cash) = 6% × ₹3,05,000 = ₹18,300.
Assets realised: Plant 72,000 + Debtors 54,000 + Furniture 18,000 + Stock (90% of 60,000) 54,000 + Investments 76,000 + Bills Receivable 31,000 = ₹3,05,000.

Realisation Account

Particulars	Amount (₹)	Particulars	Amount (₹)
To Plant	90,000	By Creditors	80,000
To Debtors	60,000	By Bills Payable	30,000
To Furniture	32,000	By Cash A/c (assets realised):
To Stock	60,000	Plant 72,000; Debtors 54,000;
To Investments	70,000	Furniture 18,000; Stock 54,000;
To Bills Receivable	36,000	Investments 76,000; B/R 31,000	3,05,000
To Cash A/c (Creditors paid)	80,000	By Loss on Realisation transferred:
To Cash A/c (Bills Payable paid)	30,000	Sanjay's Capital A/c (3/6)	30,650
To Sanjay's Capital A/c (Commission)	18,300	Tarun's Capital A/c (2/6)	20,433
		Vineet's Capital A/c (1/6)	10,217
Total	4,76,300	Total	4,76,300

Loss = Debit total (₹4,76,300) − Credits before loss (₹4,15,000) = ₹61,300.

Cross-check: loss on assets ₹43,000 (Plant 18,000 + Debtors 6,000 + Furniture 14,000 + Stock 6,000 + Investments −6,000 gain + B/R 5,000) + commission ₹18,300 = ₹61,300.

Partners' Capital Accounts

Particulars	Sanjay (₹)	Tarun (₹)	Vineet (₹)	Particulars	Sanjay (₹)	Tarun (₹)	Vineet (₹)
To Realisation A/c (Loss)	30,650	20,433	10,217	By Balance b/d	1,00,000	1,00,000	70,000
To Cash A/c (Final payment)	87,650	79,567	59,783	By Realisation A/c (Commission)	18,300	—	—
Total	1,18,300	1,00,000	70,000	Total	1,18,300	1,00,000	70,000

Cash Account …

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Concept and treatment

Realisation Account

Partners' Capital Accounts

Cash Account …

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